International Arbitration Webinar, 5 April 2011
After the Event Insurance and Funding Solutions in
International Arbitration
Peter Morton, K&L Gates LLP
James Blick, The Judge Limited
Neil Purslow, Therium Capital Management Limited
Copyright © 2011 by K&L Gates LLP. All rights reserved.
International Arbitration Webinar
K & L Gates 5th April 2011
James Blick
What is “ATE Insurance”
• Insurance taken out “After the Event” giving rise to dispute
• Typical policy coverage
– Lawyers’ fees (subject to risk alignment) – Expenses, incl. expert fees, Tribunal Fees
– Opponent’s costs (where applicable) • “Skin in the game”
• ATE is not…
– Interim funding for legal costs – Enforcement risk cover
ATE Insurance Premiums
• Deferred until conclusion
• Contingent upon success / “self insured”
• Discounts for settlement
• Different structures • Cost increases with insurer’s financial risk • Geared to encourage settlement • Recoverability of the premium?
• Section 29, Access to Justice Act 1999
• (Notice of Funding)
• How much?... Considerations for insurers
• Prospects of success
• Estimates of potential value • Costs budget • Enforcement • Jurisdiction / Applicable law
• Appeal procedure / Risk of Annulment Points to consider
• Defining “success”
– Applicant v Respondent – Non‐monetary objectives – Mixed outcomes / “partial success”
• ‘Shop around’
– Maximise chances of securing terms
– Adverse selection – Competitive pricing Case Study BIT Arbitration under UNCITRAL rules
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Dutch company claiming against EU member state
Seat of Arbitration = London; Language = English
US Law firm (with London office) acting on contingency fee basis Contingency fee arrangement excludes expenses, i.e. Tribunal fees and damages experts (to be funded by Applicant)
ATE insurance covering expenses only
Policy limit of indemnity £1.5m Premium of £675k ‐ deferred and only payable in the event of “success”
“Success” = ‘recovery of monies after outcome of all appeals’
Outcome = loss
– Insurer indemnifies expenses up to policy limit of indemnity
– No premium payable
Case Study #2 LCIA Arbitration
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English supplier claiming £25m from German manufacturer
English Law firm acting on a private fee paying basis
ATE insurance covering expenses and opponent’s costs
Policy limit of indemnity for expenses £500k
Policy limit of indemnity for opponent’ costs £2m Premium of £1,125k ‐ deferred and only payable in the event of “success”
Premium discounted by 75%, 50% and 25% depending on stage of settlement
Outcome: ‐ Early settlement at £7m incl. costs
‐ Costs incurred = £550k; Stage 1 Premium = £281,250 (25% of total premium)
‐ Net recovery = £6,168,750
K&L GATES
INTERNATIONAL ARBITRATION WEBINAR.
Neil Purslow
Therium Capital Management Limited
April 2011
Therium Capital Management Limited
78 Duke Street London W1K 6JQ
neil.purslow@therium.com T 020 7491 0600
INTRODUCTION TO THIRD PARTY LITIGATION
FUNDING.
y Third party funder agrees to fund legal costs in
return for a percentage of the damages and/or a
multiple of the funding.
y Funding is not a loan; funder‘s investment is lost
if case is lost.
y Funding arrangement does not impact existing
banking arrangements (note: floating charges).
y Pays for all or a proportion of legal costs, or just
disbursements.
y Lawyers can be on fully paid basis or partial nowin no fee agreement.
y “After-the-Event” (ATE) insurance commonly
used to cover the other side’s costs in losing
cases; third party funding and ATE provided in
parallel.
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BENEFITS OF THIRD PARTY FUNDING
•
Frees up cash flow / budgets.
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Reduces risk on uncertain outcome.
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Additional set of eyes on claim and costs.
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Levels playing field against better-resourced
defendant (note it is a strategic decision whether
to disclose existence of funding).
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FUNDING ARRANGEMENTS.
y Strictly, contractual relationship between client and
funder direct, not with law firm.
y Nature of relationship is a partnership between funder
and client; funder’s interests are most closely aligned
with those of the client.
y On UK model, client retains control of the case and
decides when to settle within parameters of legal
advice.
y Funder and client agree budgets and project plan for
arbitration up front.
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WHAT DO FUNDERS REQUIRE?
Merits
y
Key pleadings / case summaries /
correspondence, any legal opinions, core
documents.
Quantum
y
Any views on quantum, expert reports.
Procedural history and way forward
y Any directions, history of offers.
Key issues and risks
y Annulment?
y Appeals?
y Procedural challenges?
Costs
y
Budget and project plan.
Recovery
y
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Ability of defendant to meet any award.
THE FUNDING PROCESS.
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ISSUES TO CONSIDER.
Economics of the case as a whole
y
y
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y
Global view on cost / benefit on the case as a whole
Effect of early settlement – funding released (and paid for) in tranches?
Adequacy of budgets for the ‘long haul’?
Ways of mitigating funding cost: – VAT? Use of conditional fees?
Choice of funder
y
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y
y
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Consequences of termination of the funding agreement
Professional funder v hedge fund
External or internal diligence? Other fees charged?
Capital adequacy – does the funder run an over-commitment strategy?
Is the funding risk transfer or a loan?
Contact information for any questions:
James Blick
The Judge Limited
Email:
James.Blick@theJudge.co.uk
Tel: 0845 257 60 58
Peter Morton
K&L Gates LLP
Email: peter.morton@klgates.com
Tel: 020 7360 8199
Neil Purslow
Therium Capital Management Limited
Email: neil.purslow@therium.com
Tel: 020 7941 0600