Ukraine: Alternative Techniques For Financing Arbitration Proceedings

Last Updated: 26 June 2017
Article by Olexander Droug and Alina Danyleiko

Most Read Contributor in Ukraine, November 2017

According to the traditional sce­nario, in order to protect violat­ed rights in arbitration proceed­ings, a party usually has to rely on its own financial resources. Since the total costs of international arbi­tration may be significant, before advanc­ing any claim to arbitration, a prospective claimant faces the dilemma of whether to initiate the arbitration proceedings at all in view of the potential financial burden.

This article considers the available techniques for the prospective claimants, who lack the ability to assume all risks and costs of the arbitration, to ensure financing of the arbitration proceedings.

What arbitration costs to expect

When it comes to arbitration-related expenses, the parties may expect to incur the administrative expenses of the hosting arbitration institution, the arbitrators' fees and expenses, and the party's costs, which mainly consist of legal fees and expenses. Notably, the party's costs may form up to 80% of the total cost spent in the arbitration proceedings.

The administrative fees of the host­ing arbitration institution and arbitration fee payable to the arbitrators can also run into hundreds of thousands of US dollars depending on the amount of the claim. For example, in case of arbitration proceedings under the ICC Rules of Arbitration with a typical three-arbitrator tribunal and with a claim of USD 10 million, average adminis­trative and arbitration fees will amount to almost USD 400,000. This sum does not take into account other possible significant ex­penses associated with engaging legal and other experts. Moreover, under the some of the arbitration rules the claimant may be required to solely pay all the administra­tive and arbitration fees. In total, the entire amount that needs to be spent by the claim­ant in the above example of an ICC arbitra­tion proceeding could exceed USD 1 million.

Further distribution of costs of arbitra­tion between the parties in the final arbitral award is not always fully predictable. In fact, the arbitral tribunal retains quite broad dis­cretion on how to apportion the incurred costs of the arbitration as between the par­ties. While doing such exercise, the arbitral tribunal will take into account a number of circumstances, such as the outcome of the case, each party's contribution to the effi­ciency and speed of the arbitration, as well as any other relevant circumstances.

Accordingly, a claimant always bears a risk of liability for the certain part or the entire amount of costs of the arbitration proceedings depending on the outcome of the case.

The above exposure to the significant financial obligations in the course of the arbitration proceedings and not fully pre­dictable decision of the arbitral tribunal on the distribution of costs in the final arbitral award may be a significant hurdle for a party when taking a decision on commencing ar­bitration.

Alternative financing techniques

The costs of initiating and participation in arbitration proceedings can be reduced in different ways. The traditional way in­volves various fee arrangements with the legal counsel representing the claimant, e.g. alternative billing schemes that may be implemented between a client and its legal team, including fixed fee, application of blended rates irrespective of the seniority of lawyers working on the case, or various success fee mechanisms.

However, as already noted, legal costs do not represent the whole cost of arbitra­tion. A prospective claimant would still need to directly cover administrative and arbitration costs, costs for engaging experts, etc. In view of this, prospective claimants may also consider alternative sources of financing, which generally imply financial involvement in the arbitration of a fiscally independent investor, known as a third par­ty funder.

In addition, it is possible to seek financ­ing for the arbitration proceedings through loan agreements or insurance mechanisms.

Third party funding

Third party funding is a financing mo-del, in which an independent funder financ­es all or part of the arbitration costs, and in return, receives an agreed percentage of proceeds from the award. In any event, the risk of an adverse outcome of the arbitra­tion is fully shared with the funder, thus the return of the funder is dependent on the success of the case. This type of financing is very developed in Western jurisdictions.

The functions of a third party funder can be performed by specialized institu­tional financiers, whose sole business rides on the funding of arbitration claims, as well as "one-off" investors. In order to appoint a third party funder, a prospective claim­ant may either choose a specific third party funder or engage a third party broker that would prepare offers as to the most suitable third party funders for each particular case. Claimants and their advisers must do care­ful due diligence on the funders they ap­proach in order to obtain funding.

The tactical benefits of third party fund­ing include the increased certainty about the cash flow required for the case. In addition, arbitration is more likely to be settled faster as the opposing party understands that the other party has means to pursue the claim.

One of disadvantages of third party fund­ing is that involvement of third party funders in arbitration may raise ethical issues such as level of independence of a legal counsel and choice of arbitrator, extent of intervention of third party funder in building the arbitration strategy and conduct of arbitration proceed­ings, etc. In addition, after disclosure of the third party funding arrangement in course of arbitration, there is a risk that the claim­ant will be asked to provide security for costs, leading to increased expenses.

The high premium rates payable for the services of third party funders are also dis­advantageous. A prospective claimant may have to pay a sum, which may be significant­ly higher than the amount, which the third party funder had initially invested.

At the same time, all the above disad­vantages lose their importance in light of the fact that a third party funder finances the whole proceeding and bears a risk of losing a case and, respectively, all money invested in the proceedings. The claimant simply risks nothing.

Preconditions for engaging a third party funder

The financing party assesses any arbitra­tion claim as a budgeting opportunity and once financially involved, it has a direct eco­nomic interest in the favourable to the claim­ant outcome of arbitration. This leads to another tactical benefit of financing arbitra­tion from alternative sources. Disclosure of financing of a claim by an independent inves­tor sends the message to the arbitral tribunal that the claim has a high chance of success.

On the other hand, the above means that only claims with high prospects of success may attract third party funders. Therefore, prior to the provision of any funds most outside financiers would carry out evalua­tion of a prospective claim, assessing various parameters such as financial capacity of the claimant to potentially finance a share of the costs itself, the ratio between the realistic amount to be recovered and the likely legal costs and disbursements, possibility to en­force the award and solvency of the respond­ent, as well as a legal team working on the case. It is no surprise that prospective out­side financiers will favour claims with strong arguments that can be quickly resolved.

In addition to the due diligence of the prospects of a claim, the third party funder will most likely insist on the due diligence of the respondent's solvency and available assets against which it might be possible to enforce the arbitral award. Such due dili­gence will usually involve an asset tracing exercise performed by a specialised firm.

Other alternative sources to finance arbitration

Among the alternative methods for fi­nancing the arbitration, third party funding discussed above appears to be the most suit­able tool for potential Ukrainian claimants. Moreover, there are already examples on the market of successful use of these mecha­nisms by Ukrainian parties.

At the same time, there are also other sources to finance arbitration, which al­though more typical for English courts pro­ceedings, may also be considered by Ukrain­ian parties on a case-by-case basis, includ­ing in combination with third party funding.


One of the ways to find funds for arbi­tration is by borrowing funds specifically for that purpose. Typically, this is documented in the form of a loan agreement secured by collateral provided by the claimant. The collateral may include a portion of the pro­ceeds from any favourable arbitral award.

One of the most evident advantages of this type of financing is that prospective claimant retains full control over the claim and arbitration strategy contrary to the third party financing.

This type of financing is not typical on the Ukrainian market and not familiar to Ukrainian banks. Therefore, this mechanism may only be accessible to those companies with appropriate experience in attracting foreign financing and dealing with foreign banks directly.

Alternatively, a company may obtain a loan to finance arbitration from its business partners on the terms agreed by the parties.

Insurance mechanisms

While it is possible to have "Before-the-Event" (BTE) Insurance in place as a safeguard against potential arbitration costs associated with future arbitration, this is a very rare arrangement which is mostly not known by Ukrainian parties.

At the same time, "After-The-Event" (ATE) insurance could be a very helpful technique of attracting outside finance after a dispute has arisen. The ATE insurance is a tool, mostly used by a claimant in already pending arbitration, to cover the opposing party's costs in the event of unsuccessful arbitration. The ATE insurance contract pre­scribes the premium paid to the ATE insurer by a party to arbitration. The premium may be determined as a percentage of the total sum of insurance provided or as a certain amount increasing as the arbitration pro­gresses. The premiums, which a claimant would have to pay to the ATE insurer, may be quite high but the payment of premiums is usually spread over the entire course of the proceedings.

The ATE insurance does not cover the liability under the claim itself and should typically be used in conjunction with other outside methods of financing, and may not serve as universal protection against ad­verse costs in arbitration. At the same time, with the assistance of a legal team, ATE in­surance may be carefully structured to serve as a reliable tool for freeing cash flow and payment for all or a proportion of legal costs in the adverse scenario of a case being lost.


While number of cases and the sums in disputes submitted to international arbi­tration are increasing with each year, par­ties are equally becoming increasingly con­cerned with the costs they incur in arbitra­tion. The alternative techniques outlined to finance arbitration proceedings may be useful for companies who have potential arbitration cases but limited funds to ac­cess international arbitration.

Originally published in The Ukrainian Journal of Business Law, June 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions