THIRD-PARTY FUNDING IN INTERNATIONAL ARBITRATION
The use of third-party funding in international arbitration continues to grow and evolve. Originally, third-party funding was relied upon by claimants who lacked the financial means to pursue their claims. Increasingly, however, it is used as a general financing tool, including by companies that wish to move their dispute resolution costs off-balance sheet.
Third-party funding in international arbitration gives rise to a number of issues. The involvement of a funder has the potential to create conflicts of interest and affect the allocation of costs. These issues have led to calls for the field to be regulated. However, while some jurisdictions have introduced regulation, others are taking a wait-and-see approach.
Third-party funding is not new, but it has only recently started to move into the mainstream of international arbitration. Its rise can be explained by the roll-back of the common law doctrines of maintenance and champerty. Maintenance refers to the interference of third parties in litigation to support or encourage it. Champerty is a more extreme form of maintenance in which a third party finances litigation in return for a share in any proceeds.
These doctrines, which were both crimes and torts at common law, were developed in medieval England to prevent fraudulent and vexatious litigation and protect the purity of justice (Re Trepca Mines (No 2) (1963)). They have also been found to apply to arbitration (Bevan Ashford v Geoff Yeandle (1998)).
Apr-Jun 2018 issue
Freshfields Bruckhaus Deringer LLP