Key takeaways
Third party funding in international arbitration
This is becoming increasingly prevalent in international arbitration due to the rising costs of proceedings.
Access to justice
Third party funding is beneficial in that it may allow claimants to pursue meritorious claims which they may not otherwise be able to afford.
CIArb Guidelines
These are a useful best practice tool and provide clarity regarding the funding process and arbitrations involving a funded party.
The Chartered Institute of Arbitrators (CIArb) recently published its new “Guideline on Third-Party Funding in Arbitration” (Guidelines), which are designed to provide some clarity as to best practice in respect of the growing use of third-party funding in international arbitration.
What is third party funding?
For those unfamiliar with the concept, third-party funding (TPF) in international arbitration is where claimants’ arbitrations are funded by a non-party, with the funder typically taking a share of the damages recovered if the claim is successful. TPF has become more prevalent in recent years as the costs of arbitration have continued to rise, allowing claimants to pursue meritorious claims without the barrier of a significant upfront (and often unaffordable) cost burden.
Overview of the Guidelines
While increasing access to justice, TPF has introduced several challenges, particularly around conflicts of interest and disclosure obligations, issues which can put the enforceability of the award at risk. Although many arbitral institutions now require disclosure of funding arrangements, disclosure practices remain inconsistent across jurisdictions and institutions.
The Guidelines aim to provide a structured framework for parties, arbitrators, counsel, and institutions to navigate the procedural, ethical, and commercial implications of funding arrangements, by adopting a principled approach to the management of funding-related issues with the aim of promoting transparency and fairness.
The Guidelines acknowledge that funders may be considered to bear the identity of the funded party under certain circumstances, as reflected in the IBA Guidelines on Conflicts of Interest (2024), and recommend early and comprehensive disclosure of the existence and identity of funders to all participants, including arbitrators and institutions. This mitigates the risk of award challenges and enforcement issues. It also addresses the tension between confidentiality and disclosure, advising that non-disclosure agreements (NDAs) be carefully structured to reconcile these obligations.
The Guidelines, which aim to complement existing institutional rules and national laws, are divided into two parts:
Part I: The funding process: This section outlines the mechanics of securing funding, including preliminary discussions, due diligence, pricing structures, and types of funding agreements (e.g., single-case, portfolio, enforcement, and monetisation). It also addresses the economics of funding, including risk-based pricing models.
Part II: Arbitration involving a funded party: This section focuses on procedural implications, such as disclosure, conflicts of interest, confidentiality, security for costs, and cost recovery. It provides practical guidance for tribunals and parties on managing funded disputes effectively.
Several features of the Guidelines stand out, particularly:
Neutrality and inclusivity: The Guidelines avoid prescriptive judgments about TPF, instead promoting a balanced understanding of its role in arbitration. The Guidelines discourage assumptions about a party’s financial status or case strength based solely on the presence of funding.
Access to justice: The Guidelines affirm TPF as a legitimate tool for enabling claimants, particularly those with limited resources, to pursue meritorious claims. This is especially relevant in investor-state disputes and high-value commercial arbitrations.
Procedural innovation: The Guidelines offer nuanced approaches to security for costs, encouraging tribunals to consider fairness and access to justice rather than relying solely on financial metrics. They also support the recoverability of funding costs under certain conditions, as recognised in English case law (e.g., Essar Oilfield Services Ltd -v- Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm)).
Comment
The Guidelines are a valuable reference point and offer practical insights to all stakeholders.
For prospective claimants, the Guidelines are useful in providing some clarity on how to structure funding arrangements, manage disclosure obligations, and engage with funders without compromising procedural integrity. For responding parties, the Guidelines offer strategic insights into how funding may affect case dynamics, including the potential for security for costs applications and the recoverability of TPF-related expenses.
Although they operate solely as a best practice tool, their influence could be significant. It therefore remains to be seen whether the Guidelines will serve as a catalyst for a more harmonised global approach to third party funding in international arbitration, bridging the gaps in disclosure standards across jurisdictions and arbitral institutions.
This article was co-authored by Rayona Basu.
