Third-Party Funding in Investment Arbitration: How to Define and Disclose It

Abstract

The provision of funds by non-parties to pursue or defend a dispute, namely third-party funding, has become a focal point in investment arbitration because of participation of States, and the high value of disputes and thus expenses. However, since there are different kinds of external financing such as insurance contracts, contingency and conditional fee arrangements and loans by financial institutions, there is no consensus with regard to the definition of the concept either in literature or in practice. Besides, due to the possibility of connection between the funders and the arbitrators, disclosure of any funding arrangement is considered necessary to refrain from potential conflicts of interest that may harm the integrity of the arbitration process. Yet again, there are different approaches to the issue. After examining various definitions used in national and international regulations, investment treaties, related reports, rules of arbitration institutions and academic literature, this article seeks to offer an operational definition of the concept. While doing that, it suggests a perspective of differentiating agreements with professionals whose motivation is to make an investment from other means of external financing. Considering the importance of independence and impartiality of arbitrators and the need for statistical data to evaluate the link between third-party funding and the number of cases in investment arbitration, the article acknowledges the necessity for disclosure of third-party funding. Going one step further, it modestly proposes a model provision regarding definition and disclosure of third-party funding to clarify the requirement of disclosure.