In what appears to be the first decision of its kind, an ICSID tribunal in the case of Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan has ordered the claimants in the proceedings to disclose the identity of their third-party funder, as well as to provide details of the nature and terms of the funding arrangements. The decision acts as a clear warning for claimants that the existence and terms of any funding arrangements that have been entered into may not remain confidential. It also has significance for respondents seeking to obtain security for costs in proceedings.
The ICSID proceedings concern a claim brought pursuant to the Turkey-Turkmenistan bilateral investment treaty by two Turkish construction companies (the claimants) against the Republic of Turkmenistan (the respondent) relating to the alleged destruction, impairment and unlawful expropriation of the claimants' construction projects in Turkmenistan.
In April 2015, the respondent applied for an order that the claimants be required to disclose details of their funding arrangements. The respondent sought to justify its application on the bases that:
- Disclosure was necessary for the purpose of identifying those parties having a direct economic interest in any potential award, as well as to determine whether the claimants were still the owners of the claims in the arbitration.
- Disclosure was necessary to determine whether there may be any conflicts between the claimants' funders and others involved in the arbitration, including, in particular, the arbitrators. On this point the respondent relied in particular on the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration, which provide that third-party funders having a direct economic interest in the award may be considered as being equivalent to a party to the proceedings.
- The respondent intended to make an application for security for costs, and knowledge of whether the claimant was benefitting from any funding arrangement was necessary to determine the proper basis on which such an application should be made.
The tribunal's order
The tribunal ordered that the claimants must confirm whether their claims in the arbitration were being funded by a third-party funder, disclose the name(s) and details of such funder(s) and disclose the nature of any arrangements entered into with such funder(s), including whether and to what extent such funder(s) will share in any success that the claimants may achieve in the arbitration.
In granting the respondent's application, the tribunal appears to have been persuaded in particular by the respondent's concern that the fact that the claimant may be benefiting from third-party funding would mean that it might be unable to meet any costs order against it. It was also influenced more generally by the "importance of ensuring the integrity of the proceedings and to determine whether any of the arbitrators are affected by the existence of a third party-funder".
As recourse to third-party funders has become increasingly prevalent in the arbitration sector, the assumption has often been that, given that none of the major arbitral institutions expressly require disclosure of such matters, disclosure of a claimant's funding arrangements is likely to be required only in exceptional circumstances.
The order granted in this case demonstrates that this assumption is not necessarily reliable. In particular, this case demonstrates that an arbitral tribunal may be willing to order disclosure of the claimants' funding arrangements on the basis of factors that are likely to arise frequently in cases where third-party funding has been obtained. Specifically:
- The tribunal's reasoning that the existence of third-party funding is, in of itself, a matter relevant to the integrity of the proceedings would mean that there is a prima facie case for the disclosure of the existence of a third-party funder in all cases where the claimant has entered into such an arrangement.
- It is notable that the tribunal was influenced by the need to ensure that there were no conflicts of interest between any third-party funder and the arbitrators in this case, notwithstanding the fact that little or no substantive evidence for the risk of such a conflict appears to have been adduced by the respondent. This would suggest that the very existence of a third-party funding arrangement is sufficient to give rise to a prima facie case for disclosure on the basis of a potential (but unknown) conflict.
- It is also notable that the fact that the respondent was intending to make a security for costs application was a factor weighing in favour of the disclosure of the claimants' funding arrangements, notwithstanding the fact that it was not known whether there was in fact any funding arrangement in place and irrespective of the respondent's prospects of eventually obtaining such an order. Such reasoning is in keeping with a recent trend in ICSID arbitrations to the effect that the existence of third-party funding may in itself create a rebuttable presumption in favour of a security for costs order being made (see e.g. Decision on Saint Lucia's Request for Security for Costs in RSM Production Corporation v Saint Lucia ICSID Case No. ARB/12/10).
Therefore, claimants in ICSID proceedings (and potentially also proceedings under other arbitration rules) who intend to benefit from third-party funding should be aware of the risk that the details of such arrangements may need to be disclosed to the other parties and the tribunal. Similarly, respondents in proceedings where the claim against them may be funded by a third-party should consider whether it may be appropriate to make an application for disclosure of any such arrangements, including for the purposes of a security for costs application.