The London Court of International Arbitration (“LCIA”) have recently published their analysis of the average costs and duration of LCIA arbitrations. As litigation funding brokers, we are often questioned by fee earners on what drives the costs of third party litigation funding, and what factors determine the pricing of funding on a given case. The answer is that there are a number of factors which impact the price of third party funding – including the non-recourse nature of the funding and the relative merits and risks of a given case. However, the perceived time it will take for a case to conclude and the return on the funder’s investment is also paramount. In some instances, the perceived speed at which a decision can be reached may affect the decision of a claimant to choose one arbitration centre over another.
Assuming that a case has a strong enough merits, and a sufficient value to attract a third party funder, the longevity of that case will have a significant bearing on the cost of capital is the amount of time the funders capital will be at risk. Many funding structures incorporate staged costs or interest rates which increase the cost of the funding based purely on time rather than the stage the arbitration process has reached. Many new funders will also target the cases with short (but not too short) timescales in the hope it will allow them to build a track record to aid their next round of fund raising.
The LCIA analysis entitled Tools to Facilitate Smart and Informed Choices contains undoubtedly valuable data, not only for clients but also for their funders and ATE insurers who may be stakeholders in the process. Claimants, who may have available various centre options, may want to address potential funding issues in advance of embarking down a certain arbitration path, as it could well be that the choice of centre will have an impact not only on the pricing of any third party funding, but potentially even the availability of third party funding at all.
Published data such as this will hopefully mean that claimants and their lawyers as well as funders and insurers can be more collaborative in making informed decisions with regard to case management, budgeting and forum.
The data published by the LCIA, for example, shows that the median average for the duration of LCIA arbitrations is 16 months and that the median average cost is $99,000. It may surprise funders and ATE insurers that the median average time and costs involved with LCIA claims are quite that low, but this may because funders and insurers are more likely to see higher value claims which invariably will often take longer and cost more.
As the study itself explains, the cost of the arbitrator’s fees and institutional costs are only a small component of the overall cost of bringing an arbitration claim (approximately 20% as cited in the study). This shows exactly why the expediency of the arbitration process is so important in relation to costs, as the major costs –the firm’s fees—are largely driven by the time it takes an arbitration to conclude.
Regardless of whether the study’s findings can be readily applied to the sub-set of arbitrations that receive third party funding or not, institutions should be encouraged to publish data. Clients want predictability- yes, but funders who spread their capital across multiple arbitrations can also make excellent use of this kind of hard data to properly and competitively price their offering.
It seems as though the LCIA may have been motivated (at least in part) by how their data compares favourably to their competitors, so whether the other arbitration institutions will follow suit by sharing their data is yet to be seen.
If you have an arbitration matter that requires third party funding or ATE insurance in the LCIA or indeed any other institution then speak to our specialist team who will happily talk through the options.
Matthew Amey or Rebekah Weiler
Tel: +44 (0)845 257 6058