Abstract
Third-party funding, also known as “dispute finance,” is a controversial, dynamic, and evolving arrangement whereby an outside entity (“the funder”) finances the legal representation of a party involved in litigation or arbitration, whether domestically or internationally, on a non-recourse basis, meaning that the funder is not entitled to receive any money from the funded party if the case is unsuccessful. It has been documented in more than sixty countries on six continents worldwide—including in many of the jurisdictions highlighted in this symposium that are experimenting with other aspects of international commercial dispute resolution. Indeed, funding greases the wheels of this experimentation. The true prevalence of third-party funding is likely far greater than we know since disclosure is not presently mandated everywhere. This essay argues that the three biggest global regulatory issues with respect to dispute finance are disclosure, definition, and delegation of oversight and that the global laboratories of dispute finance remain firmly within the control of the private sector with the public regulators continuously struggling to understand and address new developments in the industry. An apt analogy would be that the dispute financiers are driving cars and building spaceships with respect to their innovative financing arrangements, while many of the regulators are aiming their sights at the classic “horse-and-buggy” third-party funding arrangements that are rapidly falling out of use.
Highlights
Third-party funding, known as “dispute finance,” is a controversial, dynamic, and evolving arrangement whereby an outside entity (“the funder”) finances the legal representation of a party involved in litigation or arbitration, whether domestically or internationally, on a non-recourse basis, meaning that the funder is not entitled to receive any money from the funded party if the case is unsuccessful.[1]
It has been documented in more than sixty countries on six continents worldwide—including in many of the jurisdictions highlighted in this symposium that are experimenting with other aspects of international commercial dispute resolution
The forthcoming 2021 International Chamber of Commerce (ICC) Rules of Arbitration (ICC Rules) will include the new Article 11.7 requiring disclosure “of the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.”[12]. The ICC publishes and frequently updates its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration (ICC Practice Note) which requires that arbitrators disclose connections with “any entity having a direct economic interest in the dispute or an obligation to indemnify a party for the award” in Paragraph 28, which would include third-party funders as well as other involved entities.[13]
Summary
Third-party funding, known as “dispute finance,” is a controversial, dynamic, and evolving arrangement whereby an outside entity (“the funder”) finances the legal representation of a party involved in litigation or arbitration, whether domestically or internationally, on a non-recourse basis, meaning that the funder is not entitled to receive any money from the funded party if the case is unsuccessful.[1]. Funding greases the wheels of this experimentation. The true prevalence of third-party funding is likely far greater than we know since disclosure is not presently mandated everywhere.[2] This essay argues that the three biggest global regulatory issues with respect to dispute finance are disclosure, definition, and delegation of oversight and that the global laboratories of dispute finance remain firmly within the control of the private sector with the public regulators continuously struggling to understand and address new developments in the industry. An apt analogy would be that the dispute financiers are driving cars and building spaceships with respect to their innovative financing arrangements, while many of the regulators are aiming their sights at the classic “horse-and-buggy” third-party funding arrangements that are rapidly falling out of use
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