Founding partner of Estudio Linares Abogados
The health crisis increased the need for businessmen to resolve commercial conflicts arising from the impact generated by the loss of jobs and the breakdown of the payment chain. Although arbitration is an effective mechanism for solving such disputes in the country, entrepreneurs face barriers to activating it, such as low liquidity and the system’s own costs.
Given this, Third Party Funding stands as an accessible alternative. It is a figure where a third party, unrelated to the parties involved in an arbitration, assumes partially or totally the expenses caused by it, in exchange for a benefit that can be variable depending on a percentage applied of what is obtained of the process or setting a formula on the amount invested. In any case, it is up to the third party to assume the risk of the outcome of the process, whether negative or positive. The global arbitration investment market has grown 500% since 2012 and the investment exceeds US $ 10 billion, according to reports from the International Council for Commercial Arbitration and the Queen Mary University of London.
The growth of this market worldwide has generated special regulations in several countries. In the Peruvian Arbitration Law there are no references on how to proceed in this regard and I am not aware that any of the most representative Arbitration Centers in the country have protocols or regulations in their regulations, the decisions that may arise in the different scenarios that arise when one or more parts of a process have a TPF held.
And why is it important to establish clear rules? With practice, important issues have arisen, such as: i) the conflict of interest with respect to the arbitrators and their appointment by the funds or entities that invest in the arbitration, (ii) disclosure of the content of the TPF agreements, ( iii) incidence of the third party in the relationships between the client and his lawyer, (vi) confidentiality of the arbitration with respect to the third party, and whether the information can be disclosed for evaluation when the arbitration is already started.
Likewise, the presence of a third party outside the process may cause different questions, since having an investment portfolio based on arbitrations it is feasible that it has a short list of preferred arbitrators that it appoints on a recurring basis, or policies regarding their appointment. , or demand control of decisions in the process and even have the freedom to adopt agreements with the counterpart regardless of the opinion of their client. Although there are more benefits that the TPF have brought, it is important to address these issues among many others that may arise, in order to ensure that this practice continues to grow, considered, today, a new and important business tool for law firms. .