Introduction
Risks
Comment


Introduction

Third-party funding is a relatively new and controversial solution that helps Mexican parties to access costly international arbitration proceedings. Where the parties involved do not have the resources to fund such expenses (eg, in disputes between global enterprises and owners of small Mexican businesses), they require practical solutions to pursue proceedings that a lack of financing would otherwise have prevented. This includes solutions such as the involvement of third parties that are unrelated to the controversy itself, but have an interest (economic or political) in the arbitration, either because of the success fee agreed on it, or the precedent that the arbitration can set on the matter (generally in commercial affairs).

It is not only under-resourced Mexican parties that use this kind of financial funding. For Mexican parties that are adequately resourced, funding can offer a more convenient financing structure, enabling capital that would otherwise be spent on legal fees to be allocated to other areas of their business during the proceedings, which means that all parties involved can take advantage of the funding.

Risks

However, third-party funding involves a level of risk. Third-party funding could increase the numbers of unmeritorious claims that have more of a political background than a legal one. However, some believe that the third-party funding results in the opposite because, as their return is dependent on the success of the case, funders have no desire to take on weak or unmeritorious cases. So, the funding could be a filter for unmeritorious cases.

The main concern about third-party funding relates to conflicts of interest. Third-party funding arrangements may result in undisclosed conflicts of interest. This can occur, for example, where there is a prior relationship between the funder and a party or law firm involved in the proceedings or between the funder and an arbitrator. Such conflicts can result in costly satellite disputes, including challenges to the arbitrator's appointment and applications for disclosure of the funding arrangement.

Mexican parties seeking third-party funding should consider whether they should disclose those arrangements (and, if so, how and when). The applicable law and rules of the arbitration play a determinative role here, which is why when the most important arbitration's administrative entities analyse this controversial topic, they draw on debates between leading international arbitrators and practitioners, and major third-party funding corporations. This sets a high standard for the process and improves the trust of the parties to arbitration.

Comment

Third-party funding is a useful way for Mexican parties to access arbitration and front the costs that this kind of process involves, enabling them to pursue proceedings which a lack of financing would otherwise have prevented. However, this funding must be subject to specific rules that guarantee that the arbitration to which the third party is related is not affected by any cause that could annul the arbitration procedure before the Mexican courts that must recognise the arbitration award and execute it, thus rendering a conflict of interest.

For further information on this topic please contact Raúl Herrera Hazas at Becerril, Coca & Becerril SC by telephone (+52 55 5263 8730) or email ([email protected]). The Becerril, Coca & Becerril website can be accessed at www.bcb.com.mx.