Experience and innovation: dispute resolution funding in 2017

Until fairly recently, the knowledge and use of funding by most dispute resolution practitioners in the UK and across the globe, was limited. However, 2016 was a game-changer. It was the year that dispute resolution funding became a mainstay on the global dispute resolution landscape.

There is no doubt that 2017 is set to continue this trend.

2016 – A quick look back

2016 drew to a close with two major judgments in the UK in respect of dispute resolution funding:

Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144

In its judgment, the Court of Appeal upheld the decision of the High Court that the ad-hoc funder, who had funded the claim, was required to pay the defendants’ costs on an indemnity basis. The Court of Appeal was heavily critical of the behaviour and actions of the ad-hoc funder. However, in so doing, the court was clear that its criticism did not extend to all funders. It drew a bright line between ad-hoc, non-professional funders who don’t undertake proper due diligence or follow adequate procedures before investing in a claim, and the approach taken by professional funders like Vannin and the other members of the Association of Litigation Funders (ALF).  The judgment is a strong one which:

• makes it clear that third party funding is a necessary part of the legal landscape
• all parties to a funded claim must act with professionalism.

Essar Oilfields v Norscot [2016] EWHC 2361 (Comm)

In this judgment, the High Court upheld the decision of a sole arbitrator to allow the recovery of the costs of securing third party funding for the arbitration as a cost of the arbitration, requiring the defendant to pay not just the legal costs of the dispute, but also the funder’s uplift.  In so doing, the court accepted the submission that the terms of section 59(1)(c) of the Arbitration Act 1996 and the reference in it to ‘legal and other costs’ was wide enough to permit the recovery of third party funding costs. The factual background to this was that the defendant’s behaviour resulted in indemnity costs being awarded against it, and so was relatively fact-specific. However, the precedent has now been set. 

2017 – Looking forward

Global developments

We are only at the start of February, and already there have been a number of significant developments in the global dispute resolution funding landscape.

In Hong Kong, on 30 December 2016 (not quite 2017, but close enough to be included in this list), the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill which makes it possible to use third party funding in Hong Kong was officially published. It is unclear when it will be discussed before parliament. However, given the speed of the process to date, one suspects it won’t be too long and likely before the end of 2017.

On 10 January 2017, Singapore passed an amendment to its civil law, permitting dispute resolution funding in the jurisdiction for the first time for arbitration proceedings there.

Even more recently, on 16 January the Dubai International Financial Centre (DiFC) published a practice direction on third party funding in the DiFC courts.

These developments in three key dispute resolution centres across the globe reflects the increasing level of interest, awareness and use of third party funding for litigation and arbitration.

The UK

In the UK, in circumstances where funders can choose to opt-in to a self-regulatory regime as members of ALF, 2017 started with a statement from Justice Minister Lord Keen that ‘the government does not believe that the case has been made out for moving away from voluntary regulation’. Given the legislative developments noted above, some may interpret this as the UK being behind the curve compared to other jurisdictions in respect of the growth and development of dispute resolution funding.

This is certainly not the case. The UK led the way five years ago with the establishment of ALF, which requires its members to comply with strict reporting requirements and a code of conduct in respect of its funding of cases and relationship with funded parties.

The UK has been at the forefront of dispute resolution funding for a number of years. This doesn’t look set to change. Vannin has seen an exponential rise in approaches for funding in the last year from a range of claimants, law firms and barristers. This is set to continue in 2017 – especially for insolvency claims, portfolio funding (funding groups of claims), arbitration, and competition matters.

The growing experience and knowledge of practitioners about funding means that they are increasingly using funding as a strategic financial tool. With experience comes innovation. It is these innovative forms of funding increasingly being offered by professional funders which are likely to set the trend for 2017 and beyond.