In essence, third-party funding (TPF) is a business transaction whereby a funder pays the litigant’s costs and expenses in exchange for the assignment of a share of the litigant’s recovery. If the funded litigant loses, the funder will lose the investment; if the claim is successful, either in litigation or settlement, the funder will receive a portion or percentage of the recovery.

Some local jurisdictions have precise rules on whether the existence of TPF should be disclosed. For example, in 2011 the Federal Court of Australia issued Practice Note CM 17, which requires parties to disclose a TPF relationship at or prior to the initial case management conference. More recently, in December 2013, the Supreme Court of New Zealand ruled that, when a litigation funder is involved, at the commencement of the proceeding, a party should disclose the identity of the funder and its amenability to the jurisdiction of the courts of New Zealand. See Waterhouse v Contractors Bonding Ltd [2013] NZSC 89. In the United States a fee agreement, or who paid it, and the amount paid has no relevance to the legal advice to be given and, therefore, normally it is not privileged. This is important because under Rule 3.3 of the ABA Model Rules of Professional Conduct a lawyer “shall not knowingly... make a false statement of fact or law to a tribunal...” and thus should be obliged to disclose the existence of TPF if asked by the court.

As opposed to local litigation, to my knowledge, none of the international arbitration rules contain any provision requiring a funded party to disclose any information about the funding, the identity of the funder or the specifics of the funding. However, if a party learns that his adversary is being funded, this may prompt certain strategies or motions.

Jul-Sep 2014 issue

B. Cremades & Asociados