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Third party arbitration funding here to stay, says expert, as major report published

ANALYSIS: Dispute resolution bodies must develop an understanding of the issues raised by third party funding as the role it plays in international arbitration continues to grow.21 Sep 2017

Third party funders are now working with parties and their lawyers across a broad spread of claims in many dispute forums around the world and, for many, funding and litigation risk transfer is and will be their preference.

Use of third party funding for international arbitration is growing, particularly in major centres such as Hong Kong and Singapore where prohibitions against its use have been either relaxed or eliminated. Against this backdrop, it is perhaps serendipitous that the joint task force of the International Council for Commercial Arbitration (ICCA) and the School of International Arbitration at Queen Mary University of London (the Joint Task Force) has now published, in draft form, its long-awaited report on the issue.

Accepting that third party funding is here to stay in international arbitration, the Joint Task Force has attempted to produce a 'toolkit', or set of principles, for arbitrators, parties and lawyers to use in such proceedings. The idea is to promote "consistency and more informed decision-making in addressing issues relating to third party funding", according to the report. This includes in relation to:

  • disclosure and conflicts of interest, requiring disclosure of the existence and identity of third party funders to facilitate analysis of potential conflicts;
  • privilege, recommending that tribunals do not treat privilege as being waived by virtue of information being shared with third party funders;
  • costs and security for costs, concluding that the existence of funding is not generally relevant to such determinations.

Intended to provoke discussion – particularly in areas of disagreement – the Joint Task Force's report also includes some alternative versions of the principles.

Third part funding of litigation generally, and in the international arbitration sphere in particular, is a fast-moving field; and there is a danger that any rigid set of principles articulated in this area will quickly become outdated and obsolete. The Joint Task Force acknowledges this, stating in its report that it "does not aim to be either definitive or permanent".

The issues identified by the Joint Task Force in its report have long been the subject of consideration and discussion, particularly in respect of International Centre for Settlement of Investment Disputes (ICSID) tribunal disputes, and are well known to those closely involved with third party funding. Rules governing third party funding in litigation may be embedded in jurisdictional rules but this has not been the case in international arbitration. This leaves a range of issues to be addressed, particularly in relation to disclosure and privilege, conflicts of interest, security for costs and liability for costs.

This is a complex area with many competing interests and possible answers. The solution adopted in Hong Kong and Singapore, for example, is slightly different from that proposed by the Joint Task Force. We continue to discuss the various alternatives with clients and with other interested parties.

What we can say for sure is that the pace of change here is fast, and to be truly worthwhile any set of principles must be future proofed as far as possible. Whether that will be the case with the Joint Task Force's proposals remains to be seen.

The Joint Task Force is seeking feedback on its draft report until 31 October 2017, and intends to launch its final report at the ICCA Congress in Sydney in April 2018.

Keith Levene is a legal costs expert at Pinsent Masons, the law firm behind Out-Law.com.