Feb 2

Third Party Funding in International Commercial Arbitration

TPF-ingilize-makale-için-300x270Third-party funding in international commercial arbitration is one of the most current and controversial issues in international arbitration. It can be defined as a system wherein a third-party funder partially or fully finances one of the parties’ arbitration costs. In case of a favourable award, the third-party funder is generally remunerated by a pre-agreed percentage of the amount awarded. In case of an unfavourable award, the funder’s investment is lost.

This practise is not totally new, as it took its origins before national courts. Indeed, fee arrangements with lawyers, loans by financial institutions and contracts with insurance companies to cover or limit the risks of a dispute have existed for a long time (Laurent Lévy and Régis Bonnan, ‘Third Party Funding: Disclosure, joinder and impact on arbitral proceedings’ (2013) ICC Dossier No. 752E 85) Moreover, its use in international arbitration is becoming more and more prevalent and is the subject of recent developments in the three leading jurisdictions- Australia, the UK and the USA.

Unofficial participation of a new player in arbitration proceedings, which is the third-party funder raises numerous issues. On the one hand, third party funding enables an economically weaker party to access to arbitration. On the other, it causes interrogations such as confidentiality and impartiality of the arbitration procedure, possible conflicts of interest, attorney-client privilege and the necessity of security for cost.

In order the address the negative issues caused by third party funding, regulation and the disclosure of third-party funding agreements has been discussed. While some scholars and practitioners such as Selvyn Seidel propose that the “investment in international arbitration claims should be facilitated through the development of a record of experience as well as rules, regulations and guidelines”, (Seidel S, ‘Third Party Investing in International Arbitration Claims- To invest or not to invest? A daunting question’ (2013) ICC Dossier No. 752E 16-31.), others argue that “arbitrators should be in a position to address and resolve these new issues and difficulties without changing current arbitral practice or amending the arbitration rules of the major arbitral institutions” (Laurent Lévy and Régis Bonnan, ‘Third Party Funding: Disclosure, joinder and impact on arbitral proceedings’ (2013) ICC Dossier No. 752E 85). Another way of avoiding possible conflicts of interest had been seen in the mandatory disclosure of third-party funding agreements, which has been commented by Dr Maxi C. Scherer as “difficult to establish and implement in practice” (Dr Maxi C Scherer, ‘Third-Party Funding in international arbitration: Towards mandatory disclosure of funding agreements?’ (2013) ICC Dossier No. 752E 97)

Prof Catherine A. Rogers provides clear evidence that third party funding will affect “all participants in international arbitration including the parties, the law firms, the arbitrators and the arbitral institutions”. (Catherine A Rogers, Ethics in International Arbitration (OUP 2014), ch 5 199) Thus, it seems apparent that, “the practice of third-party funding in international arbitration should be regulated for the benefit of all the participants of international arbitration and for the stability and longevity of international arbitration itself” (Mark Kantor, ‘Third-Party Funding in International Arbitration: An Essay About New Developments’ (2009) ICSID Rev 44).

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