Presence of Third-Party Funding in the International Investment System Constitutes a Fundamental Change of Circumstances

Abstract

The paper discusses whether the presence of Third-Party Funding (TPF) in ISDS constitutes a fundamental change of circumstances sufficient to successfully invoke the doctrine of rebus sic stantibus to justify a state’s refusal to enforce a TPF-funded arbitral award against it, by treating Articles 53 and 54 of the ICSID Convention as suspended for TPF-funded proceedings. An investor would typically seek the enforcement of an ICSID award in the domestic courts of the host state, which could be refused by the courts as against public policy if the state had legislated to ban TPF at least in an ISDS setting. However, this would trigger an objection by the enforcing party that such refusal constituted a violation of the state’s duty under the ICSID Treaty, specifically Articles 53 and 54. In response, the host state could (it is argued) invoke the principle of a fundamental change of circumstances to treat as suspended the ICSID Convention requirement of recognizing and enforcing the award. Afterwards, the investor’s home state could dispute the host state’s invocation of the doctrine in the ICJ to determine whether the change suffices to constitute a fundamental change of circumstances.