Abstract
Utility of third party funding is an undeniable fact, especially where a party is under financial strain, yet its increased usage in private arbitration has given rise to a number of substantive and procedural issues. In view of this, the present paper attempts to map the growing utility or otherwise of the mechanism of third party funding, and analyses its various nuances and legal sustainability within the framework of international arbitration. Further, an attempt is made to analyse the ways and means of ameliorating the utility of third party funding and for enhancing its acceptance in the global arbitration community.
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Notes
Litigation funding or financing has a long history in several jurisdictions. It can be utilised by both plaintiff and defendant. For gaining its historical evolution and perspectives.
Third Party Funders are sometimes addressed with several other alternative names, such as Litigation Funders, Third Party Financiers, Attorney Financer, Law Firm Financer, Arbitration Funders, etc. The import of all such terms remain much the same. (For the sake of clarity, in the present paper, third party funding is used in the context of ‘TPF in arbitration as well as litigation’. So wherever the term litigation funding is used, the implications are much the same for funding arrangement in arbitration.)
Also called portfolio funding, wherein funding companies provide finances to law firms/lawyers for conducting arbitration. Such an arrangement operates when there is a group of cases to be handled by the funding companies. The package funding inter alia includes a range of services including law suit’s related risk guarantee, financial losses, adverse decision in appeal etc. However, there is no “one size fit all” approach, and depending on the needs of the law firms/lawyers, customized package service may be offered by the funding companies.
Champerty—a subspecies of maintenance—is “an illegal proceeding in which a person (often a lawyer) not naturally concerned in a lawsuit engages to help the plaintiff or defendant to prosecute it, on condition that, if it is successful, that person will receive a share of the property in dispute.” Maintenance is the “action of wrongfully aiding and abetting litigation; the act of sustaining a suit or litigant by a party who has no interest in the proceedings or who acts from an improper motive”.
The bench asserted in positive manner about litigation financing, noting “a range of extrajudicial material which valued the significance of TPF in enabling access to justice.” It stated that it would not be problematic to work out what a fair return in litigation funding should be, not least as there is ‘now a brewing market in litigation financing’.
See the profile of an independent entity called Association of Litigation Funders (the ALE), which is charged by the Ministry of Justice with ensuring self-regulation of litigation funding in England and Wales. See, Association of litigation Funders, available at http://associationoflitigationfunders.com/about-us/ (last accessed 19-11-2017); See also, C. Lamm & E. Hellbeck, Third Party Funding in Investor-State Arbitration, in B. Cremades & A. Dimolitsa (eds.) Dossier X: Third Party Funding in International Arbitration (ICC Publishing, Paris, 2013) pp. 101–102.
Burford Capital is one of the leading global finance firms based in USA. It business activities, among other things, include litigation/arbitration finance, law firm lending, managing corporate risks, judgment enforcement etc.
The group who believes that “disclosure of third-party funding at the beginning of lawsuit is a just legal necessity’, consists of several influential entities viz., US Chamber Institute for Legal Reforms, American Tort Reform Association, American Insurance Association along with some other leading corporate counsels and bar practitioners.
The nationwide survey on impact of TPF was conducted by George Mason University School of Law, Virginia, USA. Survey result revealed that out of 357 federal and state judges nationwide, almost two-thirds stated they would prefer to know whether funding has been made in the case before them.
For comprehensive coverage of TPF in Australia, see generally, Regulation of Third Party Litigation Funding in Australia (Position Paper) Law Council of Australia (2011).
http://arbitrationblog.kluwerarbitration.com/2017/07/16/hong-kong-approves-third-party-funding-arbitration/ (last accessed 17-06-2019).
http://arbitrationblog.kluwerarbitration.com/2018/06/07/third-party-funding-arbitration-nigeria-yea-nay/ (last accessed 17-06-2019).
International commercial arbitration is a thriving industry, with thousands of cases being administered by several arbitral institutions around the world such as International Chamber of Commerce (ICC) Paris, London Court of International Arbitration (LCIA) London, and other globally known arbitration centres in places such as Singapore, Hong Kong, New York, Vienna, Dubai etc. A significant number of parties in international arbitration, notwithstanding their financial status, seek financial assistance from professional funders, and thus the demand for such funding visibly outstrips the supply. See, C. Lamm & E. Hellbeck, supra n. 6.
For comprehensive coverage of the developing trend of TPF in international commercial arbitration, see generally, M. Kantor, Costs and Third Party Funding in International Arbitration, Global Arbitration Review, Vol. 5(2) 2010; See also, S. Brekoulakis, The Impact of Third Party Funding on Allocation for Costs and Security for Costs Applications: The ICCA-Queen Mary Task Force Report, Kluwer Arbitration, Feb. 18, 2016, available at http://kluwerarbitrationblog.com/2016/02/18/the-impact-of-third-party-funding-on-allocation-for-costs-and-security-for-costs-ap-plications-the-icca-queen-mary-task-force-report/ (last accessed 25-11-2017).
By and large, the often observed rule stipulates that the arbitrator will not be able to oblige a request for disclosure of details about TPF in international arbitration if the funded party has not shared the existence of such TPF. Where the party has not disclosed the existence of TPF, as is often the case, the arbitrator will not be apprised of the presence of TPF and thus have no means of evaluating whether to make disclosures on this subject. See, decision of ICSID Tribunal in RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10; See also, Michelle Bradfield, Third Party Funding: Adding to the War Chest of Procedural Tools Available to Respondents? available at https://www.biicl.org/documents/1390_m_bradfield_dentons_thirdpartyfunders.pdf?showdocument=1 (last accessed 30-11-2017).
The potential or perceived conflict of interest situation can arise between the third party funder and the arbitrator or one of the arbitrators appointed by the parties to arbitrate the dispute. As for instance, where the arbitrator is a partner of a law firm with which the funder shares prior relationship. This fact can seriously damage the perceived propriety of arbitration process. Further, where the fact of funding has been kept secret for long (post beginning of arbitration process), disclosure of such a connection at later stage can cause acute difficulties. To avoid such a situation, it is appropriate for funder to have prior checks on the nature of rule of disclosure (if any) before agreeing to fund the costs of a party in arbitration. Arbitrators too have the solemn obligation to make full disclosure of any potential conflict of interest.
Some Guidelines (soft laws) on conflict of interest have gained wide acceptance in the global arbitration community such as those framed by arbitral institution of repute viz. International Bar Association, London. See generally, IBA Guidelines on Conflicts of Interest in International Arbitration, adopted by Resolution of IBA Council on Oct. 23, 2014, available at https://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx (last accessed 03-12-2017).
Id. General Standard 7a: Duty of the Parties and the Arbitrator.
International Centre for Settlement of Investment Disputes (ICSID), Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings, 1965 (revised in 2006) Rule 6(2).
Authors quoting: “As a large number of cases in arbitration are complex and protracted, the legal fees and costs incurred are huge, which becomes even more gigantic when costs of expert witnesses are added to the final sum”.
“Loser pays principle” is the other name for “costs following the event”, which has become a common norm in all the jurisdictions.
International Centre for Settlement of Investment Disputes (ICSID), Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings, 1965 (revised in 2006) Rule 61(2).
UN Doc. A/RES/31/98 (as revised in 2010). The UNCITRAL Arbitration Rules (used both for commercial and investment arbitration) under Rule 40 states that “the costs of arbitration shall, in principle, be borne the unsuccessful party”; Rule 38 (e) stipulates that “costs shall include the fees/expenses incurred by the arbitrator and such related costs incurred during the arbitral proceedings as reasonably determined by the tribunal”.
Funder may terminate the funding when it is reasonably ceases to be satisfied about the merits of the dispute; reasonably believes that the dispute is no longer commercially viable; or reasonably believes that there has been a material breach of the TPF Code by the Funded Party. See, for example, the voluntary Code of conduct for TPF as introduced in England and Wales in 2011 (as revised in 2016) which applied to arbitration funding as well, available at http://associationoflitigationfunders.com/wp-content/uploads/2014/02/Code-of-conduct-Nov2016-Final-PDF-1.pdf (last accessed 22-12-2017).
The relationship between them is privileged and is guided by professional rules governing lawyer-client relationship in the given legal jurisdiction.
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Qtiashat, K.S., Qtaishat, A.K. Third Party Funding in Arbitration: Questions and Justifications. Int J Semiot Law 34, 341–356 (2021). https://doi.org/10.1007/s11196-019-09635-2
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DOI: https://doi.org/10.1007/s11196-019-09635-2