Thesis - M2DCI - Lucia Miklankova - Third Party Funding in International Arbitration

Université Paris Ouest Nanterre La Défense
Thesis
THIRD-PARTY FUNDING IN INTERNATIONAL ARBITRATION
Director: Mr. Régis Chemain, Maître de conférences (Hdr)
Author : Lucia Miklánková
Master 2 Droit international et européen, spécialité droit du commerce international (Master
in International and European Law, specialty in International Commercial Law)
Year 2014/2015

2
INTRODUCTION
In 1787, during his fight against traditional common law doctrine of Maintenance and
Champerty, Jeremy Bentham1
said that: “No man of ripe years, and of sound mind, ought, out
of loving kindness to him, to be hindered from making such bargain, in the way of obtaining
money, as, acting with his eyes open, he deems conducive to his interest.”2
The idea of third-party funding a dispute resolution emerged in Anglo-American
jurisdictions where the costs of judicial system are much higher comparing to the jurisdictions
in continental Europe and therefore for some claimants the access to justice may be more
complicated. 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.3
The exact definition of third-party funding remains ambiguous, but third-party funding
could be defined as “any financial solution offered to a party regarding the funding of
proceedings in a given case” 4
where (i) the funder is a third-party to the arbitration; (ii) the
funder is a professional; and (iii) the funder is paid by a percentage of a favorable award or a
cost multiple.5
As it was indicated, the main reason for the rise of third-party funding were the costs
of state judicial systems. 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.6
Third-party funding is available to the parties to a dispute at
1
Jeremy Bentham (1748-1832) was a British jurist and philosopher regarded as the founder of modern
utilitarianism (information available at: https://www.ucl.ac.uk/Bentham-Project/who, last seen on 28.9.2015).
2
See Hemming D. and Wood J., Third-Party Funding Of Litigation: A Perspective On The International
Landscape, October 2014.
3
Maniruzzaman M., Third-Party Funding in International Arbitration – A Menace or Panacea?, Kluwer
Arbitration Blog, 2012.
4
Scherer M., “Expert view, third-party funding in arbitration: out in the open?”, Commercial Dispute
Resolution, 2012.
5
Resolution, 2012.
6
In case respondents are successful in arbitration, they will recover usually from claimants their arbitral costs
only and therefore there is not a possibility for third-party funders to gain satisfactory return on their
investment.

3
any stage of the dispute resolution – before starting the arbitration (with the possibility of
settlement of the dispute once the opposing party is aware of involvement of a third-party
funder), during the arbitral proceedings and even afterwards, where it comes to the
enforcement of a rendered award.7
Practitioners of international arbitration are however divided where it comes to the
impacts of third-party funding on the entire system of international arbitration. 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? Is there any risk of
speculation from third-party funders´ part? 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).
I. THE FIGHT AGAINST THE CRITICISM OF THIRD-PARTY FUNDING
Since it appeared in international arbitration, third-party funding has been facing many
criticism. 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).
7
See e.g. Maniruzzaman M., Third-Party Funding in International Arbitration – A Menace or Panacea?,
Kluwer Arbitration Blog, 2012.

4
A. 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.
Where it comes to the relationship between attorney and his or her client, legal
privilege and confidentiality of information provided to the party´s legal counsel, according to
some practitioners, the articulation of all those elements with a due diligence process required
for third-party funding raises an important issue (further information about the due diligence
process is developed in more details later in this study).8
In fact, before entering into a
funding agreement, a third-party funder will conduct the due diligence process. In order to
execute this process, the third-party funder will have to be provided information that is subject
to duties of confidentiality owed by party´s legal counsel to his client. However, in our
opinion this argument is not entirely valid. A client´s right for confidentiality of information
provided to its legal counsel can be waived by the client itself.9
A legal counsel should not
share confidential information about the client and its claim against the client´s will, but the
client can agree on sharing information with a third-party. 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.10
Therefore when a third-party funder asks for
documents or information about the claim, those will not be provided to it without the party´s
8
See e.g. Frischknecht A.; Schmidt V.; "Privilege and Confidentiality in Third Party Funder Due Diligence:
The Positions in the United States and Switzerland and the Resulting Expectations Gap in International
Arbitration", TDM 4 (2011), p. 24
9
Even though in case of litigation in certain jurisdiction, like in the United States, disclosure to a third-party
does not have to result in a waiver under certain limited circumstances known as the “common interest
doctrine”, this doctrine does not apply to the relationship between a party and a third-party funder financing a
party’s litigation costs, where they share a common commercial interest, rather than a common legal interest.
See e.g. Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 471 (S.D.N.Y. 2003)
10
See e.g. Frischknecht A.; Schmidt V.; "Privilege and Confidentiality in Third Party Funder Due Diligence:
The Positions in the United States and Switzerland and the Resulting Expectations Gap in International
Arbitration", TDM 4 (2011), p. 27

5
consent. 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.
This is something the party´s legal counsel should think of before providing any information
to the third-party funder. 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.
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. There is a risk that a case may be
unduly influenced by the third-party funder’s economic power in the drafting of the terms of
the funding agreement or during settlement negotiations. 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.11
This undue influence
of third-party funders may be even more serious issue in international investment arbitration
where the party seeking the third-party funding is a State. 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.12
Furthermore, a disclosure of involvement of a third-party funder in international
arbitration is another grey area without regulatory framework, since there is no absolute
obligation to disclose a third-party funding agreement. At first, it is often argued that the
disclosure is necessary in order to avoid one of the most important issues related to third-party
funding - possible conflicts of interest and arbitrators’ impartiality and independence – and
secondly, in order for an arbitral tribunal to properly assess whether the funded party should
be subject to an order for security for costs.13
In fact, the vast majority of professionals of international arbitration agree that in
certain circumstances, the involvement of a third-party funder in arbitration proceedings may
11
12
13
See e.g. Scherer M., “Expert view, third-party funding in arbitration: out in the open?”, Commercial Dispute
Resolution, 2012.

6
raise the issue of impartiality or independence of the arbitrator. 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.14
Similar situation
may exist when arbitrators are also lawyers at firms with which third-party funders closely
work. 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.15
All these issues
seriously question the ability of arbitrators to evaluate a case and determine the damages
impartially, due to the potential consequences for their professional future depending on the
outcome of the case.16
Further, as mentioned above, another issue raised by the presence of third-party
funding in international arbitration is the increased necessity of caution judicatum solvi
(security for costs) that becomes more common in international arbitration, although it is still
not accepted in majority of civil jurisdictions. In fact, the allocation of arbitral costs in
international arbitration is subject to the discretional power of the arbitral tribunal, unless
there are applicable statutes, arbitration rules or a parties’ agreement that would impose on the
tribunal the manner in which the costs should be allocated. 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
15
“If somebody says to us that they’re thinking of so-and-so and the other side has proposed so-and-so and asks
if we have experience of them, we’d certainly give our view”. (Third-party funder raises US$130 million in
flotation, Global Arbitration Review , 23 October 2009),
16

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the opposing party does not have sufficient financial resource to satisfy a future award on
costs.17
The topic has received attention in international arbitration community after a recent
International Center for Settlement of Investment Disputes (ICSID) tribunal decision18
rendered in RSM Production Corporation v. Saint Lucia in which the tribunal ordered the
claimant funded by a third-party funder to provide security for state´s costs in amount of
750.000 USD within 30 days. The decision was based on a proven history of the claimant´s
non-payment, the admitted lack of financial resources of the claimant and the fact that the
claimant was funded by a third-party funder.19
In fact, if a party to a dispute is able to proceed
with an arbitration only due to the fact that it has been funded by a third-party, it is very likely
that the party will not have sufficient financial resources to cover the adverse costs if the party
is unsuccessful in the proceedings. 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.20
Thus, the
ICSID decision has started a discussion in international arbitration community whether a
security for costs should be ordered in cases where claimants are able to pursue their claims
only thanks to the financial help of third-party funders. 21
17
Resolution, 2012.
18
RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on St. Lucia’s request
for security for costs, August 13, 2014.
19
See e.g. Lozano L., Third Party Funding Again Under the Spotlight, Kluwer Arbitration Blog, 2014.
20
Resolution, 2012.
21

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B. 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.
 Disclosure of third-party funding agreements
Where it comes to the issue of impartiality and independence of an arbitrator in
proceedings funded by a third-party funder, many professionals of the field have argued that
an existence of a funding agreement should be disclosed. 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. However, some practitioners argue that “if an arbitrator is unaware of
the existence of a third-party funder, then by definition it can have no impact on the
arbitrator’s decision”.22
Where it comes to the nature of the obligation of disclosure and its extent, a consensus
has not been yet reached in the international arbitration community. 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.
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., Chapter on Mechanics of Third-Party Funding Agreements: A Funder´s Perspective, in Third Party
Funding in International Arbitration, Kluwer Law International, 2012, p. 26

9
agreement is enough. The possibility of a detailed disclosure has not been very much
appreciated by third-party funders who plead the confidentiality of funding agreements.23
In
their opinion, “if for any reason the conflict of interests, transparency, adverse costs, or
security for costs is in issue, or a settlement is being discussed, only limited disclosure of
third-party funding is tolerable.”24
Despite the fact that no regulation has been adopted with respect to this issue, in
opinion of some professionals like Carlos González-Bueno and Laura Lonzano it seems that
some kind of obligation to disclose funding agreements has been slowly accepted in the
community.25
However, disclosure may be sometimes warranted or even required by law
when the funded claimant is a company listed on a public stock exchange and the funding
agreement represents a material transaction for the claimant.26
 Security for costs orders
Where it comes to the issue of security for costs, in the cases where respondents asked
arbitral tribunals to make orders to funded claimants to provide security for adverse costs,
some respondents argued that the fact that the claimants were only able to pursue their claims
thanks to the third-party funder´s financial support was equitable for the respondents to
require a security for their costs in case the funded claim would be dismissed.27
However, arbitral tribunals should not overlook the fact that the request for order to
provide security for costs could be used by respondents as a procedural strategy to expand the
arbitral proceedings in time and costs.
Where it comes to the third-party funders´ point of view, their reaction to the above-
mentioned RSM Production Corporation v. 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. Some third-party funders even argue that this approach is not coherent with
23
24
25
26
See e.g. Smith M., Chapter on Mechanics of Third-Party Funding Agreements: A Funder´s Perspective, in
Third Party Funding in International Arbitration, Kluwer Law International, 2012, p. 26.
27
Third Party Funding in International Arbitration, Kluwer Law International, 2012, pages 27 – 28.

10
the basic principle of international arbitration which is the consent to the arbitration. In fact, in
their opinion, the possibility of a third-party to fund either side´s legal costs is not
contemplated at the moment of consent to the arbitration in an arbitration agreement, “at
which point each side accepts the risks around the other party being able to pay the costs or
damages or provide security for costs, associated with any future arbitration under the
relevant contractual jurisdiction clause.”28
In addition, there is a risk that the RSM Production Corporation v. Saint Lucia
decision will become a persuasive authority, if not a precedent, in international arbitration and
that tribunals will grant the order to provide security for costs automatically, every time a
third-party funder will be involved in a case. This could theoretically lead to a situation in
which parties would avoid the disclosure of third-party funding agreements in order to avoid
the order for security for costs, which would re-open the issue of independence of arbitrators.
Therefore, there exists a need for a uniform and independent test that would set out
objective conditions in which an order of security for costs could be granted.29
The concept of third-party funding may have been new to international arbitration, but
it is well-established where it comes to litigation in front of domestic courts. Even though the
domestic case law relevant to third-party funding in litigation does not give a clear answer on
what measure to adopt in order to deal with and neutralize the issues relative to third-party
funding, it reveals the same conceptual issues that exist in international arbitration and
therefore some inspiration could be found in the courts´ decisions of some of the most
favorable arbitration seats. While in Singapore, the third-party funding agreement can be
declared unenforceable due to the influence of the historical common law torts of
maintenance and champerty (see The Law Society of Singapore v Kurubalan s/o Manickam
Rengaraju [2013] SGHC 135), the third-party funding has been partially accepted in
jurisdictions like France where the Versailles Court of Appeal refused to declare a funding
agreement in an international arbitration void since it found that it lacked jurisdiction (Société
Foris AG v SA Veolia Properte, CA Versailles, No 05/01038, 1 June 2006). Moreover, in
Switzerland, on the basis of the service of providing better access to justice, the Supreme
28
Funding in International Arbitration, Kluwer Law International, 2012, pages 27 – 28.
29

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Court stroked down a law that tried to prohibit third-party funding (Bundesgerichtsentscheid
131 I 223, 2P.4/2004, 10 December 2004). 30
This domestic case law shows “a continuum between those jurisdictions which
essentially see third party funding as illegitimate, and those which essentially see it as
legitimate.” 31
The first type of decisions, similar to the one from Singapore, is based on the
preoccupation that is typical for common law torts of maintenance and champerty - officious
intermeddling inherent. Those decisions are based on the understanding that there exists only
a ´true´ claimant who can bring its claim forward or not. These jurisdictions believe that third-
party funding should be closely scrutinized and permitted only in appropriate cases. 32
If it is
used in inappropriate way, the court or tribunal should order security for costs and the
proceedings should be stayed. In such cases however, orders of security for costs would not
be made directly against a third-party funder because the funder is not the true claimant.33
Moreover, in common law jurisdiction like England and Wales, where the third-party funding
has been permitted, the funders are still prevented by courts from influencing the conduct of
litigation and purchasing claims.34
The second type of jurisdictions is more market-oriented and understands that a
claimant can go to seek financial partners in order to pursue its claim. In such situations, “the
third-party funder is regarded almost as a shadow co-claimant” 35
and usually the funding
agreement is not being reviewed. However, an advantage of this approach is that the orders
for costs can be then made directly against the third-party funders involved.36
It seems to be tempting to adopt the market-oriented approach where it comes to third-
party funding in international arbitration. However, a problem with this solution is the basic
30
See e.g. Kalderimis D., Third party funding in international arbitration – lessons from litigation?, Kluwer
31
Kalderimis D., Third party funding in international arbitration – lessons from litigation?, Kluwer Arbitration
Blog, 2014
32
Surprisingly in 2014, in the case Justinian Capital v WestLB the New York County Supreme Court dismissed
the claim on the ground of champerty when it held that “it is not champerty to sue on behalf of debt that you
buy for yourself, but it is champerty to sue, on behalf of another and for a fee, for a debt that is not really
your own.” (See Hemming D. and Wood J., Third-Party Funding Of Litigation: A Perspective On The
International Landscape, Who´s who legal, October 2014).
33
Arbitration Blog, 2014
34
See e.g. Hemming D. and Wood J., Third-Party Funding Of Litigation: A Perspective On The International
Landscape, Who´s who legal, October 2014.
35
Kalderimis D., Third party funding in international arbitration – lessons from litigation?, Kluwer Arbitration
Blog, 2014
36

12
principal of international arbitration, which is its foundation in consent of the parties given in
an arbitration clause. This principle, which requires a claimant to be a party to the arbitration
clause, makes the arbitral tribunal without jurisdiction where it comes to the third-party
funder. This seems to make it impossible for tribunal to order costs orders directly against
third-party funders which, as mentioned, is the main advantage of this market-oriented
approach. For this reason, some argue that international arbitration will have to adopt the ´true
claimant´ approach. Nevertheless, the international arbitration is not necessarily influenced by
common law torts, especially the historical ones, and therefore can use the tools given by the
´true claimant´ approach in another, maybe more permissive way. Arbitral tribunals have to
make sure that third-party funding will not increase injustice and practical difficulties where it
comes to making costs orders. 37
Nevertheless, there exist theories applied in international arbitration that would allow a
possible extension of the arbitration clause on third-party funders (e.g., under the alter ego
theory, the theory of implied consent, etc.) or that allows the clause to be de facto assigned to
third-party funders if the clause is written in a certain broad way. Also for this reason, it
would be preferable to require disclosure of third-party funding agreement at the beginning of
any arbitral proceeding, which would allow the arbitral tribunal to properly decide whether
the extension of arbitration clause is possible and costs orders should be addressed directly to
the third-party funder.
However, as already mentioned in the beginning of the study, after the said RSM
Production Corporation v. Saint Lucia ICSID decision professionals started to fear that the
existence of a funding agreement would automatically lead to security for costs orders aimed
directly against third-party funders. Many professionals argue that this should not become
reality, particularly in cases where the party to a dispute that has been funded actually has
sufficient financial resources to entertain the claim and has decided to use third-party funding
for the reasons of better risk management or cash flow facilitating (further developed in the
last part of this study).38
Here again, in order for arbitral tribunals to properly distinguish the
two types of parties seeking third-party funding, disclosure of funding agreements and their
contractual terms seems unavoidable.
37
38
Resolution, 2012.

13
However, it seems complicated to establish a mandatory disclosure of involvement of
third-party funders and mostly to enforce this obligation in practice since there is no exact
definition of a third-party funding agreement in international arbitration, and thus the scope of
this obligation cannot be precisely determined. Some have defined third-party funding
broadly; only as “any financial solution offered to a party regarding the funding of
proceedings in a given case.”39
But under such definition, all possible types of financing (e.g.
lawyers´ success fees, certain insurance, or any ad hoc financing like “money borrowed from
a grandmother”40
) would be covered and therefore they would be subject to disclosure
obligation. Truth is that not only third-party funding stricto sensu but all these financing may
give rise to some of the issues developed at the first part of this study. Therefore a valid
question is why only third-party funding agreements stricto sensu should be subject to
obligation of disclosure.41
Such a broad definition of third-party funding does not however
seem to work in practice and for that reason, the definition given in the introduction of this
study seems to be more appropriate since it excludes all the above-mentioned types of
financing.
Another question that has to be answered is to whom disclose the third-party funding
agreement and in what extent it should occurs. Is disclosure of the simple existence of funding
agreement sufficient, or do the actual contractual terms of the agreement have to be disclosed
as well? Should the agreement be disclosed only to the arbitral tribunal or to all the parties to
the arbitral proceedings? The reasons for disclosure that are developed above seem to suggest
that simply the disclosure to an arbitral tribunal might be sufficient so far, since the arbitral
tribunal is the one who makes the decisions on the conflict of interest and security for costs.
Nevertheless, such solution could raise, “issues of procedural fairness or the right to be heard
from the other party, which did not have the opportunity to present its case on the questions
related to costs or conflicts of interest.” 42
Finally, from the point of view of third-party funders, funders would try to avoid cases
where they would have any material economic relationship with an arbitrator. However, they
would also try to avoid disclosure of funding agreements, “if they think it may lead to
39
Resolution, 2012.
40
Resolution, 2012.
41
Resolution, 2012.
42
Resolution, 2012.

14
distracting satellite litigation or ancillary applications to the tribunal.” And we can ask how
the implementation of the obligation of disclosure would function in practice? Who would
impose and enforce it? Many professionals have suggested that arbitral institutions include in
their arbitral rules provisions that would require parties to disclosure the existence of third-
party funding agreements if the arbitration is administrated under those rules. 43
 The International Bar Association (IBA) guidelines on conflicts of interest
in international arbitration
The appearance and proliferation of third-party funding has been slowly reflected even
in the revised IBA Guidelines on Conflicts of Interest in International Arbitration published in
2014. The guidelines are not mandatory for arbitrators but they have been generally consulted
as being “an expression of best practices in international arbitration,”44
when arbitrators
evaluate what information should be disclosed to the parties to a dispute and whether they
should or can accept an appointment. The revised guidelines kept their typical structure
dividing information into 4 categories:
 The Non-Waivable Red List: examples of situations in which persons should
not act as arbitrators at all,
 The Waivable Red List: examples of situations in which persons should act as
arbitrators only if they disclose information in question to the parties to a
dispute and the parties expressly agree with the appointment,
 The Orange List: examples of information that has to be disclosed to the
parties but persons can act as arbitrators unless the parties make an objection to
the appointment, and
 The Green List: examples of situation when disclosure of information is not
necessary.
Key changes to the IBA Guidelines concern advance declarations made by arbitrators,
arbitrators´ law firms, and third-party funders.
43
Third Party Funding in International Arbitration, Kluwer Law International, 2012, p. 26
44
Sessler A. C., The 2014 IBA Guideline on Conflicts of Interest in International Arbitration, Skadden, 2012.

15
Where it comes to third-party funding, the revised IBA Guidelines extend the list of
persons to be considered as equivalent of a party to an arbitration. The actual list contains now
managers, directors, persons that have a controlling interest in the party to the arbitration and
third-party funders and insurers who have a direct economic interest in the future award or a
duty to indemnify the party for the award [General Standard 6(b)].45
In addition, the parties’
disclosure obligation has been broadened and the parties should now disclose all direct and
indirect relationships they have with a person supposed to act as an arbitrator and a third-party
funder [General Standard 7(a)]. Now, the parties have to do so “at the earliest opportunity”46
possible, while before 2014 the obligation of disclosure applied to them before the beginning
of the arbitral proceedings or as soon as the relevant party became aware of the relationship.47
Where it comes to practical application of the General Standards, the revised
Guidelines now expressly includes among Non-waivable Red List of conflicts of interest
situations where the person that is supposed to act as arbitrator has a controlling interest in a
third-party funder involved in the case.48
Among waivable situations exists now also a
situation where an arbitrator´s close family member has a significant financial interest in the
future award. The definition of an arbitrator’s close family member has been widened and
includes now spouse, child, parents, sibling, arbitrator´s life partner and also “any other family
member with whom a close relationship exists”49
which could theoretically be also a person
having a financial interest in the dispute´s outcome via its relationship with a third-party
funder involved. The updated explanatory notes to the Orange List states that the situations
not included in the Orange List do not have to be disclosed in principle, they should be
nevertheless assessed casuistically and the Guidelines provide examples of situations that may
require disclosure under certain circumstances. Moreover, new situations like an enmity
between an arbitrator and third-party funder were included on the Orange List.50
45
See e.g. Moyeed K., A Guide to the IBA´s Revised Guidelines on Conflicts of Interest, Kluwer Arbitration
Blog, 2014.
46
The Revised IBA Guidelines on Conflicts of Interest in International Arbitration, p. 15, available at:
http://www.ibanet.org/Document/Default.aspx?DocumentUid=e2fe5e72-eb14-4bba-b10d-d33dafee8918
47
Blog, 2014.
48
Blog, 2014.
49
50
Blog, 2014.

16
In addition, the revised Guidelines in their General Standard 6(a) state that “the
arbitrator is in principle considered to bear the identity of his or her law firm.”51
The
Guidelines however add that the relevance of facts or circumstances that determine if there
exists or might exist a conflict of interest, the arbitrator´s relationship with the law firm and
the activities of an arbitrator´s law firm, should be still examined on a case-by-case basis.52
According to the explanatory note, with such wording the authors wanted to create a balance
between a party´s desire to appoint an arbitrator - a person who may be a partner in an
international law firm on one hand, and the confidence in the independence and impartiality
of arbitrators on the other hand.53
The new General Standard 3(b) on advance declarations by
arbitrators addresses the issue of increasing use by potential arbitrators of advance
declarations or waivers of potential future conflicts of interest. According to the revised
Guidelines, the validity and effectiveness of such declarations or waivers shall be casuistic
and depend on individual cases, specific wording of the text in question and the applicable
law. Moreover, such declarations or waivers shall not discharge arbitrators from their ongoing
duty of disclosure.54
 Regulatory framework of third-party funding
Where it comes to the possibility of legal regulation of third-party funding, many
questions arise as well. First of all, according to some, third-party funding should not be
regulated at all. However, this approach seems unrealistic. Another question could be asked
whether the regulation of third-party funding should happen via hard law or soft law. There
exist already a soft law in the field of litigation funding, which is the Code of Conduct for
Litigation Funders issued by the Association of Litigation Funders of England and Wales.55
51
52
See e.g. The Revised IBA Guidelines on Conflicts of Interest in International Arbitration, p. 13, available at:
53
Blog, 2014.
54
Blog, 2014.
55
The code prescribes standards for capital adequacy (currently minimum of £2 million of capital should be
accessible), the key issues which must be provided for in funding agreements (such as termination clauses),
prohibition of taking control over the conduct of litigation or settlement negotiation and prohibition of
causing the litigant’s legal counsels to breach their professional duties (Napier M. and coll., The Code of
Conduct for Litigation Funders).

17
But this document has been judged and considered by some as being not robust enough. In
addition, its scope of application is limited only to the litigation in front of national courts of
England and Wales and it does not apply at all in international arbitration.
A proposition of regulation, at least in the form of soft law, could come from the
International Chamber of Commerce, International Bar Association or another professional
body, or a hard law regulation could be partially provided directly from State legislators.56
Another possibility is that arbitral institutions administrating international arbitration
proceedings will adopt new rules dealing with the issues related to third-party funding. This
solution could be actually the most efficient one since by submitting their future disputes to
arbitration administrated under certain arbitral rules, parties would contractually obliged
themselves to comply with those rules, notwithstanding the seat of arbitration, nationality of
the parties or nationality of the third-party funder involved in a case. However, we might
wonder what could be an available and satisfactory sanction for a breach of the obligations
imposed by the rules. 57
Any possible future regulation should try to deal with following ethical concerns:
1. the prevention of abusive funding terms (e.g. 90% return on investment),
2. unreasonable influence of a third-party funder in procedural strategy,
3. involvement of a third-party funder in selection of arbitrators,
4. exploitation of confidentiality and privilege relative to relationship between legal
counsel and his client, and
5. possibility of funding a “frivolous” case just with the intention to “inflate the value of
funders´ portfolios”.58
At this stage of the discussion, all the questions raised above are far from being resolved.
The concept of third-party funding has both, advantages and disadvantages. In our opinion, in
order to really benefit from its advantages without being afraid of its negative impacts on the
international arbitration community, a hard law regulation specifically applicable to
56
Although the need for statutory regulation of third-party funding in international arbitration is not as urgent as
it is in domestic litigation where the third-party funding is not offered only to commercial counterparties that
do not need the regulatory protection so much, but it is also offered to pursue class actions (See Hemming D.
and Wood J., Third-Party Funding Of Litigation: A Perspective On The International Landscape, Who´s
who legal, October 2014).
57
Third Party Funding in International Arbitration, Kluwer Law International, 2012, p. 26
58

18
international arbitration should be adopted. So, how does third-party funding function and
what are the main advantages of third-party funding?
II. THE ADVANTAGEOUS CONCEPT OF THIRD-PARTY FUNDING
Who hides behind the denomination of the ‘third-party funder’? How does third-party
funding function in practice? What are the advantages brought by third-party funding?
Mostly, it is international firms or financiers, dedicated litigation finance firms such as
Calunius Capital (UK), DAS (UK), Juridica Investments (US) or Alter Litigation (FR) that
quickly become a part of international arbitration as well. Moreover, banks, hedge funds and
insurance companies are also interested in investing in international disputes. But how does
third-party funding function in practice (A) and what are the benefits brought by third-party
funding (B)?
A. The mechanism behind third-party funding
But third-party funders are not a charity bearing in mind only access to the justice.
“Arbitration finance is a specialty corporate finance focused on arbitration claim (i.e. the
award proceeds) as assets being used as collateral to obtain such finance”.59
Third-party
funders consider claims to be “corporate assets”60
and typically they arrange the financing of
these claims in return of an agreed percentage of the proceeds recovered in a successful case,
a multiple of the financed costs, or a combination of those factors.61
Usually, the percentage
of the amount recovered from a claim that funders charge is between 15% - 50%62
of the
awarded amount, with the percentage depending on the case assessment made by third-party
funders. The ICC Institute of World Business Law organized on 26 November 2012 a 32nd
annual meeting on the issue of ´Third-Party Funding in International Arbitration´ during
which many professionals in the field debated about the future of this concept. Some of the
59
60
http://www.alterlitigation.com/#our-value-proposition
61
Resolution, 2012.
62
See e.g. https://www.international-arbitration-attorney.com/third-party-funders-international-arbitration/

19
third-party funders present at the meeting expressed their opinion that third-party funding may
develop over time into “complex financial engineering (e.g. credit default swaps) involving
other related financial products”.63
The conceptual mechanism of third-party funding in
international arbitration is the same as it is in litigation and for better illustration of the
process there exists a scheme which is available64
for litigation third-party funding:
 The process of evaluation of a claim
The process of evaluation of a claim is a complicated process with many factors to be
taken into consideration. The return on investment required by third-party funders usually
reflects the size of the claim (its value, complexity and duration of the case), the level of the
costs that needs to be funded, the risk taken by the third-party funder (the likelihood of
success of the claim),65
the jurisdiction in which the arbitration takes place (seat of
arbitration), the arbitral institution administrating the arbitration and the ease of enforcement
of the future arbitral award.66
According to third-party funder Calunius, the variables that
determine the value of a claim are usually the following:
1. Jurisdiction – for what reasons may the arbitral tribunal refuse to declare its
jurisdiction?
63
64
Available at: https://www.international-arbitration-attorney.com/third-party-funders-international-arbitration/
65
See e.g. http://www.alterlitigation.com/#our-value-proposition
66

20
2. Merits – can the facts of the case support the claim? What are the weaknesses and
strengths of the supporting evidence and of the legal arguments?67
Does the case
involve open points of law?
3. Quantum – how much of the loss flows from the respondent´s behavior? Is there a
record to support a lost profits claim of the claimant or is it proven that claimant´s
assets were confiscated by the respondent? 68
What damages can be achieved at trial or
on settlement?69
4. Recovery – what credit standing has the respondent? What us the size of the claim
relative to the size of the respondent? Is the respondent a sovereign State? Do they
have a presence in the OECD? 70
In other words, “is the defendant good for the
money?” 71
5. Duration – how long will it take to decide the case and get an award? Is there a scope
for an appeal, annulment or revision hearing?
6. Cost – what is the expected cost of the arbitral proceedings, including any ancillary
expenses or legal costs? 72
7. Variability – what is the probability that each of these above-mentioned factors can
change? 73
Quantitative Assessment of a claim´s value means assessment of quantum, duration
and costs. It is more or less straightforward, even though some deviations from the expected
outcomes are possible during the arbitration proceedings. Assessing recovery depends on the
nature of the respondent. A probability of the future ability to pay can be easily extracted out
of the credit ratings of sovereign States and large corporates. However, this exercise just deals
with the risk of capacity of the respondent to pay and not with their wiliness to pay – being a
subjective decision. Third-party funders usually divide respondents into two categories –
respondents that are worth pursuing because they have either a history of paying or they can
be forced to pay via enforcement of an arbitral award or respondents that are not worth
67
See e.g. http://www.calunius.com/litigation-funding/case-assessment.aspx
68
Third Party Funding in International Arbitration, Kluwer Law International, 2012, page 29.
69
70
71
http://www.calunius.com/litigation-funding/case-assessment.aspx
72
73

21
pursuing. With the first category of respondents, the risk that they will not be willing to pay
equals almost to zero and then the only risk that still has to be assessed is the “can´t pay”74
risk. The main variable in assessing the value of a claim is strength of the legal arguments on
jurisdiction of the arbitral tribunal, liability of the respondent and the theory of damages.75
Qualitative Assessment of a claim´s value consists of analyzing variables like the background
story, the potential composition of an arbitral tribunal, the claimant´s probable credibility as a
witness, and the exposure to significant disclosure of unseen documents.76
Every one of the
above-mentioned risk is assessed and priced by third-party funders individually, according to
their needs and merits.77
In the end, only claims that hold up on both quantitative and
qualitative bases are funded.78
In third-party funding, same as in private equity or project financing, third-party
funders are investors and they seek “returns on investment of three”79
. This means that a
third-party funders hope to get return on investment of value equivalent to at least three times
the investment they made.80
According to Calunius, the value of the claim should be at least 6
times the overall costs of the proceedings81
and for this third-party funder, the current
minimum claim value for obtaining a funding should be at least £7.5 million.82
For instance, if
a claim has a value of 20 million €, the anticipated arbitration costs that would need to be fund
would be 1 million € and a third-party funder would seek to recover at least 3 million € in
return, which represents a 15% stake in the awarded amount.83
However, this estimation is
based on expectations only and the damages recovered may be lower than expected damages
or, if there is no recovery at the end of a case, a third-party funder´s entire investment is lost
and there is no debt to pay back. In other words, third-party funding is “non-recourse money
used to finance a project”84
. This is the reason why the cost of the funder´s investment in case
74
Funding in International Arbitration, Kluwer Law International, 2012, page 30.
75
76
77
See e.g. http://www.calunius.com/litigation-funding/our-value-proposition.aspx
78
79
https://www.international-arbitration-attorney.com/third-party-funders-international-arbitration/
80
81
82
See e.g. http://www.calunius.com/faqs.aspx
83
84

22
of third-party funding of dispute resolution is higher than bank interest rates where it comes to
bank loans which are full recourse investment. Third-party funding in international arbitration
is in fact an equity investment in a project, which is a claim.85
In the end, as with every
project financing, if everything goes well for third-party funders, the total net return on a
portfolio of cases over a six-year period of time would not be in reality the three times return
on successful investment since costs of the unsuccessful claims and the running costs still
have to be deducted. This represents 100% profit that “would in turn equate roughly to an
investment return of 15% to 20% over five to six years”.86
Where it comes to investment arbitration, there is an increased value of natural
resources to which relates the majority of investments. Often, “governments which sold
access to their rights at knock-down prices now realise the value of what they´re sitting on.
And where original agreements can´t be revised, as foreign firms are loath to do,
expropriation often follows.” 87
Most vulnerable are single-asset companies, which entered
into concession-type agreements as specific-purpose-vehicles (SPV). If their only asset is
expropriated, the companies do not have sufficient cash to go to arbitration and this is a
suitable situation to get involved third-party funders. However, the risks related to treaty
claims and to the sovereign enforcement are not different from the risks related to any other
claim third-party funders decide to finance. It does not depend solely on the merits of the
claim, as explained above, but also on the likelihood of enforcement of any future award. As
explained by Christopher Bogar, the CEO of the largest third-party funders – Burford – “the
challenge raised by treaty claims is a pricing challenge” and the ultimate question third-party
funders ask and then price is: “Are we going to get paid? When are we going to get paid?
How much is it going to cost to get paid?”88
Even though, according to Maddi Azpiroz from
ClaimTrading, the vast majority of awards rendered in treaty based investment arbitration led
to a settlement that was judged agreeable and there was no “need for forcible execution
action”, she admitted that the sovereign immunity is a risk that can complicate the procedure.
If states do not want to cooperate and do not comply with an award, there is little recourse
possible for the award creditor.89
For this reason, before investing into a treaty claim, third-
85
86
87
Machin E., The great treaty funding debate, Commercial Dispute Resolution, 2012.
88
89
although there was penalty issued by the US against Argentina for failing to comply ICSID awards rendered
in favor of US companies which consisted in suspending trade benefits for Argentina under the U.S.

23
party funders have to be confident that they will be able to enforce an award if needed to and
that they will be able to get states to pay.90
According to Mick Smith, a co-founder of
Calunius, the questions asked by third-party funders would be the following: “how attachable
are they? What’s their footprint in the New York Convention world? Argentina is not a
country we’ve been rushing to arbitrate against.” 91
On top of that, third-party funding of treaty claims has to face a new challenge – time.
In fact, an increasing number of awards rendered in treaty based investment arbitration is
being challenged and subject to the annulment procedure allowed under the Washington
Convention from 196592
. Ultimately, this fact will also have to be priced somehow in funding
agreements. And it´s going to be priced higher than a two years long domestic court case. 93
 The process of due diligence of a case
As could be already understood, third-party funding is not available for all claimants
wanting to pursue their claims. As explained in more details further in this study, according to
some third-party funders only 10 to 20 % of claimants that seek funding will receive it. 94
In
most of the time, third-party funders will not fund cases of value lower than 20 million USD95
or cases against respondents with no assets. Therefore, before funding a case, every third-
party funder and their insurers proceed with a detailed due diligence procedure. However, the
purpose of this due diligence procedure is not to identify claims without any risks, but to
confirm that the claim in question carries “the right balance of expected return versus
expected risk”96
, assessed on the said quantitative and qualitative bases.
Generalized System of Preferences (GSP) program, which waives import duties on goods from developing
countries.
90
See e.g. Machin E., The great treaty funding debate, Commercial Dispute Resolution, 2012.
91
92
See e.g. More than two-thirds of all annulment proceedings in the history of ICSID has been registered since
2008 (See e.g. Machin E., The great treaty funding debate, Commercial Dispute Resolution, 2012).
93
See e.g. Machin E., The great treaty funding debate, Commercial Dispute Resolution, 2012
94
See e.g. Shannon V, The Impact of Third-Party Funders on the Parties They Decline to Finance, Kluwer
95
For claims of value lower than 20 million USD there exists a possibility of crowdfunding. Crowdfunding is a
new possibility how to fund claims available on platforms like Invest4Justice where litigants can place their
claim in return for a contingent fee (4% of the amount of the litigation funding that is raised).
96

24
As mention in first part of this study, the third-party funders will require from the
party seeking the funding and their lawyers all the key documents supporting the case.
Consequently, on the basis of this documentation they will then prepare an investment
memorandum which will determine whether they will fund the claim or not. According to
third-party funder Calunius, the documents third-party funders would usually ask for depends
on the stage of preparation in which the claim is at the moment when the funder is approached
by the party. The documents required are the following:
- key documents relied on in the case (e.g.: contracts, correspondence etc.),
- prepared witness statements,
- legal opinions of the claimant´s lawyers and documents proving the ownership of
key assets,
- any filed Court documents,
- a written legally coherent justification of the quantum sought in the claim, and
- a written estimate of the costs to be incurred in pursuing the claim.97
What cases are likely to receive third-party funding? Cases which depend largely on
document discovery are considered by third-party funders to be the less attractive ones. Then
there are cases based on commercial matters like a breach of contract whose determination
will be mainly be based on the wording of the contract and witness testimony98
. At the end of
the scale, there are investor-state expropriation cases and/or commercial matters flowing from
fraud or cartel pricing which are the most attractive ones and for which there may even exist a
presumption that a discovery can only add additional value to the case.99
The investment memorandum prepared by third-party funders may go beyond simple
features of the claim and may cover also aspects like the claimant´s background; analysis of
an arbitrator´s previous decisions, prospects of recovery, the potential reward and financial
risks associated with the investment into the claim. The investment memorandum would be
usually prepared after the prima facie analysis of the claim and after the financial terms of the
funding agreement have been already set out. The purpose of the investment memorandum is
therefore to verify the initial assessment of merits and quantum.100
97
98
the objective of witness testimony is to determine the intention of the parties.
99
100
Third Party Funding in International Arbitration, Kluwer Law International, 2012, page 36

25
If the due diligence identifies some legal issues on jurisdiction or liability of the
respondent, it is common that a third-party funder would require some further advice from its
own legal counsel in order to supplement the first analysis.101
Since the cost of consultation of
external legal counsel is bared by third-party funders, they usually try to reduce the number of
such consultations to the necessary minimum only where there exists critical issues like local
law analysis. However, where the case does not concern any new issue, third-party funders
will probably not outsource any further legal advice.102
In addition to all above-mentioned, the third-party funders will proceed as well with
standard background checks of the claimant itself (now even required by some laws).103
The length of the period required for a due diligence process differs and it depends
mostly on the case´s development. Due diligence may be relatively quickly assessed where
there are already available memorandums on merits, witness statements and if documents are
disclosed (in such a case, the due diligence can be done even in three weeks). In addition, if
the claimant seeks funding at this stage, the claimant lawyers would have already committed
to some risk regarding time investment based on an initial view that the case is worth
pursuing.104
“An early stage investment treaty case with limited preparation, however, will
most likely take longer and involve more risk.”105
Where it comes to the role of claimant´s lawyers in the whole procedure of due
diligence, they would not be expected to provide their opinion on the claim, but rather to
respond to third-party funders questions and provide them with case materials. In fact, the
claimant´s lawyers do not assume any fiduciary or advisory role towards the third-party
funder.106
101
102
Third Party Funding in International Arbitration, Kluwer Law International, 2012, pages 35 – 36.
103
104
105
106

26
 Third-party funding agreements
Since all funding requires a rigorous due diligence of the claim, it may take up to one
year to finalize a funding agreement. Moreover, up to this date not many harmonized terms of
funding agreements have been produced by any professional body or an international
organization. In addition, many litigation lawyers are not familiar with the various structures
that such funding agreements may have. Funding agreements are financial contracts that have
to deal with issues like the priority of payment of returns and security interests of the awarded
amount.107
The terms of funding agreements will generally set out how parties should conduct
themselves. As any other commercial contract, third-party funding agreements will contain a
termination clause which determines the circumstances and conditions in which the third-
party funder will be allowed to terminate the agreement and exit the case (an example of such
circumstances could be when the prospects of success of the claim change).108
This means
that the party seeking the funding and its legal counsels have to understand the agreement and
their entitlement to costs if the termination of the agreement takes place. In fact, third-party
funders would usually indemnify the client only for its costs liability, which the client
retains.109
Further, as already invoked, the funding agreements should contain a confidentiality
agreement which sets out the basis to legal privilege on shared materials.110
Finally, as mentioned above, since funding agreements are financial contracts, they
will contain financial terms under which the third-party funder feels comfortable to finance
the claim and that will adequately satisfy risks related to the claim and reward requirements.
A usual term in a funding agreement would be a “priorities agreement” that regulates the
107
108
An example from litigation: it has been upheld by the UK High Court that a third-party funder was entitled to
terminate the contract when it reasonable believed that there was a less than 60% chance that the underlying
court action would succeed and that money held in an escrow account for the purposes of funding litigation
should be returned to the funder {Decision [2013] EWHC 1193 (Ch) available at:
http://www.hardwicke.co.uk/assets/managed/docs/public/Harcus%20Sinclair%20Judgment.pdf }
109
http://www.out-law.com/en/articles/2013/september/high-court-third-party-funder-entitled-to-terminate-
funding-agreement-and-return-of-money-held-in-escrow/
110

27
future distribution of the returns on investment to stakeholders after the case is won or settled.
The usual priority of payments of returns is the following:
(1) payment of third-party funder´s investment to date,
(2) payment of third-party funder´s return,
(3) payment of the legal fees to lawyers and (4) the balance to the claimant. 111
B. The benefits of third-party funding
Notwithstanding all the issues and challenges developed above, there are several
reasons why third-party funding is on a rise in international arbitration. Main reasons why
parties seek third-party funding in international arbitration could be summarized as: a better
access to justice, a better assessment of the case, and more favorable risk distribution.
 Better access to Justice
The most important benefit lies in the fact that third-party funding mainly enables parties
to move forward meritorious claims that would not be pursued otherwise due to a lack of
financial resources of the claimants.112
Third-party funding transforms the distressed
claimant´s bargaining power against defendants with better financial resources. Moreover,
third-party funding is available not only for financially distressed claimants but also to
claimants that are technically already insolvent.113
By this mean, third-party funding
facilitates the access to justice for many claimants and reduces the chance of denial of justice.
Thanks to third-party funding, the truth does not have to be any more than a simple question
of money, because third-party funders arrange financing of costs of arbitral proceedings (e.g.:
legal fees, disbursements and experts´ fees). As already studied above, if there is no recovery
at the end of a case, a third-party funder´s entire investment is lost and there is no debt to pay
111
112
113

28
back. 114
This approach actually motivates claimants “to hedge their risk and to turn their
claims into cash”.115
 Better assessment of the case
As already explained in the previous part of the study, not all the cases are offered
funding and in fact, some professionals argue that third-party funders will have an actual
impact on international arbitration “through the vast majority of parties that they decline to
finance”116
and not through the cases that are actually funded. According to some third-party
funders only 10 to 20 % of claimants that seek funding will get offered the funds necessary
for pursuing their claims and not every one of the cases actually goes forward with the
funding. Sometimes when the respondent learns that the claimant found a funding, the case
may be settled before proceeding with arbitration. In the end, the final number of cases that
will actually be funded is only around 1 to 5%.117
Since third-party funders are investors like in every other business. Before funding a
claim and entering into a funding agreement, third-party funders proceed with legal and
financial analysis of the case thanks to which they are able to assess the case to a claimant.
This assessment is than available to the party seeking the funding and it would offer evidence
that the claim is meritorious and thus reducing the probability of frivolous claims. Since the
third-party funders remunerate themselves only if the arbitral proceedings are successful, it
should be unlikely that the third-party would be willing to engage its resources in manifestly
unmeritorious claims. This analysis serves then as valuable information for the party seeking
the funding and having expectations that are too high where it comes to the probability of
winning the case, the amount of damages that may be recovered at the end of the proceedings,
and the probability of successful enforcement of the future award taking into account the
assets owned by the opposing party. In addition, since third-party funders are enumerated on
the basis of a future potential award, this case assessment is available for the party seeking the
funding for free and notwithstanding the fact that the funding will be offered to the party or
114
115
See http://www.alterlitigation.com/#our-value-proposition
116
Shannon V, The Impact of Third-Party Funders on the Parties They Decline to Finance, Kluwer Arbitration
Blog, 2015.
117

29
not. Moreover, parties usually consult more than one third-party funder at the same time,
which allows them to obtain several perspectives on their claim. In fact, the analysis of the
case provided by third-party funders is an important aspect in the decision-making process of
parties to a dispute.118
“An increase access to accurate, timely case assessment information at
essentially zero cost to those rejected parties is highly desirable for our dispute resolution
system,”119
therefore we could say that third-party funding has a positive impact on
international arbitration and any future legislation framework should encourage, if not impose
on third-party funders to provide this case assessment information to parties seeking funding.
 More favorable risk distribution
We should not forget that any dispute resolution is a risky business and can damage a
company´s balance sheet. Companies have to face many potential risks related to arbitration
like legal fees that exceed budget, unfavorable awards and unforeseen events. Losing a case
through arbitration with the potential obligation to pay for the adverse costs of the opposing party
can have huge implications on the economic and financial viability of the losing party.120
For
these reasons, pursuing a company´s claim and financing the whole arbitration procedure is
usually subject to many debates between general counsel of a company, willing to pursue the
claim, and the company´s chief financial officer (CFO) not willing to finance it given the financial
risks related to the procedure. However, well-run company usually manages financial risks
originating from other sources like interest rates or foreign exchange by hedging and therefore a
question is why should financial risks related to arbitration be different?121
Having a third-party funding the arbitral proceedings allows the whole or a part of the
liability for the costs to be shifted to the third-party funder. As a result of third-party funding,
the risk profile of the claim changes and “the short term cash flow position of companies is
improved.” 122
This gives companies a better opportunity to engage in arbitration and to better
use the company´s capital in order to create shareholder value.123
For the above mentioned
118
119
Shannon V, The Impact of Third-Party Funders on the Parties They Decline to Finance, Kluwer Arbitration
Blog, 2015.
120
121
See e.g. http://www.calunius.com/who-uses-litigation-funding/the-solvent-business.aspx
122
See http://www.alterlitigation.com/#our-value-proposition
123

30
reasons, not only distressed parties but even parties that dispose of sufficient funds to cover
the costs of arbitral proceedings, but are unwilling to take the financial risks related to the
arbitration, are increasingly turning to third-party funding124
in order for them to outsource
these costs and financial risks, manage their cash flow and take the costs of arbitration off the
company´s balance sheet.125
Additionally, the funded parties take advantage of the third-party
funder´s experience in funding other cases. This ensure that in the management of the arbitration
process best practice is followed.126
In addition, other risk-sharing can be done on the level of third-party funders and
claimant´s lawyers. However, third-party funders´ opinions differ in respect to this matter.
Some third-party funders prefer lawyers who take a conditional or contingent interest in the
claim in exchange for decreasing their legal fees. Other third-party funders consider caps on
legal fees to be a better solution that forces the claimant´s lawyers to budget properly.127
CONCLUSION
As developed above, the concept of third-party funding raises many issues in international
arbitration. In fact, it raises much more issues in international arbitration than it does raise in
litigation. The reason behind those issues is paradoxically the character of international
arbitration itself. It is a relatively closed system, based purely on parties’ consent, in which
disputes are resolved by (more or less the same) private parties and that is not necessarily
tangibly attached to a particular state and its regulatory power. On one hand, this character of
international arbitration creates the set out issues and on the other hand, the same character
makes it hard to fight against them. What can be drawn from this study of third-party funding
is the fact that third-party funding is not a negative phenomenon that brings to dispute
resolution advantages that cannot be denied. It would be hypocritical to comment upon the
economic interest of third-party funders, especially in international arbitration that is mainly a
playground of economic actors and not consumers. International arbitration community has
124
See e.g. http://www.calunius.com/who-uses-litigation-funding/the-solvent-business.aspx
125
126
127

31
already accepted the presence of third-party funding and now, actions have to be taken in
order to eliminate the identified issues.

32
BIBLIOGRAPHY
BOOKS
Born Gary, International Commercial Arbitration, Kluwer Law International, 2014
Craig L., Park W. & Paulsson J., International Chamber of Commerce Arbitration, 3rd ed.,
Oxford University Press, 2000
Ortscheidt J., Seraglini Ch., Droit de l'arbitrage interne et international, L.G.D.J, Edition de
2014.
WEBSITES
http://www.mondaq.com/x/338884/Arbitration+Dispute+Resolution/Third+Party+Funding+In
+International+Investment+Arbitration (last seen on 28.9.2015)
http://www.bakermckenzie.com/files/Uploads/Documents/KCCI/br_ia_thirdpartyfunding.pdf
(last seen on 28.9.2015)
http://www.corporateeurope.org/trade/2012/11/chapter-5-speculating-injustice-third-party-
funding-investment-disputes (last seen on 28.9.2015)
https://www.international-arbitration-attorney.com/third-party-funders-international-
arbitration/ (last seen on 28.9.2015)
http://www.alterlitigation.com/#our-value-proposition (last seen on 28.9.2015)
http://www.calunius.com/litigation-funding/case-assessment.aspx (last seen on 28.9.2015)
https://www.ucl.ac.uk/Bentham-Project/who (last seen on 28.9.2015)
http://associationoflitigationfunders.com/code-of-conduct/ (last seen on 28.9.2015)

33
ARTICLES
Frischknecht A.; Schmidt V.; "Privilege and Confidentiality in Third Party Funder Due
Diligence: The Positions in the United States and Switzerland and the Resulting Expectations
Gap in International Arbitration", TDM 4 (2011), available at:
http://www.chaffetzlindsey.com/wp-content/uploads/2012/03/tv8-4-article04.pdf (last seen on
28.9.2015)
Hemming D. and Wood J., Third-Party Funding Of Litigation: A Perspective On The
International Landscape, Who´s who legal, October 2014, available at:
http://whoswholegal.com/news/features/article/31825/third-party-funding-litigation-
perspective-international-landscape (last seen on 28.9.2015)
Kalderimis D., Third party funding in international arbitration – lessons from litigation?,
Kluwer Arbitration Blog, 2014, available at:
http://kluwerarbitrationblog.com/blog/2014/12/15/third-party-funding-in-international-
arbitration-lessons-from-litigation/ (last seen on 28.9.2015)
Lozano L., Third Party Funding Again Under the Spotlight, Kluwer Arbitration Blog, 2014,
available at: http://kluwerarbitrationblog.com/blog/2014/10/08/third-party-funding-again-
under-the-spotlight/ (last seen on 28.9.2015)
Machin E., The great treaty funding debate, Commercial Dispute Resolution, 2012, available
at: http://www.cdr-news.com/categories/third-party-funding/the-great-treaty-funding-debate
(last seen on 28.9.2015)
Maniruzzaman M., Third-Party Funding in International Arbitration – A Menace or
Panacea?, Kluwer Arbitration Blog, 2012, available at:
http://kluwerarbitrationblog.com/blog/2012/12/29/third-party-funding-in-international-
arbitration-a-menace-or-panacea/ (last seen on 28.9.2015)
Moyeed K., A Guide to the IBA´s Revised Guidelines on Conflicts of Interest, Kluwer
Arbitration Blog, 2014, available at: http://kluwerarbitrationblog.com/blog/2015/01/29/a-
guide-to-the-ibas-revised-guidelines-on-conflicts-of-interest/ (last seen on 28.9.2015)

34
Palmer D., Obama says to suspend trade benefits for Argentina, Reuters, 2012, available at:
http://www.reuters.com/article/2012/03/26/us-usa-argentina-trade-
idUSBRE82P0QX20120326 (last seen on 28.9.2015)
Scherer M., “Expert view, third-party funding in arbitration: out in the open?”, Commercial
Dispute Resolution, 2012, available at: http://www.cdr-news.com/categories/expert-
views/out-in-the-open-third-party-funding-in-arbitration (last seen on 28.9.2015)
Sessler A. C., The 2014 IBA Guideline on Conflicts of Interest in International Arbitration,
Skadden, 2012, available at: https://www.skadden.com/insights/the-2014-iba-guidelines-
conflicts-interest-international-arbitration (last seen on 28.9.2015)
Shannon V, The Impact of Third-Party Funders on the Parties They Decline to Finance,
Kluwer Arbitration Blog, 2015, available at:
http://kluwerarbitrationblog.com/blog/2015/07/06/the-impact-of-third-party-funders-on-the-
parties-they-decline-to-finance/ (last seen on 28.9.2015)
Smith M., Chapter on Mechanics of Third-Party Funding Agreements: A Funder´s
Perspective, in Third Party Funding in International Arbitration, Kluwer Law International,
2012, pages 19-37, available at:
http://www.calunius.com/media/7098/mechanics%20of%20third-
party%20funding%20agreements%20%28mick%20smith%20-%202012%29.pdf (last seen
on 28.9.2015)
DECISIONS
Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 471 (S.D.N.Y. 2003)
Harcus Sinclair (a firm) v Buttonwood Legal Capital Ltd & Ors [2013] EWHC 1193 (Ch)
OTHER DOCUMENTS
The Revised IBA Guidelines on Conflicts of Interest in International Arbitration 2014,
available at: http://www.ibanet.org/Document/Default.aspx?DocumentUid=e2fe5e72-eb14-
4bba-b10d-d33dafee8918 (last seen on 28.9.2015)

35
Napier M. and coll., The Code of Conduct for Litigation Funders, Association of Litigation Funders,
January 2014, available at: http://associationoflitigationfunders.com/wp-
content/uploads/2014/02/Code-of-conduct-Jan-2014-Final-PDFv2-2.pdf

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