Third Party Funding in International Arbitration in Europe: Part 1 – Funders’ Perspectives

Abstract

Third party funding has become one of the ‘‘hot topics’’ in international arbitration. More and more parties, whether in financial distress or not, explore the possibility of using funders to provide the necessary cash to pay for their lawsuit, allowing the funder to realise in return a percentage of the proceeds of the case (or multiple of costs financed), if successful. Third party funding thus shows similarities to certain forms of insurance contracts (where the insurer pays for the costs of the lawsuit, including, in certain cases, for the opposing party’s costs) and contingency fee arrangements (where the lawyer carries the costs of litigation in exchange for an interest in the proceeds of the case). The exact definition of third party funding, however, remains elusive and its legal and ethical implications in international arbitration, mostly unexplored.

This paper aims at filling the gap, focusing in particular on the specificities of third party funding in international arbitration from a pan-European perspective. The project is organised in two stages. This first paper is based on a round-table discussion with representatives from several of the most prominent funds active in the area of international arbitration. It addresses the actual practice and techniques of third party funding. A second, follow-up, paper will consider the legal implications of third party funding in international arbitration, particularly from a civil law perspective.

Keywords: Third-party funding, international arbitration, champerty, maintenance, due diligence, funding contract, third-party funder, investment criteria for funding, alternative fee arrangement, disclosure of funding agreement