Third-Party Funding in International Commercial Arbitration – Navigating Independence and Impartiality in Context.

Abstract

International commercial arbitration has gained widespread popularity as an appropriate alternative mechanism for resolving transnational commercial disputes. Arbitration, despite its benefits, may incur substantial monetary and temporal costs, especially in cases where the conflict is intricate and entails substantial financial resources. Third-party funding (TPF) may serve as a prospective resolution. The utilisation of TPF poses a distinctive array of ethical, legal, and procedural concerns that necessitate meticulous examination. There have been identifiable fears related to the inevitability of disproportionate benefits granted to entities/individuals that have obtained funding.

The issues brought about by TPF revolve around the involvement of the financier in the arbitral proceedings – especially considering that the funding organisation possesses an inherent stake in the final outcome of the matter in question. The selection of arbitrators by the parties may create potential conflicts of interest, this may occur when an arbitrator has a significant link with a financier involved in the case. Another point of question is the investigation on whether or not funders have the responsibility to mandatory disclose sensitive and influential information. TPF may pose a potential risk of incentivising the pursuit of frivolous or speculative claims as a result – this is due to the possibility that parties may be more inclined to pursue claims with a low probability of success if they are not assuming the associated costs. In addition, the accessibility of TPF raises significant inquiries regarding its probable influence and effect on the fairness, impartiality, and integrity tenets of the arbitral proceedings. A potential issue that may arise is the possibility of the funding entity exerting inappropriate control over the tribunal with the intent of preserving their financial investment; which hinders the independence of the parties involved in the proceedings. These topics have been extensively discussed and analysed in a public forum: the International Council for Commercial Arbitration (ICCA) and Queen Mary College at the University of London (QMUL) established a Task Force with the purpose of evaluating the issues mentioned above. The study was made publicly available in April of 2018 and suggests the implementation of additional legal prerequisites which may result in increased expenses as well as additional time constraints in contrast with litigation as a form of dispute resolution. It is argued by Bogart that the above-mentioned report’s findings have the potential to diminish the appeal of the process of arbitration, particularly since the concerns highlighted are rarely seen as of major importance by domestic courts. As an illustration, the practise of TPF is extensively utilised within the United Kingdom, despite virtually any kind of mandatory disclosure – The Court of Appeal has recently acknowledged that the practise of TPF constitutes a recognised and authorised activity.

The aforementioned apprehensions regarding the domain of arbitration underscore the crucial significance of preserving and guaranteeing its fundamental principles and safeguarding the reputation and validity of the arbitral mechanism. The resolution of such issues ought to be accomplished through the implementation of unequivocal and adequate guidelines that ensure the autonomy of arbitrators. Preserving the procedural tenets of commercial arbitration is of paramount significance, necessitating the examination of the substantially augmented utilisation of TPF within its domain. The primary inquiry that emerges from these apprehensions pertains to the appropriate course of action and likely consequences related to whether or not a successful acknowledgement regarding conflicts of interest and disclosure as well as the demand for greater transparency arising from third-party funders in an effort to uphold the procedural principles of fairness and impartiality.

This research essay advocates for increased or standardised disclosure of TPF as a means of preventing conflicts of interest, upholding and maintaining transparency, adhering to principles of procedural good faith, as well as steering clear of the exploitation of the process of arbitration as a whole – holding a differing opinion on Bogart’s notion of TPF, who essentially views it as an extended arm of corporate finance. Non-disclosure of conflicts of interest may jeopardise the fundamental basis of the award made by arbitration and result in the court's refusal to uphold the decision. This is considering that overlapping interests may qualify as a basis for setting aside or denying enactment of an arbitral decision.

This essay aims to analyse the application of third-party funding in the context of international commercial arbitration – the methodology of the essay shall be structured in the following manner: The first chapter aims to present a general review of TPF, including the justification for the investigations of this paper, and the identification of the primary factors that render TPF susceptible to conflicts of interest. The second chapter will analyse the ethical considerations of TPF arrangements and their influence on the arbitral procedure. The analysis will assess the potential conflicts of interest that may arise between arbitrators and financiers. The third chapter of this study will analyse the possible advantages and disadvantages of not addressing TPF disputes in the context of international commercial arbitration – it will evaluate the effects of TPF on the parties involved (including the tribunal as well as the mechanism of arbitration in general). Additionally, this chapter will examine the effectiveness of mandatory disclosure as a practical and necessary solution to this issue. The fourth chapter will serve as the concluding section of the study, wherein the primary objective is to present a comprehensive summary of the significant findings. Additionally, this chapter will provide recommendations for future developments and research endeavours in this field.