Third-Party Funding Arbitration Funding Costs Security Disclosure TPF

Introduction

Third-party funding (TPF) has become increasingly prevalent in international arbitration, raising important issues regarding disclosure, conflicts, and costs security. This article examines the global landscape for TPF in arbitration.

Third-Party Funding Models

Types of Funding

  • Single-case funding: Funder finances individual arbitration in exchange for share of proceeds
  • Portfolio funding: Funder finances multiple cases; diversified risk profile
  • Law firm funding: Funding arrangements with law firms for case development
  • After-the-event (ATE) insurance: Insurance covering adverse costs

Funding Terms

  • Funding amount: typically covers legal fees, expert costs, arbitration costs
  • Success fee: 20-40% of recovery; higher for higher-risk cases
  • Recourse vs. non-recourse: non-recourse standard (no repayment if claim fails)
  • Control: funders typically have no control over case strategy; may have termination rights

Disclosure Requirements

Institutional Rules

SIAC Rules

  • Must disclose existence of third-party funding, funder identity, and any changes
  • Disclosure to tribunal, opposing party, and SIAC
  • Failure may result in adverse costs orders

HKIAC Rules

  • Must disclose existence of funding agreement and funder identity
  • Ongoing disclosure obligation throughout arbitration
  • Tribunal may consider funding in costs allocation

ICC Rules

  • No explicit TPF disclosure requirement
  • Powers to address conflicts and costs security
  • Practice: Tribunals increasingly ordering disclosure

LCIA Rules

  • No explicit TPF disclosure requirement
  • General disclosure powers; practice varies

National Arbitration Laws

Singapore

  • Third-Party Funding Act (2017): Permits TPF; defines funding; establishes disclosure requirement
  • Civil Law (Third-Party Funding) Regulations: Prescribed classes of funding
  • Disclosure required to ensure no conflict with arbitrator impartiality

Hong Kong

  • Arbitration Ordinance amendments (2017, 2020): Permits TPF; disclosure requirements
  • Code of Practice for TPF: Detailed guidance on disclosure, conflicts, conduct
  • Disclosure of existence and funder identity mandatory

England and Wales

  • No specific legislation; common law permits TPF
  • Disclosure: not automatically required; may be ordered by tribunal
  • CFA and DBA regulations apply to lawyer funding arrangements

Australia

  • No specific TPF legislation; common law permits
  • Disclosure: may be ordered in context of costs security applications

United States

  • No federal TPF legislation; state law variations
  • Disclosure: may be required for arbitrator conflicts; varying approaches

Costs Security

Framework

TPF may affect security for costs applications. Tribunals consider:

  • Whether funded party impecunious
  • Funder's obligation to cover adverse costs
  • Whether funder has provided undertaking to cover adverse costs
  • Location of funder (enforcement against funder)

Approaches by Jurisdiction

  • Singapore/Hong Kong: TPF may weigh in favor of costs security; funder's location relevant
  • England: TPF may increase likelihood of costs security; courts may order disclosure of funding terms
  • Investment Arbitration: Costs security rarely ordered; TPF alone insufficient

Conflicts of Interest

Arbitrator Conflicts

  • Must disclose relationships with funders (direct or indirect)
  • Institutional conflicts checks increasingly include funder databases
  • IBA Guidelines on Conflicts of Interest (2024) addresses TPF relationships

Confidentiality Issues

  • Funding agreements may be subject to disclosure in costs security or conflict applications
  • Redacted disclosure may be ordered to protect commercially sensitive terms

Costs and Allocation

Recovery of Funding Costs

  • Costs of funding generally not recoverable as costs of arbitration
  • Funding premium not recoverable from opposing party
  • Successful funded party may recover legal fees and arbitration costs

Adverse Costs Liability

  • Funded party remains liable for adverse costs
  • Funder may provide security or undertaking to cover adverse costs
  • Third-party costs orders against funders in some jurisdictions (England & Wales)

Regulatory Frameworks

Singapore

  • Licensed funders only (Ministry of Law registration)
  • Capital requirements: S$5 million minimum paid-up capital
  • Conduct requirements: no control over case; fair terms; transparency
  • Mandatory disclosure obligations

Hong Kong

  • Voluntary code of practice; no licensing requirement
  • Conduct requirements: fair terms; no control; disclosure obligations
  • Independent legal advice recommended for funded parties

England and Wales

  • No specific TPF regulation
  • General consumer protection and contract law apply
  • Damages-based agreements (DBAs) regulated separately

Australia

  • Litigation funding schemes regulated by Australian Securities and Investments Commission (ASIC)
  • Class action funding subject to court approval
  • Recent reforms to litigation funding regulation

Practical Recommendations

  1. Consider TPF early in dispute; funding takes time to arrange
  2. Ensure funding agreement addresses disclosure, confidentiality, and costs security
  3. Disclose funding existence and funder identity (where required)
  4. Address potential arbitrator conflicts at appointment stage
  5. Consider funder's jurisdiction for enforcement against funder
  6. Maintain independent control of case strategy
  7. Document funding arrangements for potential disclosure