본문 바로가기
  • Home

Third Party Funding in Investor State Arbitration

  • DONG-A LAW REVIEW
  • 2014, (62), pp.461-498
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law

KIM DAEJUNG 1

1동아대학교

Accredited

ABSTRACT

Third Party Funding(TPF) is one of the new issues in international arbitration including investor state arbitration. Third party funding is financing by a third party of all costs of arbitral proceedings for one of the parties to a dispute, and the financing third party, or funder receives a certain percentage of the proceeds from the result of the final compensation. Final share the funder will receive can be based on a percentage of the final award, which varies between 15 to 50% of the recovery. If the claim fails, the financing third party will usually, receive no compensation. Main legal barriers are prohibition of maintenance champerty born in UK, which are prohibiting funding or providing of financial assistance to a holder of a claim, which allows the claim to be legally pursued when the funder or provider of financial assistance holds no connection or valid interest in the claim itself. In some main countries such as Australia, the UK, Germany and the US there is a trend of liberalization of prohibition of maintenance and champerty. In the landmark case of Forstif decision in Australia, the court granted legitimacy to TPF in Australia. In international investment arbitration, TPF trend does not appear to take main position except a few notable cases regarding cost allocation decision by arbitral tribunal and TPF withdrawal in ICSID cases. However, it seems likely to grow in the investment arbitration because it is attractive field for the funders due to investment arbitration's lucrativeness in its value. In a way, TPF can enhance access of justice to international arbitration including investor state arbitration. In international investment arbitration, the main concerns are the TPF's impact on the attorney-client relationship and the limit TPF imposes on amicable settlements, which in turn could lead to more litigation. For example, funder’s discontinuance of funding led to another litigation in S&T Oil Equipment and Machinery Ltd. v. Romania. Also it is not easy for third party funders to voluntarily disclose their involvement in the arbitral proceedings. In Ioannis Kardassopoulos and Ron Fuchs v. The Republic of Georgia the tribunal stated that there’s no principle why any third party financing agreement should be taken into consideration in determining the amount of recovery. There appear to be no such relevant rules of arbitral institutions requiring a party to disclose that it is funded. Nevertheless, it may be possible that a future arbitral tribunal may decide to extend jurisdiction over the funder under the non-signatory doctrine. It is clear that arbitral tribunals still do not have the jurisdiction or the power to invalidate a funding arrangement, unless the parties raise the funding agreement itself as a merits issue. It seems that major arbitration institutions such as ICSID, the UN Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce have the power to set up any rules, if possible.

Citation status

* References for papers published after 2022 are currently being built.