Hussein Haeri, Clàudia Baró Huelmo and Giacomo Gasparotti1

Introduction

The significance of third-party funding (TPF) (also referred to as litigation funding, third-party financing or legal finance) in international arbitration has become axiomatic during the past decade, even if its nature (and very definition) remain as contested as the procedural and regulatory initiatives that have accompanied its growth and development. Indeed, it is difficult to identify another dimension in the field of international arbitration the progression of which has been more consequential for the practice of international arbitration during this period than TPF. This is a function of many variables, including, but by no means limited to:

  • legal and regulatory initiatives in many jurisdictions to liberalise historic prohibitions and restrictions on TPF (sometimes as part of renewed efforts to facilitate access to justice in the context of reduced public or legal aid funds);
  • the relative efficacy of initiatives for self-regulation (albeit not without controversy);
  • the maturation and deepening of the TPF market;
  • the standardisation of some market practices, even as greater specialism and focus have emerged among some funders;
  • the enhanced awareness of litigating parties and their counsel of the potential advantages of TPF and the means of accessing it; and
  • the considerable engagement of the international arbitration community with the legal and practical issues raised, or perceived to be raised, by TPF.

It is striking that it was only in 2011 that Lord Justice Jackson welcomed the establishment of a Code of Conduct by the Association of Litigation Funders,2 which itself followed less than two years after Lord Jackson's Review of Civil Litigation Costs in England and Wales.3 Since the first Code of Conduct,4 numerous developments have occurred in the sphere of TPF, including: its legal and regulatory acceptance for international arbitration disputes in important arbitration jurisdictions such as Singapore and Hong Kong; its increased use in practice and concomitant visibility in the jurisprudence (including regarding issues such as disclosure, costs and enforcement); and enhanced scrutiny and consideration by academics and practitioners in various studies and reports, perhaps most prominently in the Report of the International Council for Commercial Arbitration (ICCA) - Queen Mary Task Force on Third-Party Funding in International Arbitration of 2018 (the ICCA-Queen Mary Task Force).5

TPF can be employed to finance a broad range of arbitration (and litigation) disputes, conducted across different sectors and under different procedural rules. TPF is reported to be frequently used in merger and acquisition (M&A) and commercial arbitration and it also finds use in investment treaty arbitration.6 Although some of the particularities of M&A arbitration may have a bearing on the way TPF operates in this sub-type of commercial arbitration, it is fair to say that, overall, the basic 'mechanics' of TPF, as well as some of the main procedural issues posed by it, do not significantly vary between M&A arbitration and other forms of arbitration. The same holds true for the regulation of TPF, which is generally uniform across sub-types of commercial arbitration, with some potential differences when it comes to investment treaty arbitration (and differences with litigation). Accordingly, to understand the role of TPF in M&A arbitration, one cannot ignore its role in the broader context of international arbitration.

While not purporting to be comprehensive in any way, this chapter canvasses some of the most significant initiatives and developments regarding TPF to take stock of the broad state of play of TPF in M&A arbitration as well as in international arbitration in general, which shows every sign of becoming yet more consequential in this field during the coming decade. Following a brief definitional overview of TPF, this chapter highlights some of the particularities concerning the role of TPF in M&A arbitration. It then considers, more generally, the mechanics of TPF - and, in particular, the participants involved, the due diligence process and the economic and legal terms of funding agreements. Thereafter, it addresses the regulation of TPF, looking at certain common law and civil law jurisdictions that are prominent in this sphere, as well as pertinent arbitration rules, guidelines and self-regulation. Finally, the chapter canvasses some issues regarding TPF in arbitral proceedings, including confidentiality, disclosure, security for costs and other cost-related issues.

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Footnotes

1. Hussein Haeri is a partner, Clàudia Baró Huelmo is a senior associate and Giacomo Gasparotti is an associate at Withers LLP. The authors would like to thank their colleagues Martha Eker-Male and Carolina Mauro for their research assistance.

2. Lord Justice Jackson, 'Third Party funding or Litigation Funding: Sixth Lecture in the Civil Litigation Costs Review Implementations Programme' (23 November 2011), The Royal Courts of Justice, https://associationoflitigationfunders.com/wp-content/uploads/2014/02/Sixth-Lecture-by-Lord-Justice-Jackson-in-the-Civil-Litigation-Costs-Review-.pdf (last accessed 17 September 2022).

3. Lord Justice Jackson, 'Review of Civil Litigation Costs: Final Report' (December 2009), www.judiciary.uk/wp-content/uploads/JCO/Documents/Reports/jackson-final-report-140110.pdf (last accessed 17 September 2022).

4. Code of Conduct for Litigation Funders, November 2011, subsequently updated January 2018, https://associationoflitigationfunders.com/code-of-conduct/ (last accessed 17 September 2022).

5. International Council for Commercial Arbitration (ICCA), Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, The ICCA Reports No. 4, April 2018, www.arbitration-icca.org/media/10/40280243154551/icca_reports_4_tpf_final_for_print_5_april.pdf (last accessed 17 September 2022) (ICCA-Queen Mary Report).

6. James McKinnon, 'Using Legal Finance for M&A Arbitrations' in Edward Poulton (ed.), Arbitration of M&A Transactions: A Practical Guide (Second Edition) (Globe Law and Business, 2020), 447.

Originally published by Global Arbitration Review (GAR).

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