Third-Party Funding in international investment arbitration – en route to mandatory disclosure


Over the last couple of years, Third-Party Funding (TPF) has become more and more common within international investment arbitration.

According to a report published by the International Council for Commercial Arbitration (ICCA) in 2015, 60 % or more of all ICSID cases enquired about TPF before their cases were lodged.

Third-Party Funding can be described as an arrangement where an outside entity – otherwise unconnected to a given legal dispute – agrees to provide funds or other material support to finance part or all of the cost of the proceedings. This support is either provided in exchange for remuneration that is dependent on the outcome of the dispute or provided through a grant or in return for a premium payment.

A call for disclosure to identify and prevent conflicts of interest among arbitrators?

Although TPF evolved over the years into an attractive arbitration tool for investors to finance the costs of investment arbitration proceedings, it remains highly controversial. In particular, the role of TPF in various procedural decisions is a topic of debate within the arbitration community.

One of the key issues is whether the presence of TPF should be disclosed in (investment) arbitration proceedings. Those who are against it mainly argue that disclosure would provoke the counterparty to launch tactical measures, thus placing the funded party at a disadvantage.

A majority of scholars, however, considers mandatory disclosure necessary to identify and prevent conflicts of interest that might affect the involved arbitrators. A 2015 survey showed, perhaps unsurprisingly, that 76 % of respondents supported mandatory disclosure of TPF, and in a report published in April 2018, the ICCA-Queen Mary Task Force proposed “systematic disclosure” of the presence and identity of a third-party funder involved in an arbitration proceeding.

The first regulatory calls for mandatory disclosure

On the regulatory front, the revised 2014 IBA Guidelines on Conflicts of Interests in International Arbitration were the first rules to require TPF to be disclosed for the purposes of identifying arbitrator conflicts of interest. While these guidelines only represent "soft-law" and are not binding, they can be viewed as the first sign of a regulatory trend towards mandatory disclosure of TPF in international arbitration.

Early provisions for mandatory disclosure of the presence and identify of Third-Party Funders were included in the 2016 drafts of two EU free trade agreements. Article 8.26 of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) signed in October 2016 (but not yet ratified by all EU member states) states that “the disputing party benefiting from [TPF] shall disclose to the other disputing party and to the Tribunal the name and address of the third party funder”.

A similar provision exists in the original 2016 EU-Vietnam Free Trade Agreement, and the revised 2018 EU-Vietnam Investment Protection Agreement also provides for a disclosure requirement.

Disclosure provisions in investment arbitration rules

In 2017, disclosure provisions for TPF began to appear in investment arbitration rules. Two arbitral institutions in Asia lead the way by introducing a new set of procedural rules specifically designed for investment arbitration.

On 1 January 2017, the Singapore International Arbitration Centre (SIAC) published its new SIAC Investment Arbitration Rules (SIAC IA Rules), giving arbitrators the power to “order the disclosure of the existence of a Party’s thirdparty funding arrangement and/or the identity of the thirdparty funder and, where appropriate, details of the thirdparty funder’s interest in the outcome of the proceedings, and/or whether or not the thirdparty funder has committed to undertake adverse costs liability“. These rules, however, refrain from “automatic disclosure” and, instead, leave it to the discretion of arbitral tribunals to request funding-related information from the parties.

The new investment arbitration rules of the China International Economic and Trade Arbitration Commission (CIETAC IA Rules), effective as of 1 October 2017, require a TPF-supported party to “notify in writing, without delay, to the other party or parties, the arbitral tribunal, and the IDSC or the CIETAC Hong Kong Arbitration Center that administers the case, of the existence and nature of the third party funding arrangement, and the name and address of the third party funder”.

Hence, the CIETAC IA Rules provide for proactive disclosure of TPF by the funded party without having an arbitral tribunal to explicitly order disclosure of the presence of a third-party funder. Proactive disclosure is limited, however, to the third-party funder's identity and the “nature” of the funding arrangement. According to the CIETAC IA Rules, an arbitral tribunal can obtain further information about the funding agreement by ordering the funded party to disclose details.

Will ICSID require mandatory disclosure in the future?

The disclosure provisions in the SIAC and CIETAC IA Rules indicate that mandatory TPF disclosure is about to become standard practice in international investment arbitration.

However, TPF regulation in the SIAC and CIETAC IA Rules alone will hardly have a large enough impact to make disclosure of TPF common practice. The above rules have only recently been established and – it appears – have not yet been applied. Mandatory TPF disclosure is more likely to prevail when implemented in arbitration rules of major arbitral institutions that are regularly applied in investment arbitration proceedings.

One step in this direction might come very soon.

On 3 August 2018, the International Centre for Settlement of Investment Disputes (ICSID) published a set of proposed changes to modernise its rules for resolving investment disputes between foreign investors and states. The proposed amendments of the ICSID Arbitration Rules include – in Rule 21 of the consolidated draft – an obligation for each party in ICSID arbitration proceedings to “file a written notice disclosing that it has third-party funding and the name of the third-party funder”. Similar to the CIETAC IA Rules, the future ICSID Arbitration Rules would require proactive disclosure by the parties which is limited to the presence and identity of an involved third-party funder and does not require disclosure of a funding agreement (or parts of it). (See the full wording of the proposed provision here)

With the amendment process still ongoing, it remains to be seen whether this proposed disclosure provision will find its way into the ICSID Arbitration Rules. But whatever ICSID decides could be the tipping point. As ICSID offers the most applied rules in investment arbitration, the presence of a disclosure provision in its set of rules would pave the way for a consistent and comprehensive TPF disclosure regime in international investment arbitration.

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Sources: “Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration”, p. 50.