Those of you who are regular attendees at international arbitration conferences will be only too familiar with the catchy session on “Hot Topics”. You will also know that third-party funding has been a resident hot topic on the arbitration conference circuit for a number of years. In this context, the topics that seem to arise most are:

  • a funder’s potentially harmful control of claims; and
  • the potential conflicts of interest for arbitrators.

This article seeks to set the record straight on these and other key topics in the context of funding international arbitration, although many of the points made apply equally to litigation more generally.

Control vs Monitoring?


Concerns about third-party funders’ potential control of a claimant’s case once it is funded are often raised. A funder that has made a serious and well analysed investment decision will never, and in most jurisdictions simply cannot, interfere with the progress of a claim, and that includes any settlement that may be reached. A settlement decision is always that of the claimant. The claimant does not have to involve the funder in any way if it does not wish to do so. Simply put, the consent of the funder is not required to settle a dispute and in most jurisdictions, including the UK, a contractual clause giving a funder such power may be unlawful.

In reality, when undertaking initial due diligence of a claim and before committing to fund it, a funder will examine the estimated damages in detail and undertake its own assessment of the realistic quantum of the claim. In so doing, the funder will take into account, and discuss with a claimant, settlement options to ensure that all parties have realistic figures in mind which will satisfy both the funder and the claimant if a settlement offer arises.

It should not be forgotten that commercial realities mean it is in the funder’s best interests to recover its investment and a return on that investment earlier, by means of a settlement, rather than hoping for a potentially greater return later in the proceedings, given the inherent risks involved in dispute resolution.

Lawyer selection

We are frequently asked whether the funder chooses the lawyer. The answer is no. A claimant is free to select any lawyer of their choosing. However, as far as possible, funders ensure that the claimants they finance are well represented with the best legal team available and a funder may refuse to fund a good case if it believes that the claimant is not adequately represented. This is not a tool used by funders to take control but is an attempt by the funder to get the best representation for the claimant and, at the end of the day, for their own investment.

Once a case is funded all we request from the legal team is regular contact to enable us to keep abreast of relevant issues that may arise in the claim.

Similarly, the strategy, choice of experts and witnesses are issues for the claimant and their lawyers to ultimately decide. However, with a good collaborative relationship, a funder can also bring a helpful set of extra eyes or share relevant past experiences that may help the decision making process.

Privilege and confidentiality

These issues vary according to each jurisdiction and upon each lawyer’s ethical rules. The best practice is to adapt each relationship to the particular circumstances of each case. We fund cases across the globe and have had the occasion to recently review cases involving lawyers across a number of different jurisdictions including England, France, Germany, Australia, New Zealand, South Africa, the United States and Dubai (DIFC). In each case we adapt the terms of our relationship with the respective lawyers to ensure the applicable procedural and ethical rules in each jurisdiction are respected at all times.

Importantly, we treat everything our clients say and every piece of information they send us with the highest level of confidentiality. We store all documentation securely on our bespoke case management software platform (VCMS) which uses 128 bit Secure Sockets Layer encryption and sits on our own secure virtual private network (VPN).

Responsibility and flexibility must be key when examining these important issues.

To disclose or not to disclose?

There are risks and benefits for a claimant deciding whether or not to disclose willingly that their claim is funded, which need to be examined on a case-by-case basis. Whether or not to make such a disclosure is ultimately a decision for the claimant. However, in an arbitration context, we are increasingly seeing requests from respondents asking tribunals to order claimants to disclose whether there has been funding and, if so, the identity of the funder.

The professed reason for such requests is that the information may identify a potential conflict of interest of one of the tribunal which can thereafter be disclosed and dealt with appropriately, depending on the situation, without jeopardising the integrity of proceedings or the consequential decision or award. In reality, most of the time, these requests seem to be a procedural dilatory tactic used by respondents to delay and complicate arbitral proceedings.

However, such disclosure requests arguably hide a more significant consideration in the context of security for costs applications. The decision on security for costs rendered in RSM Production Corporation v Saint Lucia, ICSID Case No. ARB/12/10, has given rise to much discussion and heated debate. The debate encompassed two different questions which harboured varying degrees of controversy:

  1. Can an ICSID tribunal order security for costs absent specific provisions in the ICSID Convention and the arbitration rules; and
  2. Is the presence of a third-party funder relevant, and, if so, to what extent, to that decision?

For present purposes we are naturally more interested in the second question. To the surprise of a significant portion of the arbitral community, the assenting opinion went as far as to argue for an automatic award of security when a funder was involved, in contravention of a long line of established precedents about security in the ICSID context.

More recently, in the case of Eurogas and Belmont v The Slovak Republic, ICSID Case No. ARB/14/14, another tribunal seems to have settled the matter, deciding that the fact of funding should have no incidence on the decision to award security for costs.

As a funder we are, of course, only too aware of these issues and we strive to carefully consider them with the client and lawyers as appropriate before they even arise.

This article first appeared Funding in Focus, Report Two, November 2015 by Vannin Capital and Legal Week. To view the original article and full report please contact [email protected].