ICCA 2018 – Focus on funding for arbitration

20th April 2018

The 2018 ICCA Congress in Sydney introduced some important developments in international arbitration.

The Task Force on Third-Party Funding in International Arbitration released their Final Report – a document that has been years in the making. The Task Force was a joint project between ICCA and Queen Mary, University of London. The Report includes recommendations regarding the procedures, ethics and related policy issues on third-party funding in international arbitration.

LCM hosted a roundtable to discuss the Report and dive deep into some specific challenges and opportunities that it identified. Guests included senior arbitration and litigation practitioners from international law firms and arbitral institutions. The global head of Dentons’ International Arbitration Group, Jean-Christoph Honlet, led the discussion based on his rich experience of working with third-party funders across different jurisdictions.

It was not that long ago (about 2010) that third-party funding was considered a “unicorn” in arbitration. Lawyers had heard of it but had little to no experience with it. Fast forward to 2018 and the consensus from the roundtable was that funding is established practice and is here to stay. The process of drafting the Report and having it endorsed by the wider arbitration community is confirmation of how far funding has come as an accepted part of the arbitration process.

But as arbitration jurisdictions open up to funding there are still some growing pains. The roundtable raised an issue that some lawyers are concerned that a funder may exercise control of a matter. At one level this highlights a lack of experience working with funders. LCM CEO, Patrick Moloney, acknowledged the concern and confirmed the importance of having checks and balances in the funding agreement between funder, client and lawyer to ensure that it is clear from the outset what level of decision making the funder will be involved in.

On the positive side of the ledger, roundtable participants saw benefits in involving funders in some of the key decisions regarding case strategy. This recognizes that competent, professional funders have in-house senior legal expertise and can provide additional strategic inputs as the case progresses.

Another issue raised by the roundtable was the ability to enforce judgments and recover awards specifically in the Asia Pacific region, where many jurisdictions are not seen to be “arbitration friendly”. This clearly represents risk for funders, who will either choose not to fund claims of this nature or will seek a greater split of any award in return for taking on this greater risk. Whilst not offsetting this risk, early identification of the issue and discussion between funder, client and legal team could lead to innovative and bespoke solutions. Portfolio funding is another option that potentially provides some mitigation of recoverability risks.

The roundtable was also interested to explore how funding might become a more common tool for respondents as well as claimants. While nobody had a definitive response to this challenge, a number of possible structures were discussed which could deal with this – including portfolio funding.

Finally, Mr Moloney congratulated the Task Force for taking an expansive view of the definition of “funding”. The Report adopts definitions that are broad enough to include numerous types of funding structures and recognizes the similarities between third-party funding and other, more established, forms of funding, like insurance. In fact, the Task Force recommended that if the existence of a funding agreement for a claimant is to be disclosed to an arbitral panel, then similarly the existence of an insurance policy for a respondent should be disclosed.

Overall, the LCM roundtable provided an encouraging acknowledgment of the awareness and acceptance of third-party funding as an important part of the international arbitration landscape going forward.

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