This article is written by Youginder Singh, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com. 

Introduction

In the present time, where parties are struggling to continue with their arbitral proceedings or litigation, third-party funding plays a prominent role. As the market is extending, similarly, the outsider is likewise growing its reach. It says that the outsider is only the mediation into contest being “non-party” to debate. It gives “admittance to equity” to the gathering that can’t bear the cost of it. With the impact of COVID-19 affecting cashflows and funding, parties are looking for alternative remedies to continue the arbitral proceedings, that result in growing reliance on third-party funding. In simple words, Third-party is not a party to dispute, but agreeing on providing funds to a party in a dispute in exchange for good remuneration, which is 2-3 times higher than the subsidized. 

What is Third-Party Funding in International Arbitration? 

1. The light continues to shine on third party funding in international arbitration. Over the years the third- party funding is tremendously increasing its presence in international commercial and investment arbitration also called investor-state dispute settlement. Putting light to reach hand on the TPF, the third-party funding is a growing business, where the demand for TPF is increasing as more and more parties, who are in distress are approaching TPF.
2. Adroitly speaking of Third-party funding, as the market is extending, the demand for TPF is also extending. With the increase of TPF, institutions have leaped and prepared to fund arbitration, such institutions include investment bankers, insurance companies, law firms, etc. have entered into the market to fund arbitration. A question had raised in a landmark case whether the funding company considered legitimate and sustainable to pursue claims on behalf of the funded party.

In Teinver S.A et al v. Argentina, the Arbitration Tribunal of the International Centre for Settlement of Investment Disputes faced fundamental questions relating to the legal sustainability of TPF. In the case, the respondent raised an objection that a funding agreement between the claimants and an investment company concerning the financing of the litigation expense could potentially impact the tribunal’s jurisdiction, as the claimant has transferred the rights/interests to a third party (an investment company). However, the tribunal rejected the respondent’s argument and noted that the funding agreement existed prior to the filing of the claims in the arbitration, hence, technically, its jurisdiction remained intact [1]. 

The markets/countries where the TPF is extending its range in big numbers: 

1. • England 

In England, Third-Party Funding is permitted in many countries. It is considered as a vehicle to access justice and hence endorsed by the judiciary and policy makers alike. While under the law funders are deterred from controlling the lawsuit, the judiciary has generally maintained a supportive stance to TPF [1]. 

1. •  USA 

A fact that the US is the world’s leading legal market. TPF has now penetrated the mainstream of the legal market, with an increased number of investors/companies putting an astonishing amount of money in the TPF industry. It remains obvious that investors are always motivated by the prospect of gaining huge returns that are not dependent on economic or market conditions [1]. 

“It may seem bizarre to think of investment in litigation, but when one sees the collateral dynamics linked with the litigation process in the US, the professional funders become more gravitated towards the idea of TPF”. 

1. • Australia

The third-Party Funding field in Australia is much more developed in terms of its practice and acceptance. Litigation finance emerged here at the beginning of the 1990s, and ever since then, it has become ingrained in the civil justice system of Australia. While professional funders are permitted to invest in litigation/arbitration, yet the very nature of such funding agreements have often raised fundamental questions concerning legal sustainability or reasonableness of such arrangements [1].

1. •  Singapore 

In January 2017, the Singaporean Parliament passed certain amendments to the Civil Code in order to allow the third‐party funding and establish it with restrictions, like the disclosure of the funding body and its personality in addition to its intervention in the proceedings of the arbitral proceedings and determining any interest in the outcome of the case or not [1]. 

1. •  Hong Kong 

In Hong Kong, the Civil Code was amended accordingly with the required of the legal nature by the presence of third‐party funding in the arbitration case, allowing any party not having a legitimate interest to participate in the case. The Ministry of Justice in Hong Kong launched a national dialogue in Aug, 8th 2018 for 2 months to obtain written views on the best practice of third‐party funding; the result was a legal amendment that entered into force in Feb, 2nd 2019 and came under Chapter 609 of its Arbitration Act. Similarly, in Nigeria, Jorden, etc. [1].

What kind of disputes are funded? 

Disputes that attract the third-party funding, generally, include commercial contracts, international commercial arbitration, class action suits, tortious claims like medical malpractice and personal injury claims, anti-trust proceedings, insolvency proceedings, and other like claims that have a calculated chance of resulting in a substantial monetary award [2].

What are the challenges to TPF in International Arbitration?

Everything accompanies an expense similarly every way loaded up with difficulties. Prior to pushing forward with a clarification, accept, that the difficulties to TPF are inescapable. In this way, the quality makes a way of difficulties to TPF and build the danger to commendable at a rankling rate. Let’s discuss some of the challenges faced by the Third-Party Funding: 

1. 1. 1. Expensive – This method proves to be challenging and expensive because the successful claimant has to render the huge amount in return to the funder as a remuneration provided to him by the funder [3].
      2. Self-sufficiency – Under this method, the funder is not given any power in arbitral proceedings, still, the funded party may lose his self-sufficiency, especially when it comes to the settlement because the funders reserve rights to make decisions regarding the settlement of issues. [3] 
      3. Irreconcilable situation – There can be two conflicting situations may arise, 
         • The first situation is when the funder and arbitrator are the same in the dispute, therefore, there can exist a great chance of a biased decision by the arbitrator. 
         • Second situation is when there exists a relationship between the funder and arbitrator, the decision deemed to be prejudiced [3].
      4. Absence of administrative changes – Most countries are doubtful of consequences and impact, therefore, against the TPF method. For instance, India not accepting the concept of TPF. Third-party funding has not had much presence in ASIAN jurisdiction [3].
      5. Disclosure of the Information – The most concerning challenge to TPF is there is no privacy and protection of confidentiality. Nowadays, transparency is growing at a blistering rate. There is no confidentiality and maintainability of the agreement because the party in a dispute is required to disclose the information to the third-party funding as per the agreement [3]. 
      6. Theoretical – The funder can feel theoretical while financing for a specific gathering in the mediation cycle as the funders and gatherings are a lot uncertain about the outcome. It is truly eccentric simultaneously. Notwithstanding it, there are not many laws and guidelines with respect to TPF, which makes it hard to direct [3].
      7. Costs – An enormous amount can be incurred when packaging the case for presentation to the funder. Such investment will be in vain if the funding becomes unsuccessful [3]. 

Conclusion

As we have seen in European countries, the United States of America, and many countries the strong presence and extending markets of third-party funding in International Arbitration. we can certainly assume that in the future the need for third-party funding will be excessive. In addition to it, many institutions including big firms, investment banks, insurance companies had jumped to provide financial aid to the parties in dispute, that are under-resourced. Despite the challenges, values and markets are always open and expanding for third-party funding. Lastly, third-party funding continue its presence in arbitration/litigation permanently.

References 

1.Third Party Funding in Arbitration: Questions and Justifications

https://www.researchgate.net/publication/333990743_Third_Party_Funding_in_Arbitration_Questions_and_Justifications

2.kind of disputes are funded- http://www.cyrilshroff.com/wp-content/uploads/2019/06/Third-Party-Funding-in-India.pdf

3.Challenges To TPF In International Arbitration-http://www.legalserviceindia.com/legal/article-3694-challenges-faced-under-third-party-funding-in-arbitration.html

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