Author: Elizabeth Chan*
Published: October 2015
There is arguably now general consensus that a party to an international arbitration, who is receiving arbitration funding from a third party, should disclose the existence of that third-party funding arrangement. At the very least, Professor Catherine Rogers, a leading commentator on third-party arbitration funding, commented in 2014 that “[w]hatever else may be uncertain about third-party funding, it seems reasonably clear that a position advocating against any disclosure obligations regarding the presence of third-party funders . . . will not carry the day.”
However, the current debate on disclosure of third-party funding arrangements has not resolved how such an obligation to disclose should operate in practice. Specifically, what details about a third-party funding arrangement should be disclosed, by whom, when and for what purposes? This article proposes a set of guidelines for the disclosure of third-party funding arrangements in international arbitration, covering both international commercial arbitration and investment arbitration.
The first part of this article contains the proposed guidelines for the disclosure of third-party funding arrangements in international arbitration. The remaining sections justify each aspect of the proposed framework for disclosure.
II. PROPOSED GUIDELINES FOR THE DISCLOSURE OF THIRD-PARTY FUNDING ARRANGEMENTS IN INTERNATIONAL ARBITRATION
The fundamental purpose of these proposed guidelines for the disclosure of third-party funding arrangements is to ensure fairness in international arbitral proceedings. There is currently no mandatory regulation of third-party funders in international arbitration. Left unregulated, the abusive use of third-party funding arrangements may compromise the integrity of the arbitral process.
There is currently no obligation in international law for funded parties in an international arbitration to disclose the existence of a third-party funding arrangement. The influence (if any) of a third-party funder over the conduct of an arbitration is therefore invisible to the self-funded party and the arbitral tribunal – even though the invisible third-party funder may wield substantial control over the conduct of the arbitral proceedings.
These guidelines propose that, at the outset of an arbitration, the funded party must disclose the existence and identity of a third-party funder to all the parties in an arbitration, the arbitral tribunal, and the arbitral institution (if applicable). The guidelines propose that, in certain circumstances, arbitral tribunals must, or have the discretion to, order further disclosure of the details of a third-party funding arrangement.
Funders and funded parties may have legitimate concerns about how information relating to a third-party funding arrangement may be used against them. But these concerns can be met by a set of guidelines that restricts the scope of disclosure only to what is required to ensure the fairness of a proceeding in specific cases. Further protection against unmeritorious applications for disclosure can be secured by requiring parties who make unsuccessful and unmeritorious applications for disclosure to pay costs. The risk of paying costs for making an unsuccessful application would deter parties from making unmeritorious applications in order to prolong proceedings unnecessarily or gain some impermissible tactical advantage.
*Elizabeth Chan, LL.M. (Yale), LLB(Hons)/BA (University of Auckland)