Third-Party Funding in Arbitration: A Case for Mandatory Disclosure?

Abstract

The author of this article discusses the question whether or not it is necessary to put a party who has obtained third-party funding under a duty to disclose this fact. In fact, the trend in international arbitration goes towards an imposition of such a duty. This is meant as an answer to the following three typical ‘risk scenarios’ related to third-party funding:(a)Third-party funders may in some way be connected to arbitrators and, therefore, impair their impartiality and independence.(b)Third-party funders are no parties to the procedure and can therefore not become liable for the payment of costs ordered in the award to the opponent of an impecunious funded party—but if the arrangement and concealed impecuniosity were revealed, the opponent could request a security for costs.(c)In some cases, a party is fiercely opposing a security for cost order by painting a picture of being a poor David oppressed by a wealthy Goliath when in fact this party is just as strong financially due to third-party funding. However, it has also been advocated that to impose an obligation to disclose would be unnecessary and impractical: it has been stated that the economics behind most litigation funding provides a key safeguard against conflicts of interest, bad faith and any other misconduct that could endanger or prolong the arbitration process. After weighing up the arguments behind these positions, the author proposes for the time being (a) to closely watch the developments in Hong Kong and Singapore to see (as far as that is possible) whether or not a duty to disclose third-party funding produces undesirable results and (b) to suggest to arbitral institutions to provide the parties with an information leaflet on third-party funding with a list of recommendations and short explanations as to the consequences of too late a revelation of third-party funding.