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Third-Party Funding in Arbitration: A Case for Mandatory Disclosure?

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Balkan Yearbook of European and International Law 2019

Part of the book series: Balkan Yearbook of European and International Law ((BYEIL,volume 2019))

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Abstract

The author of this article discusses the question whether or not it is necessary to put a party who has obtained third-party funding under a duty to disclose this fact. In fact, the trend in international arbitration goes towards an imposition of such a duty. This is meant as an answer to the following three typical ‘risk scenarios’ related to third-party funding:

  1. (a)

    Third-party funders may in some way be connected to arbitrators and, therefore, impair their impartiality and independence.

  2. (b)

    Third-party funders are no parties to the procedure and can therefore not become liable for the payment of costs ordered in the award to the opponent of an impecunious funded party—but if the arrangement and concealed impecuniosity were revealed, the opponent could request a security for costs.

  3. (c)

    In some cases, a party is fiercely opposing a security for cost order by painting a picture of being a poor David oppressed by a wealthy Goliath when in fact this party is just as strong financially due to third-party funding.

However, it has also been advocated that to impose an obligation to disclose would be unnecessary and impractical: it has been stated that the economics behind most litigation funding provides a key safeguard against conflicts of interest, bad faith and any other misconduct that could endanger or prolong the arbitration process.

After weighing up the arguments behind these positions, the author proposes for the time being (a) to closely watch the developments in Hong Kong and Singapore to see (as far as that is possible) whether or not a duty to disclose third-party funding produces undesirable results and (b) to suggest to arbitral institutions to provide the parties with an information leaflet on third-party funding with a list of recommendations and short explanations as to the consequences of too late a revelation of third-party funding.

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Notes

  1. 1.

    See http://third-party-funding.org/list-of-funders/.

  2. 2.

    Perrin (2017), p. v.

  3. 3.

    Perrin (2017), p. v.

  4. 4.

    Perrin (2017), p. v.

  5. 5.

    The decision Essar Oilfields Services Ltd v. Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) (15 September 2016) illustrates such arrangements well: The litigation funder had made an agreement with Norscot, whereby it advanced to it the sum of around £647,000 to fund Norscot’s arbitration. That agreement entitled the funder, in the event of Norscot’s success, to a fee of 300% of the funding or 35% of the recovery.

  6. 6.

    Perrin (2017), p. v.

  7. 7.

    Perrin (2017), p. v.

  8. 8.

    See Livschitz (2018), p. 2615 et seqq.

  9. 9.

    Stone (2015), p. 65 et seq.

  10. 10.

    Stone (2015), p. 66.

  11. 11.

    Kirtley and Wietrzykowski (2013), p. 26.

  12. 12.

    Stone (2015), p. 70.

  13. 13.

    Darwazeh and Leleu (2016), p. 132 et seqq.

  14. 14.

    Darwazeh and Leleu (2016), p. 132 et seqq.

  15. 15.

    Mansinghka (2017), p. 110 et seq.; Osmanoglu (2015), p. 339 et seqq.

  16. 16.

    Darwazeh and Leleu (2016), p. 134 et seqq.

  17. 17.

    Stone (2015), p. 66.

  18. 18.

    Stone (2015), p. 66.

  19. 19.

    The Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, The ICCA Report No. 4, 81.

  20. 20.

    Darwazeh and Leleu (2016), p. 137 et seq.

  21. 21.

    https://www.gld.gov.hk/egazette/pdf/20172125/es1201721256.pdf.

  22. 22.

    Henderson et al. (2019), p. 68, on Singapore.

  23. 23.

    https://sso.agc.gov.sg/SL/LPA1966-S706-2015#pr49A-; Sim (2018): http://arbitrationblog.kluwerarbitration.com/2018/05/22/third-party-funding-asia-whose-duty-disclose/.

  24. 24.

    Sim (2018), http://arbitrationblog.kluwerarbitration.com/2018/05/22/third-party-funding-asia-whose-duty-disclose/.

  25. 25.

    Hong Kong Arbitration and Mediation Legislation (Third-Party Funding) 2017 Art. 98U: https://www.gld.gov.hk/egazette/pdf/20172125/es1201721256.pdf; Sim (2018), http://arbitrationblog.kluwerarbitration.com/2018/05/22/third-party-funding-asia-whose-duty-disclose/.

  26. 26.

    Perrin (2017), p. v.

  27. 27.

    Gabriel (2018), para. 25.

  28. 28.

    von Goeler (2016), p. 157.

  29. 29.

    von Goeler (2016), p. 157.

  30. 30.

    von Goeler (2016), p. 157.

  31. 31.

    von Goeler (2016), p. 157.

  32. 32.

    von Goeler (2016), p. 157.

  33. 33.

    Berger and Kellerhals (2015), para. 917.

  34. 34.

    The decision Essar Oilfields Services Ltd v. Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) (15 September 2016) shows what is meant by an uplift: The litigation funder had made an agreement with Norscot, whereby it advanced to it the sum of around £647,000 to fund Norscot’s arbitration. That agreement entitled the funder, in the event of Norscot’s success, to a fee of 300% of the funding or 35% of the recovery.

  35. 35.

    Gabriel and Hadžimanović (2017), p. 40.

  36. 36.

    Gabriel and Hadžimanović (2017), p. 37 et seq.

  37. 37.

    To international arbitration Chapter 12 of the Swiss Private International Law Act applies and to domestic arbitration the Third Part of the Swiss Procedural Act applies.

  38. 38.

    In 2013, the Swiss Federal Tribunal specifically held that, under the Swiss lex arbitri, arbitral tribunals have jurisdiction to decide on claims for damages for breach of an arbitration agreement: Decision of the Swiss Federal Tribunal, BGer. 30.9.2013, 4A_232/2013 para. 3.4.2.

  39. 39.

    Berger and Kellerhals (2015), paras. 679 et seqq. on the autonomy of arbitration agreements.

  40. 40.

    Bogart (2017), p. 322.

  41. 41.

    von Goeler (2016), p. 155.

  42. 42.

    Kirtley and Wietrzykowski (2013), p. 17.

  43. 43.

    Bernet and Hoffmann-Nowotny (2017), p. 161; Livschitz (2018), para. 52.

  44. 44.

    von Goeler (2016), p. 155.

  45. 45.

    Livschitz (2018), para. 53.

  46. 46.

    See also von Goeler (2016), p. 155.

  47. 47.

    von Goeler (2016), p. 155.

  48. 48.

    Redfern and O’Leary (2016), p. 407 et seq.

  49. 49.

    Livschitz (2018), para. 73.

  50. 50.

    von Goeler (2016), p. 151 et seq.; Livschitz (2018), para. 60.

  51. 51.

    Wehrli (2008), p. 241 et seqq.

  52. 52.

    von Goeler (2016), p. 153.

  53. 53.

    von Goeler (2016), p. 152 et seq.; Livschitz (2018), para. 61.

  54. 54.

    von Goeler (2016), p. 140.

  55. 55.

    See Waterhouse v. Contractors Bonding Limited SC 66/2012 [2013] NZSC 89; von Goeler (2016), p. 155 et seq. on the “Waterhouse saga”.

  56. 56.

    Livschitz (2018), para. 62.

  57. 57.

    von Goeler (2016), p. 157 et seq.

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Authors and Affiliations

  1. GABRIEL Arbitration AG and University of Zurich, Zurich, Switzerland

    Nataša Hadžimanović

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  1. College of Law, Prince Sultan University, Riyadh, Saudi Arabia

    Zlatan Meškić

  2. Faculty of Law, University of Rijeka, Rijeka, Croatia

    Ivana Kunda

  3. Faculty of Law, University of Belgrade, Belgrade, Serbia

    Dušan V. Popović

  4. Faculty of Law, University of Zenica, Zenica, Bosnia and Herzegovina

    Enis Omerović

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Hadžimanović, N. (2019). Third-Party Funding in Arbitration: A Case for Mandatory Disclosure?. In: Meškić, Z., Kunda, I., Popović, D., Omerović, E. (eds) Balkan Yearbook of European and International Law 2019. Balkan Yearbook of European and International Law, vol 2019. Springer, Cham. https://doi.org/10.1007/16247_2019_3

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