Tim Mayer’s article in Litigation Funding analyses the International Council for Commercial Arbitration (ICCA) – Queen Mary Task Force’s report on Third-Party Funding in International Arbitration published in April.

(Transcribed article below)

Focus on Funding

A report on Third-Party Funding in International Arbitration, published in April by the International Council for Commercial Arbitration – Queen Mary Task Force, considers the issues that arise when litigation finance is deployed in international commercial arbitration.

Whether one agrees with the report or not, it will undoubtedly become an important reference manual for arbitration practitioners, clients, funders, scholars and students alike; and for that reason alone the authors should be applauded. But the extensive scope of the report may give rise to some difficulties. This article will attempt to address some of those difficulties, in particular with respect to disclosure, privilege, security for costs and adverse costs.

The report is a significant work and reflects the admirable efforts of more than 50 practitioners, attorneys, funders, brokers, academics and others who worked over the course of five years. The scope of the report may, however, be said to be both its strength and its weakness. Specifically, the report’s breadth may be said not to allow it to define properly the very area it purports to address.

For instance, there is no consistent definition of funding adopted, and the report largely carves out other more traditional means of financing arbitration costs for no principled reason, thereby singling out third-party funding as somehow novel and deserving of ‘special’ treatment. This may be said to be both unprincipled and liable to lead to inconsistent application of the report’s recommendations.

For example, a company may take an equity investment to finance an arbitral process. Taking the disclosure recommendations suggested in the report as an example, such an investment would not appear to fall within the report’s remit and the recommendations would not therefore apply to the company or its lawyers. Conversely, a law firm’s decision to finance its operations with a conventional recourse loan may now arguably fall within the disclosure rule. It is not clear from the report why that should be so.


Much emphasis has been placed on disclosure in the report.

The report says that a party and / or its representatives should, on their own initiative, disclose the existence of a third-party funding arrangement and the identity of the funder to the arbitrators and the arbitral institution, either as part of a first appearance or submission as soon as practicable after funding is provided.

The report argues that disclosure should occur so that the integrity of the arbitration is preserved, and so that conflicts of interest between funders and arbitrators are avoided.

Disclosure issues may be said to be a critical area of inconsistency given the definitions of funding within the report; the equity investment vs bank loan scenario touched on above illustrates that.

Some commentators have suggested that the recommendations with respect to disclosure attempt to fix a problem that does not exist, since, some say, there is little evidence suggesting that an arbitrator’s impartiality may be compromised because it has a relationship with a party that funds a case, whatever that relationship might be.

Moreover, the report does not attempt to articulate practical principles of what funding scenarios would present a conflict, presumably because it would be nigh on impossible to do so in any comprehensive way.

What the recommendation for early and systemic disclosure of funding might be said to result in, however, is a case of putting the cart before the horse, since the funder and the party’s representatives, it may be said, ought to be in the best place to decide when disclosure is required based on the composition of a tribunal and the particular circumstances of the case. To suggest otherwise runs the risk of unintended consequences, since it arguably presents respondents with opportunities to pursue strategic applications, for example seeking security for costs, thereby causing delay and increasing costs overall.


The report contains a number of very sensible suggestions, including those with respect to costs and security for costs.

Funded parties will welcome the recommendation that the recovery of costs from the losing party should not be affected by reason of the claimant being funded, and that the presence of funding per se ought not to result in an order for payment of security for respondents’ costs.

Similarly, the report correctly concludes that the obligation of a party to reimburse the funder for amounts the funder has spent to achieve a successful outcome is ‘incurred cost’ and should be subject to recovery.

The report further suggests that, subject to the early disclosure of the funding agreement and the application of a reasonableness test, tribunals should be able to award the costs of a successful party’s funding against the losing party. That is a welcome departure, although some commentators consider that the recommendation may be somewhat arbitrary; to simplify the issue, it is suggested that the taskforce ought to have recommended that arbitral panels are able to make such awards based on a reasonable interpretation of the arbitral agreement itself in the context of a private arbitration, and the definition of recoverable costs in applicable national legislation and procedural rules, particularly in the context of an investor-state arbitration.


With respect to privilege, the report properly acknowledges that a funding agreement should remain confidential and only ordered to be disclosed in exceptional circumstances. Similarly, the report notes rightly that privilege is not waived solely because privileged information was provided by parties or their counsel to a third-party funder for the purpose of obtaining funding or supporting the funding relationship.

Recognising this as a rule is fully consistent with the broad trend of judicial opinions in other jurisdictions in the litigation context, including the US, which appropriately recognise the common interest that a litigant and funder share in the successful outcome of a claim.


Requiring parties to disclose third-party funding arrangements at the outset of proceedings may be said to impact on the appeal of arbitration, for the simple reason that such disclosure places the disclosing party at a tactical disadvantage, and may result in increased delay and costs. Since arbitration is designed (and indeed perceived) as a cost-efficient and rapid alternative to litigation, it is possible that implementation of a mandatory disclosure regime could impact the efficacy of any arbitration in comparison to litigation.

“A firm’s decision to finance its operations with a conventional recourse loan may now fall within the disclosure rule”

That said, the demand for funding continues to increase dramatically as the costs of litigation and arbitration increase. The report notes that the global market for dispute funding is estimated to be in excess of $10bn. At Therium, half of the funded cases are arbitrations. As such, there is no doubt that funders will continue to provide products which clients demand, so that meritorious claims may be prosecuted, whether the motivation is to provide equality of arms, or to simply ‘hedge’ arbitration risk and improve a client’s bottom line. Nothing in the report would appear to jeopardise that.

There is little doubt that the report will prompt much interest in the arbitration world, and will have the effect of cementing the importance of funding in international arbitration.

However, lawyers and funders should be alive to the risk of the report’s unintended consequences, whether it be with respect to disclosure applications potentially lengthening the process and increasing the costs, or because the potential conflicts of arbitrators are not clear, and the question is whether or not any perceived conflict is important enough to matter.

Timothy Mayer is senior investment officer at Therium Capital Management and was a member of the taskforce that contributed to the above report. The report was part of a series of ‘occasional papers’ published by the International Council for Commercial Arbitration with the intention of encouraging discussion and debate.

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