Third party litigation funder’s success

Posted: 10th October 2016

moneyLitigation is expensive and there is sometimes no option but for those involved to rely on third party funding that is available in the marketplace. In a test case concerning such an arrangement, the High Court ruled that a 300 per cent success fee charged by one such funder was recoverable in the context of a commercial arbitration.

An arbitrator had found company A liable to compensate company B in respect of a repudiatory breach of contract. The total award to company B came to about $12 million, including around $4 million in costs. The arbitrator was highly critical of company A in his decision, finding that its conduct had been reprehensible.

In order to contest the arbitration, company B had obtained third party funding from a company that specialised in such arrangements. £647,000 had been advanced and, following the successful outcome, the funder became entitled to a 300 per cent success fee of over £1.94 million. The arbitrator directed company A to pay that sum.

In rejecting company A’s challenge to that decision, the Court found that, on a true construction of Section 59(1)(c) of the Arbitration Act 1996, the arbitrator did have power to award the funder’s success fee. The arbitrator was entitled to take into account company A’s conduct, which had effectively forced company B into the litigation. Company B had had no choice but to purchase third party litigation funding and the arbitrator’s approach revealed no serious irregularity or error of law.