Third-party funding in international arbitration an essay about new developments

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Are you sure you want to Yes No. Be the first to like this. No Downloads. Views Total views. Actions Shares. Embeds 0 No embeds. No notes for slide. Even though the costs of justice in the jurisdictions of continental Europe is significantly lower, the concept of third-party funding is now spreading around and making its place even in jurisdictions like France, Italy or Germany. Where it comes to international arbitration, there exist a general consensus that arbitral proceedings can be very expensive.

Therefore, a legitimate need for funding from a third person may exist for claimants who do not have the necessary resources to pursue its claim. Although in principle third-party funding is not available only for claimants and respondents may also try to take the advantage of the system.

However, this would be rather a rare situation. In front of a lack of regulatory framework of third-party funding in many countries, including France, many questions were raised: What about the transparency of the system? What measures would be appropriate to avoid the risks associated with third-party funding? How do third-party funders evaluate which claims are fundable and which are not? Firstly, the purpose of this study will be to set out the issues raised by third-party funding in international arbitration and study the measures whose purpose is to fight against the set out issues I.

Secondarily, we will try to explain the mechanism behind this concept and identify advantages brought by third-party funding to international arbitration II. Practitioners have identified many legal, ethical and consubstantial issues raised with respect to third party funding that we are going to develop in this study A.

Then we will look closer to some measures either adopted or discussed by the practitioners in order to deal the identified issues B. Maniruzzaman M. Legal, ethical and consubstantial issues raised with respect to third-party funding As already mentioned, the practitioners of international arbitration are divided where it comes to the impacts of third-party funding have on international arbitration. For opponents of third-party funding, the presence of a third-party funder will undoubtedly influence the dynamics of the arbitral proceedings because of the substantial financial interests of the third- party funder in its outcome.


Thus, this new concept raises a number of legal issues concerning legal privilege, disclosure, conflicts of interests, attorney-client relationship, confidentiality and cost issues. However, in our opinion this argument is not entirely valid. Before seeking third-party funding, legal counsels should discuss any disclosure with their client to ensure that the client understands the risk of waiver and accepts it. Frischknecht A.

When is third party funding appropriate?

See e. Gulf Islands Leasing, Inc. Bombardier Capital, Inc. Another confidentiality issue would however be the question of what the third-party funder can do with provided information on later stages, in relation to other third persons, mainly in cases there is no funding offered to the party in the end of the due diligence process. Therefore, parties seeking the funding and their legal counsels should not wait with the execution of confidentiality agreements until a funding will be offered to them.

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Another issue that has been identified concerns the risk of a transfer of control over the arbitral proceedings and the procedural strategy from the claimant to the third-party funder. Third-party funding may alter the underlying spirit of the case by supplementing it with the economic goal set in the interest of the funding third-party.

Some professionals expressed their concerns that third-party funders have the possibility to abuse their position in negotiating the funding agreement with impecunious and therefore vulnerable parties. Some professionals fear the impact of third-party funding in this context - control of the third-party funder over the procedural strategy — that could be contrary to the public policy of the State. Scherer M. Since the world of arbitration is quite small, its networks raise a long list of potential conflicts of interest.

A sound example would be a situation where a person, that acts as an arbitrator in one proceeding with a third- party funder being involved, acts in another proceedings as a legal counsel of the party being funded by the same third-party funder. This situation would represent a conflict of interest of the person acting in two different proceedings in two different capacities.

Likewise, arbitrators may have former partners or family members that are executives of third-party funders. In fact, some third-party funders and law firms are even owned in part or fully by the same persons. Moreover, another possible issue of independence of an arbitrator could exist if a third-party funder has any influence on the choice of the arbitrator. In fact, the third-party funders tend to accept cases with leading international law firms as counsels and will suggest alternatives if they are not happy with the choice.

Due to the complexity of the arbitral proceedings, the amount of adverse costs can be significant and while there are no express international standards, arbitral tribunals often allow the successful party to recover reasonable costs from the opposing party.

Arbitral tribunals usually order security for costs in following circumstances i a party shows that it has a prima facie meritorious case; and ii 14 See e.

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As developed further in this study, third-party funding covers only the arbitral costs of the funded party. If the funded party wins the proceedings, the funder will satisfy himself from the awarded amount and if the funded party loses, the third- party funder will lose its investment in the case and its involvement in the case is over.

A priori, third-party funder does not have an obligation towards the other party. Therefore, the successful party will probably not be able to have recourse directly against the third-party funder in order to recover its arbitration costs. Some funding agreements even expressly state that the third-party funder will not be liable for the costs of the opposing party.

Lozano L. Adopted or discussed measures to manage the identified issues As studied in the previous part, there exist many concerns related to the presence of a third-party funder in international arbitration. The practitioners have either already adopted some measure to deal with the issues raised by third-party funding or are discussing them. The main already adopted measures are the security for costs orders and the revised International Bar Association IBA guidelines on conflicts of interest in international arbitration but both are still under discussion.

The main discussed measures are disclosure of third-party funding agreements and potential regulatory framework of third-party funding. An argument in favor of disclosure of funding agreements would be that it could help to disclose a potential existing financial relationship between a funder and an arbitrator or its law firm , which would prevent conflicts of interest. For some, the disclosure should be mandatory, mainly in case of international investment arbitration, though as already mentioned no rules exist so far on an international level that would impose mandatory disclosure.

Other professionals, mostly third-party funders themselves, have argued that if any, voluntary disclosure of third-party funding would be sufficient. For those, the disclosure might be needed in order not to breach the procedural good faith.

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Another question that has to be answered is whether there should be an obligation of disclosure of entire funding agreements or disclosure of a mere existence of a funding 22 Smith M. The possibility of a detailed disclosure has not been very much appreciated by third-party funders who plead the confidentiality of funding agreements.

TPF 5: Competing interests in Third Party Funding arrangements

Saint Lucia ICSID tribunal decision was to point out that such solution will not actually compensate the risk of a state not collecting its arbitration costs. Standard Fruit Company , F. Government of Turkmenistan et al.

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Global Private Equity Iii-c L. Helge Berg, et al. United States District Court, S. Peter M. Kingdom of Thailand , Docket No.

(DOC) Third party funding in international arbitration | Serhat Celen -

Remote Solution Co. Sylvain Ledee, et al. Ceramiche Ragno, et al. Lark International Ltd. Marine Towing, Inc. George A. France, French Decree No. Karrer, Twelfth Chapter: International Arbitration.

Unted Kingdom, Arbitration Act BG Group, F. Mass claims and consolidation Abaclat et al v. Hoffmann ed. Bravin and A. Minnesota Journal of International Law, Vol. Most users should sign in with their email address. If you originally registered with a username please use that to sign in. To purchase short term access, please sign in to your Oxford Academic account above. Don't already have an Oxford Academic account? Oxford University Press is a department of the University of Oxford.