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The art of funding mediation

Third-party funding (“TPF”) has gained traction in Scotland in recent years. The value of non-recourse financing is slowly being recognised and appreciated, especially its role in alleviating the financial burden on parties. Although external funding is more common across litigation and arbitration, less has been said on the funding of mediation. This is not because TPF plays a limited role in the mediation process, but rather due to that much mediation occurs prior to, or alongside litigation and arbitration.

When conducting mediation, parties constantly weigh up the likely outcomes, and that inevitably includes the financial cost of participating. Although the expense of a mediation can be less that what litigation would entail, these costs can also be prohibitive. If pro bono assistance or civil legal aid is not available, then TPF is another option. It is widely accepted by its providers that it will not be available for all cases but should simply be viewed as another tool in the toolbox to provide many additional benefits rather than pure finance.

It is usual for TPF’s to carry out its own sophisticated due diligence and will only agree to provide funding if it is of the opinion that it has been presented with a meritous case, reasonable prospects of settlement and has good prospects of recovery. That in itself can be helpful for the claimant, as it provides additional comfort that another fresh set of eyes has scrutinised the case. It can also change the dynamics and send a strong message on the merits to the opposing party - which may result in faster settlement.

A TPF will likely approach settlement discussions much less emotionally, but their interests should be perfectly aligned. They can act as a useful check and balance for the funded party. With a funder present, the mediator needs to carefully balance the parties’ discussions on personal exchange of views and financial settlement.

Reputable funders (such as Restitution) will not seek to control the case or settlement discussions and should leave ultimate control with the claimant and their legal team. A funder should of course have a voice, but not necessarily veto rights and ultimately will have the option whether or not the extend its funding.

Assuming settlement is reached, the funded party will have to ‘share’ its winnings with the TPF, but should it fail, typically the funding provided is not repayable.

Third party funding is well suited to mediation; indeed, the prospect of a dispute being settled via mediation is hugely appealing to TPFs - as generally speaking risk escalates over time. As in all legal processes, TPF can bring great value to mediation by assisting financially, legally and psychologically.

This article appeared in Young Mediators

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