Commercial disputes will always occur despite
the fact that parties invest an extensive amount of funds to make sure their
contracts are adequate and courteous. Even though litigation is a
well-established method of resolving disputes, arbitration has recently gained
popularity as a quicker and less costly option.[1]
Nevertheless, in the case of international commercial arbitration, some parties
face financial difficulties in ensuring access to justice since the expenses
are relatively high, therefore the dramatic rise of third-party funding (TPF)
was understandable.
The definition of TPF can shortly be described
as a third-party contributing funds to help cover the expenses of an
arbitration party (usually the claimant’s). While some have commended TPF for
improving access to justice, others have condemned the sector for issues that
should not be overlooked.
Firstly, since the funder will require some
control over its investment—especially concerning any settlement that is
proposed—there will unavoidably be a loss of autonomy.[2]
Although interests should coincide, if they start to differ in terms of
approach, this can cause tension in the partnership and even give rise to
conflicts of interest.
Secondly, funders stay typically unrelated to
legal disputes since they are focused on their returns on investment.[3]
As such, they may try to control or object to disclosure in order to protect
their business secrets and potentially their involvement in disputes. However,
there has been a tendency to necessitate the disclosure of the third-party
funder.
Finally, there
is a possibility that conflicts of interest may emerge if the funder finances
other cases in which the arbitrator has a stake because of the law firm where
the arbitrator practices. This is due to the fact that many arbitrators have
legal backgrounds, and it is understood that they would be reluctant to rule
against a party that has received funding from the same source that is
supporting claims made by their clients’ law firms because doing so may
jeopardize the funder’s capacity to continue finance other claims.[4]
The issue of conflicts of interest is among the factors that have made it
crucial that such arrangements are to be disclosed.
The thesis, therefore, provides answers to the
following research questions:
Principal legal questions
To what extent should third party funding
be disclosed in Arbitration?
Should third party funding be disclosed?
What if it is not disclosed, what are the
consequences.
What if it is found before arbitration or
during or after.
How are the international institutions and
the countries such as the UK, USA, France, and China dealing with these
drawbacks?
Preliminary
legal questions:
[1]
Richard Summerfield, ‘Third-party funding in international commercial
arbitration’ (2017) Financier Worldwide www.financierworldwide.com/third-party-funding-in-international-commercial-arbitration
accessed 15 February 2024.
[2] Dalal Alhouti, ‘Disclosing Third-Party Funding in International
Arbitration: Where Are We Now?’ (Charles Russell
Speechlys, 29 November 2022) www.charlesrussellspeechlys.com/en/insights/expert-insights/litigation–dispute-resolution/2022/disclosure-obligations-and-third-party-funding/
accessed 20 February 2024.
[3] Lisa Bench Nieuwveld and
Victoria Shannon Sahani, Third-Party Funding in International Arbitration
(2nd edn, Wolters Kluwer: 2017) 31.
[4] Alhouti (n 2).
To what degree does it impact the parties’
relationships and create potential conflicts of interest when a
third-party funder gains control over the settlement negotiations and
strategic decisions in proceedings?
What are the legal grounds for disclosing
third-party funders and is it necessary to do so to all types of funders?
What conflict of interest may arise in a
case where the funder finances other claims that the arbitrator has an
interest in and how this issue can be mitigated through disclosure?
What are the solutions to minimize the
inadequate effects of third-party funding (TPF)?
Methodology
The methodology is an essential aspect of the
research, as it plays a vital role in conducting the investigation. Therefore,
the thesis will apply both the doctrinal method and the comparative method of
analysis, to answer the research questions provided. The doctrinal method of
research includes sources of data such as the laws themselves, cases made in
accordance with the laws, and literature and commentary on the laws.
The primary sources of the study consist of national
laws, international legislation (international rules, treaties, and
conventions), and national and international court cases. Researching the
landmark cases of various countries and international tribunals, such as, the
United States of America (hereinafter “USA”), the United Kingdom (hereinafter “UK”)
and France forms part of the research on the primary sources. Books, articles,
and commentaries are included as secondary data. This research is comparatively
based, as it differentiates the national and international approaches in dealing
with third-party funding (TPF).
The thesis
will initially try to explicate the concept of TPF and seek to achieve a better
understanding of the potentials and drawbacks of it. Subsequently, this thesis
will argue about the disclosure being the prospective solution to minimize the
risks and broaden the growth of TPF. Therefore, this thesis will discuss the consequences
of disclosure before, after or during arbitration proceedings and will
determine the most favorable among them. Eventually, the thesis will focus on
the ways how the most preferred seats for international commercial arbitration,
namely London, Hong Kong, Singapore, Paris and Geneva employ disclosure to deal
with the risks of TPF.
