Chapter 17 Third-Party Funding in International Arbitration Views From A Conflict-of-Law Perspective and Beyond

KluwerArbitration
Document information Chapter 17: Third-Party Funding in International

Arbitration: Views from a Conflict-of-Law Perspective and
Publication Beyond
Finances in International Alberto Mazzoni
Arbitration: Liber
Amicorum Patricia (*)
Shaughnessy
§17.01 PREAMBLE
Third-party funding in international arbitration is a fast-growing phenomenon and a
Topics source of lively debates on a number of issues. While there is a significant amount of
Investment Arbitration existing literature on this subject matter, (1) the purpose of this chapter is neither to draw
up a synthesis of the various positions nor to present what could be considered the
better rule on each relevant issue. The purpose is rather to focus on a particular aspect
P 300 (or perhaps, I should say, on a specific standpoint) which, in my opinion, has not
Bibliographic attracted hitherto the attention that it deserves. I refer to the conflict-of-laws
reference perspective that can be adopted in assessing the role and the limits of third-party
Alberto Mazzoni, 'Chapter funding in international arbitration. I allude, in the first place, to the role that may be
17: Third-Party Funding in played in this respect by the procedural law of the State which is the seat of the
International Arbitration: arbitration, traditionally denominated lex arbitri, and, in the second place, to the role
Views from a Conflict-of- that may be played by the law of the State where enforcement of an award issued at the
Law Perspective and end of a proceeding “facilitated” by third-party funding is sought, i.e. the lex executionis.
Beyond', in Sherlin Tung , Before delving into the heart of the discussion, a few preliminary remarks will be
Fabricio Fortese , et al. presented in order to accurately circumscribe the subject with which I intend to deal.
(eds), Finances in
International Arbitration:
Liber Amicorum Patricia §17.02 FOCUS OF THE ANALYSIS ON PROFESSIONAL THIRD-PARTY FUNDING
Shaughnessy, (© Kluwer First and foremost, this chapter will deal with professional third-party funding only. By
Law International; Kluwer this expression, reference is made to the comprehensive financial assistance provided to
Law International 2019) pp. a claimant (2) in an international arbitration by a company actively engaged in providing
299 - 322 this kind of financial services on a professional basis, i.e. as its ordinary business.
Normally, the funder makes nonrecourse financing available to the claimant/funded
party for the purpose of paying the costs of the arbitral proceedings that such party
would otherwise be unable or unwilling to bear, thus making it possible to pursue through
arbitration a claim that, without the funding, would be dropped.
Typically, this professional funding covers the entirety of the costs payable by the
claimant and is provided in exchange for a significant portion (3) of the monetary amount
recovered in the event (and only in the event) of a successful outcome of the case
(whether as a result of a spontaneous payment under an award or as a result of the
enforcement of an award or by virtue of a settlement).
Thus, in economic terms, this kind of funding is essentially an investment, which is made
by a third-party in an arbitration it views as a business opportunity. The investment is
based on the funder’s own, independent assessment of the chances of success in
arbitration of a specific claim brought in the claimant’s own name. Significantly, an
essential feature of the funding agreement is that the entire risk of the investment is
borne by the investor/funder in exchange for the right to a significant return in the event
of success.
By adopting this relatively narrow and strictly-for-profit-driven notion of third-party
funding, this analysis considers situations where, prima facie, the essentially speculative
nature of the nonrecourse financing may prompt the fear of an unacceptable interference
with the overall integrity of the arbitral process. Where an arbitral claim (or
P 301 counterclaim) becomes the instrument through which a funder makes a speculative
investment it would be reasonable to question whether the arbitral process is being
exposed to the risk of ultimately serving the pursuit of the profit goal of the funder rather
than its institutional function of satisfying the demand of private justice formally
advanced by the funded party. (4)
For the reasons set out below (see below §17.06-§17.07), this chapter follows the majority
view that third-party funding (including professional third-party funding within the
meaning outlined above) does not threaten, generally speaking, the integrity of the
arbitral process. However, this chapter also recognizes the existence of extreme cases in
which, it will be submitted, third-party funding is harmful to the arbitral process and
which accordingly deserve on their special facts to be denied recognition and protection
within that process (see below §17.08).
In any event, differently, from the very broad approach taken in certain recent legislative
texts, (5) this chapter will not deal with a variety of other potential facets of third-party
funding, which are conceivable but are practically much less frequent and which are
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characterized above all by the nonprofessional nature of the funders. This is the case, for
instance, of the disguised form of third-party financing that can be envisaged in the
situation where a law firm (in those jurisdictions where it is permitted) agrees to cover
the cost of the proceedings and accepts to be reimbursed and remunerated for its legal
and financial services purely on the basis of a contingent fee. This is also the case where
financing is provided by the parent company, an affiliate or a subsidiary company of the
same group. Finally, this chapter will also abstain from considering the cases of strictly
gratuitous funding, i.e. the cases where the funding is provided by genuine donors or
sponsors without any direct monetary stake in the financial outcome of the proceedings:
e.g. NGOs, benefit companies or associations wishing to help impecunious developing
States or meritorious weak parties in asserting or defending their rights in arbitration.
P 302
§17.03 PRELIMINARY DELIMITATIONS OF THE SCOPE OF THE ANALYSIS

Two further, preliminary delimitations of the scope of this chapter are also in order.
First, the analysis will be developed by focusing on international commercial arbitration.
It is true that the most important publicly available decisions on third-party funding
have occurred in cases of investment treaty arbitrations. (6) However, the conflict-of-laws
approach which is adopted here makes the perspective of international commercial
arbitration more conducive to the analysis, owing to the higher level of generality that it
permits to develop in the reasoning. Furthermore and more importantly, third-party
funding investment treaty arbitrations (other than ICSID arbitrations) conducted under
the UNCITRAL Rules or the ICC Rules do not pose significantly different issues in a
conflict-of-laws perspective from those that may arise in international commercial
arbitrations. This chapter will also offer a few final remarks specifically devoted to the
peculiarity of ICSID arbitrations (see below §17.09).
Second, no analysis will be offered of the compatibility of professional third-party
funding with the rules of the lex contractus governing the funding agreement.
In theory, the lex contractus governing the funding agreement could contain express or
implied rules making it illegal to enter into such an agreement on grounds of public
policy (see, e.g. the prohibition of maintenance and champerty under Irish law (7) ; or a
rule imposing upon the funders a prohibition similar to that of Italian law which forbade
lawyers to agree with their clients to be remunerated on a contingent fee basis: Article
2233(3) of the Italian Civil Code, as in force prior to 2006 (8) ). In practice, however, the
P 303 illegality of the funding agreement is unlikely to be raised by two of its three potential
challengers: among the funder, the claimant and the respondent, only the respondent is a
realistic candidate for challenging the legality of third-party funding. In any event,
assuming that such a challenge were actually raised by the respondent – for instance,
requesting, as a defeated party, the annulment of the award – it would hardly be
conceivable that the request for annulment be upheld on grounds of illegality of the
funding agreement under its own governing law. The illegality ex hypothesi of the funding
agreement under its own governing law could not cause the supervening illegality of the
contract giving rise to the arbitral proceedings. The lex contractus which is relevant to the
arbitral proceedings is the law governing the original relationship between the claimant
and the respondent, not the law governing the subsequent collateral relationship
between the claimant and the third-party funder. In substance, even if the illegality of
the funding agreement were deemed sufficient to ultimately determine the invalidity of
the proceedings and consequently of the award, the rationale of this outcome would rest
on the incompatibility of that agreement with the law governing the procedure of the
arbitration, i.e. the lex arbitri, not the prohibition of third-party funding ex hypothesi
provided by the lex contractus governing the funding agreement.
On a more practical note, it may also be observed that in international arbitration, where
parties are typically assisted by sophisticated lawyers often of very high standing, it
would be extremely bizarre to find a funding agreement, whose choice-of-law clause
would designate as proper law of such agreement that of a State, whose legal system
would consider the stipulation of a contract providing for third-party funding as contrary
to its own rules or to its own public policy.
Thus, on the assumption that it is hardly conceivable that a national law prohibiting
third-party funding would ever be chosen by the funder and the funded party as the
proper law of the funding agreement, the only realistic possibility for such “prohibitive”
law to become relevant to the arbitral proceedings would be an “involuntary”
designation of it as the governing law of the funding agreement by virtue of “objective”
rules of conflict (such as, typically, the criterion of the closest links) found by the
arbitrators to be applicable under the circumstances. Even assuming that this might
occur in the (unlikely) absence of a choice of law by the parties to the funding agreement,
it would nevertheless remain true that presumably the ratio decidendi of the annulment
would never be the illegality of the funding agreement under its own governing law. The
ground, if any, for annulment of an award allegedly “vitiated” by an unlawful third-party
funding could only be identified in the need, strongly felt by the procedural law
governing the arbitration, to protect the integrity of the arbitral process from the risk of
being distorted by the interfering effects of such funding. This, however, would bring us
2
back to the same conclusion as was already stated above, namely that in international
arbitration third-party funding may only acquire relevance as a procedural issue, i.e. as a
P 304 fact whose permissibility or, on the contrary, illegality must be assessed, if the issue
actually arises, in the light of the procedural law governing the arbitration.
§17.04 THE ROLE OF THE PROCEDURAL LAW OF THE STATE OF THE SEAT IN
INTERNATIONAL ARBITRATION PRIOR TO THE NEW YORK CONVENTION OF
1958
For a long time, characterizing an issue in international arbitration as a procedural issue
would have entailed scrutiny of the rule governing that issue under the procedural law of
the State of the seat.
Based on the long-established tradition preceding the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) of
1958, the prevailing view was that international arbitration should be envisaged as the
permitted substitute of an ordinary judicial process taking place in the State of the seat.
(9) As such, arbitral proceedings were conceived as deeply rooted in that State and were
required to be largely consistent with its procedural law, in order to subsequently claim
legitimacy (i.e., recognition and enforcement) in States other than that of the seat, on the
ground of their affinity and equivalence with the ordinary jurisdictional products
“guaranteed” by the observance of the procedural law of the State of the seat. (10)
If this approach still reflected the present status of international arbitration, the role of
the procedural law of the seat in assessing the issue of the legality of third-party funding
would be both paramount and decisive.
In other words, assuming that the procedural law of the seat continued today to be
predominant as it was in the past and assuming further that at the very outset of the case
a challenge had been raised for immediate dismissal of proceedings on the ground of the
prohibition under that law of the third-party funding obtained by the claimant, the
international arbitrators would have to seriously consider whether to uphold the
challenge. Otherwise stated, had the central and dominant role of the procedural law of
the seat remained unaltered, the prohibition of third-party funding by the procedural
law of the seat might well justify, even today, the arbitrators’ decision not to proceed
further, in compliance with the duty not to exercise their jurisdiction in cases where there
would be a serious threat of unenforceability of the final award on grounds of it being
incompatible with that law. (11)
P 305
Obviously, however, much water has flowed under the bridges, and today the law of the
seat does not normally play as paramount a role as it did in the past.
In particular, after the Copernican revolution brought about by the New York Convention,
party autonomy has become the main rule of the game with respect to the power to
select not only the rules of law governing the merits of the arbitration but also the
procedural rules applicable to it.
As a result, strict adherence to the rules of procedure of the law of the seat is no longer
the governing principle for the purposes of determining procedural issues in
international arbitration.
Briefly stated, strict conformity with the express and implied contents of that law has
been replaced by the much narrower duty (for the parties and the arbitrators) not to
breach its basic, imperative procedural rules. Except for the inflexible necessity to avoid
violation of these rules, the parties are now allowed to depart from the procedural
provisions, institutions and practices of the law of the seat. Moving from this tenet, the
fundamental issue here is to identify the degree of liberalization that third-party funding
can invoke today across the international spectrum by virtue of the overarching principle
of party autonomy, as applicable also to procedural matters. More specifically, the
tension between the principle of party autonomy and the various national approaches to
third-party funding in international arbitration is the central theme on which attention
will now be focused.
§17.05 THE DRASTICALLY REDUCED ROLE OF THE PROCEDURAL LAW OF THE

STATE OF THE SEAT AFTER THE NEW YORK CONVENTION OF 1958 AND THE
IMPLICATIONS OF THIS CHANGE ON THE POTENTIAL RELEVANCE OF THIRD-
PARTY FUNDING IN INTERNATIONAL ARBITRATION
The analysis of today’s overall picture may start from two acknowledgments.
First, there is unsurprisingly a significant lack of uniformity in the national approaches to
third-party funding, in general, and in the international arbitration context.
Second, it would be unrealistic and illusory to count in the near future on the starting of
an international process aiming to promote global uniformity or harmonization of the
national approaches on third-party funding in the context of international arbitral
proceedings.
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(i) As of today, the overall picture of the diversified national approaches may be
summarized as follows.
(ii) Currently, there are very few legislative acts or provisions of international arbitral
institutions expressly recognizing the legitimacy of third-party funding in
international arbitration and offering affirmative regulation of the practice. (12)
P 306
(iii) At the opposite extreme, there are also few legal systems which have an express
prohibition or which definitely recognize the existence of an implied, although
unquestionable, prohibition of third-party funding as a tool or technique for
financing a claimant’s litigation costs in international arbitration. (13)
P 307
(iv) The vast majority of legal systems are prima facie silent on the point. There are
certain national legal cultures which are “instinctively” and “in principle” favorable
to third-party funding and others which, on the contrary, are hostile to it. In both
cases, these approaches to third-party funding are often based on deep held
longstanding values and generally rely on vaguely defined notions, such as the
“spirit” or certain “socially recognized standards” of the national law to justify their
position.
Thus, having so acknowledged the absence of uniformity as well as the absence of a
realistic likelihood of uniformity in the near future, the question that may be realistically
posed at this point is whether in the specific context of international arbitration a
perspective of uniform treatment of the issue may nevertheless be identified and
recommended.
It is submitted that this is both feasible and desirable. I shall try to demonstrate this
assertion by arguing with reference to two standpoints, namely (i) the standpoint of
international arbitrators required to consider at the very outset of the arbitration a claim
that the proceeding cannot be continued because of the incompatibility of third-party
funding with the procedural law of the State of the seat; and (ii) the standpoint of the
judge before whom an award “facilitated” by third-party funding is challenged either for
annulment (typically, a challenge brought before a court of the State of the seat) or for
denial of the requested enforcement (by definition, a challenge to be brought before the
court of the State, other than the State of the seat, where enforcement is sought).
The two standpoints are not interchangeable and, in considering them, there must be full
awareness of the differences in terms of time, contents and goals characterizing each of
the specific challenges.
However, as I will demonstrate, it is possible to identify a line of thought and a broadly
applicable principle that appears to provide satisfactory answers, i.e. answers in line
with the rational basis and the needs of international arbitration, with respect to all (or
at least the most important conceivable) challenges referred to under (i) and (ii) above.
§17.06 PRELIMINARY CHALLENGES AIMED TO PREVENT THE CARRYING OUT

OF ARBITRAL PROCEEDINGS ON GROUNDS OF THIRD-PARTY FUNDING
Challenges of the first type, i.e. those aiming to achieve a preventive dismissal of the
proceedings essentially based on the incompatibility of third-party funding with the
procedural law of the State of the seat, may be successfully defeated, it is submitted, on
P 308 the following grounds:
(A) Even if the procedural law of the State of the seat expressly or impliedly considered
third-party funding as illegal with respect to ordinary judicial proceedings before
the courts of that State, the automatic extension of this prohibition to arbitral
proceedings seated in the same State would not be warranted.
Irrespective of whether the State of the seat has opted for the dual approach in its
legislation on arbitration (namely, two separate legislative regimes, one for
domestic arbitrations and one for international arbitrations) or for an unitary
approach (the same law for domestic and international arbitrations, save only for
relatively minor differences on a limited number of specific issues), the universally
prevailing trend is that procedural rules applicable to court proceedings in a given
State are not per se automatically applicable or binding in arbitral proceedings
seated in the same State. In order to reach a different conclusion, it would be
necessary today (as opposed to the default regime that would have prevailed in the
past) to conclude that the local legislation unambiguously provides for an overall,
stringent prohibition of third-party funding in any arbitral proceedings seated in
that State. In the absence of this extreme and unusual choice, the mere prohibition
of third-party funding (or similar arrangements) in domestic court proceedings
would not suffice to trigger a duty for international arbitrators to dismiss in limine
litis the arbitral proceedings on that ground.
(B) There are very serious, not to say cogent, reasons for disregarding in the context of
an international arbitration an ex hypothesi local mandatory rule, prohibiting third-
party funding in domestic court proceedings.
The implied assumption underlying the local prohibition of third-party funding in
4
domestic court proceedings is that the concrete functioning of the national legal system
is, broadly speaking, sufficient to ensure access to justice in the vast majority of cases,
with no need for either party to have recourse to external financing or other sources of
subsidy or help in order to be concretely able to exercise the right to have one’s “day in
court.” Another way of putting it is to say that the rationale for a national prohibition of
third-party funding cannot be the existence of an implied principle, whereby access to
the national courts must be reserved only to those who can personally afford to bear the
costs of litigation. The rationale, on the contrary, must be that the domestic legal system
is considered as per se capable of somehow taking care of the problem of providing
universal de facto access to the local courts. The extremely rare cases where meritorious
claims would receive no adjudication, owing to unaffordable costs of litigating them
coupled with the prohibition of third-party funding, would be an acceptable cost for a
system unwilling to alter its structural choices for the sole purpose of addressing a small
and statistically marginal number of situations.
If we now turn to considering international arbitrations, the implied rationale for
extending the prohibition of third-party funding ex hypothesi provided with respect to
domestic court litigations would be utterly unconvincing.
The argument that arbitration is generally or by definition much more expensive than
P 309 ordinary court litigation does not per se hold. Particularly in major common law
countries, such as the US and the UK, cases litigated in court may often be, all other
conditions equal, more expensive than similar cases litigated in arbitration. However, it
is also generally true (in most jurisdictions, including inter alia the US and the UK) that
the costs of most cases brought before national courts are personally affordable by the
claimants. When this is not the case, there is typically a protective network of remedies
for enabling access to justice by the impecunious (e.g., via State-supported legal aid; or
via pro bono legal work carried out by members of large law firms on social responsibility
grounds; or via the contingent fee system in the steadily growing number of countries
where this practice is permitted).
In international arbitration, on the contrary, a vastly different factual picture prevails.
Many cases are of an extremely large financial dimension, and the costs of arbitrating
such cases may be a serious and real issue for claimants who, in relation to the expected
huge size of the costs, are not in a position to afford them even if the legal strength of
their potential claims is prima facie impressive. In parallel in international arbitration,
there is no comparable protective network for ensuring access to justice as there is, in a
variety of ways, in purely domestic situations.
As such, applying a State’s procedural rules prohibiting third-party funding in domestic
proceedings before the courts of that State to an international arbitration seated in that
State would lack its rational basis, i.e. the identity or similarity of the two situations to be
allegedly subjected to the rule expressly provided for only one of them.
(A) The last step of the reasoning is whether there is an implied rule whereby, even in the
absence of an express or implied prohibition contained in the procedural law of the
State of the seat, international arbitrators must be deemed to lack the power to take a
procedural decision which would be “unknown” or “alien” to said procedural law.
Conceptually, the dilemma behind this query is whether the procedural powers of
international arbitrators are self-standing and do not stem from the procedural law of
the State of the seat; or whether, on the contrary, they are generated and governed by
such law and the exercise of such powers cannot produce results exceeding (or diverging
from) those that local judges would be concretely permitted to reach.
It is submitted that the proposition that the procedural powers of international
arbitrators are directly determined and circumscribed by the procedural law of the State
of the seat is untenable.
After the New York Convention, the procedural rules of the State of the seat are no longer
the unavoidable parameter for resolving procedural issues, unless the parties have
chosen them as expressly applicable rules or as default rules. Whenever such choice is
not made (in the arbitral agreement or, later on, at the initial stage of the arbitral
proceedings), the room for procedural freedom remains open. In practice, whether as a
P 310 result of provisions of national laws on arbitration (14) or as a result of rules issued by
international arbitral institutions, such as the ICC or certain other major Chambers, (15)
the usually applicable default rule is the devolution to the arbitrators of a broad
discretion in the conduct of the proceedings and in the resolution of procedural issues. As
already stated (see §17.04 above), the only unsurmountable limit to the (prudent and
nonarbitrary) exercise of such discretion is the duty not to violate the absolutely
imperative rules (within the strongly characterized meaning that will be clarified below)
of the lex arbitri.
Thus, the overarching principle is not that international arbitrators must decide a
procedural issue in the same manner and by remaining within the same boundaries as
would local judges of the State of the seat. It is rather that they are free to select (or even
to invent) the ad hoc appropriate procedural rules for as long as they abstain from
breaching the absolute imperative rules of the local procedural law of the State where
the arbitration is located.
5
As a result, should a preliminary challenge be raised against the commencement of
arbitral proceedings on grounds of a notorious or disclosed third-party funding obtained
by the claimant, such funding being alleged to be incompatible with the procedural law
of the seat, it would be incumbent upon the challenger to convince the arbitrators that
the agreement between the claimant and the funder is not only inconsistent with the
local law but also is tainted with a much more characterized feature. In substance, the
burden of proof to be sustained would require the challenger to show that letting third-
party funding stand in that case so as to significantly affect the proceedings would
constitute, under the circumstances, a violation of a fundamental principle of procedural
justice, as perceived to exist and require observance under the law of that State.
P 311
Based on an overall comparative analysis of the stance that major legal system appears
to have taken on the notion of “fundamental principles of procedural justice,” this burden
can hardly, if at all, be satisfied.
Thus, the conclusion may be stated in general terms that third-party funding is not a
realistic hurdle, capable of preventing the opening and the conduct of international
arbitral proceedings. Moreover, from an economic standpoint, third-party funding may
also claim in many cases the merit of generating a more efficient functioning of
international arbitration, in that it may prevent the occurrence of a market failure, which
would be inherent in each ex ante dropping of a meritorious claim. (16)
§17.07 ARBITRAL PROCEEDINGS “FACILITATED” BY THIRD-PARTY FUNDING

AND POST-AWARD CHALLENGES AIMING TO OBTAIN (I) ANNULMENT OF THE
AWARD BEFORE THE COURTS OF THE STATE WHERE THE AWARD WAS ISSUED;
OR (II) DENIAL OF ENFORCEMENT IN THE STATE WHERE ENFORCEMENT IS
SOUGHT
Post-award challenges, brought in the form of actions before the courts of the State where
the award was issued in order to obtain the annulment thereof on grounds of the
“polluting” presence of a third-party funding arrangement, attract substantially the same
considerations as preliminary challenges seeking to block the arbitral proceedings at
their very outset.
In both cases, notwithstanding the obvious differences in the respective timing, goals and
fora of the challenges (most likely, the preliminary preventive challenges will be brought
before the arbitral tribunal itself, while the venue for the post-award challenges for
annulment will be a court of the State of the seat), the same legal rationale is
substantially applicable. In other words, the challenges should normally be rejected,
even if the law of the State of the seat contained an express or tacit prohibition of third-
party funding in the context of domestic court proceedings. This is so since, as stated
above, the procedural law of the State of the seat is no longer the yardstick for measuring
the level of acceptability of third-party funding. Ultimately, the paramount rule
governing the adjudication of all these challenges is whether, as stated above, third-
party funding would result, under the circumstances, in a concrete violation of
fundamental principles of procedural justice of the State of the seat.
Obviously, this will hardly ever occur, and it is reasonable to assume that ascertaining
the (potential or actual) fundamental violation will be entirely or largely based on the
special facts of the case, rather than on the actual occurrence of certain statutory
violations.
I will now turn to considering the post-award challenges which are brought before the
P 312 courts of a State other than the one in which the award was issued for the purposes of
obtaining there (i.e., in the State where enforcement is sought) a denial of the
enforcement.
Typically, if the basic argument for seeking denial of the enforcement is the third-party
funding arrangement, the challenging party will claim that enforcement should be denied
on the ground that third-party funding is contrary to the public policy of the State
requested to enforce (Article V(2)(b) of the New York Convention).
Notoriously, the meaning to be ascribed to the notion of public policy for the purposes of
Article V(2)(b) of the New York Convention is by far one of the most debated issues among
international arbitration scholars. I do not intend to delve here into a detailed discussion
of it. (17) I will simply confine myself to restating the terms of the evergreen dilemma:
should “public policy” for the purposes of the aforesaid provision be understood as a key
concept, designed to preserve the specific values of each sovereign State, with the
ultimate effect that, by virtue of this construction, States may deny enforcement on
strongly nationalistic grounds; or should “public policy,” on the contrary, be understood
for the purposes of the same provision as a key concept, favoring the international
circulation of the awards by requiring an extremely restrictive exercise of the power to
deny enforcement on that ground and accordingly by legitimizing denial of enforcement
only in those cases where the award would violate fundamental values not only deeply
entrenched in the State requested to enforce but also shared by the international
community as a whole, i.e. by the majority of the other States?
6
It is submitted that, in line with the clearly prevailing trend in international arbitration,
the second, genuinely international construction of “public policy” should be preferred.
(18)
This preference significantly affects the conclusion that may be drawn with respect to our
subject.
It would probably be exaggerated to conclude that, with respect to the issue of third-
P 313 party funding in international arbitration, there is already a well-established rule of
international procedural law, having ultimately the effect of giving this practice a sort of
recognized, transnational legitimacy and, consequently, a sort of immunity from
challenges on public policy grounds.
More modestly and realistically, it may rather be said that via the restrictive notion of
public policy as applicable (or, more accurately, as should be applied) for enforcement
purposes pursuant to Article V(2)(6) of the New York Convention, denial of enforcement of
awards obtained by a claimant who has been beneficiary of a third-party funding should
normally not be upheld, save, once more, in really extreme cases.
I shall now conclusively try to identify the basic features of these extreme cases, as well
as of other extreme cases, which may arise in the context of the situations, which have
been previously discussed.
§17.08 EXTREME CASES WHERE THIRD-PARTY FUNDING MAY WARRANT, IN

NECESSARY ASSOCIATION WITH OTHER SPECIAL CIRCUMSTANCES, THE
UPHOLDING OF PRELIMINARY CHALLENGES OR POST-AWARD CHALLENGES
It is submitted that in extreme cases third-party funding may warrant, in necessary
association with other special circumstances, the upholding of a request for initial
dismissal of the proceedings; or the upholding of a post-award challenge seeking to
obtain the annulment of the award; or the upholding of a post-award challenge seeking
denial of the enforcement of the award in a third State. It is further submitted that, in
spite of the intrinsic, technical differences among these various specific challenges, all
conceivable extreme cases are expected to fall into either of the following two
categories.
The first category encompasses hypothetical cases characterized by issues in the
relationship between ownership and procedural enforcement; more accurately, between
(i) the claimant’s ownership of the substantive right which is actioned by bringing the
arbitral claim; and (ii) the actual exercise of the power to enforce such claim in
arbitration.
The second category encompasses hypothetical cases of a radically different nature, i.e.
cases where the third-party funding itself exposes the integrity of the arbitral process to
danger. The dangers at stake concern not so much the risk of violation of specific
procedural rules but rather the risk of violation of standards rooted in ethics and/or
principles of natural justice.
I will only spend a few words on the hypotheticals falling within the second category and
rather discuss in more detail those falling within the first category, which deserve, in my
opinion, greater attention.
As an example of a situation falling within the second category, let us assume that an
arbitrator formally appointed by the claimant had in reality been selected and
designated by the funder. Let us further assume that the funder had proposed and
designated that same arbitrator on a regular basis on all (or the most important)
P 314 previous or parallel arbitral cases it financed. In the absence of voluntary and timely
disclosure of these circumstances by the arbitrator at the time of formation of the
arbitral tribunal, there would be, in my opinion, serious doubts as to his/her
independence and impartiality and, consequently, as to the integrity of an arbitral
process, which would take place without the observance of the required procedural
guarantees concerning the personal eligibility requirements of one of the arbitrators and
the transparency of circumstances relevant to the proceedings. (19)
The fact, however, that ultimately this situation may conceivably give rise to the
respondent’s success in its challenge does not per se warrant the conclusion that the
rationale for that success lies in structurally illegal features of third-party funding. In a
sense, the refusal by the applicable procedural law to tolerate a situation of this sort is
not third-party-funding-specific: the legally relevant underlying reason is rather the
ability of an external circumstance to pollute or threaten to pollute the arbitral process.
It is true that in this case the vitiating element is the combination of third-party funding
with a sort of special relationship between the funder and the claimant’s arbitrator, but
it is easy to imagine different contexts where the “external circumstance” could be of a
very different nature and yet, in combination with other circumstances, would produce
the same result in terms of intolerable conflict with basic principles of the arbitral
process.
Similar considerations might be developed with respect to other conceivable
hypotheticals, falling within the second category and equally characterized by the crucial
7
relevance of behaviors inconsistent with the values on which international arbitration
purports to be founded. (20)
P 315
For the purposes of this chapter, however, it is, I believe, more helpful to focus the
attention on the first category of hypothetical cases, i.e. on those cases where the
relevant issue is structural rather than behavioral.
The starting point of this analysis is the acknowledgment that, subject to minor national
differences which are not relevant here, a large number of legal systems are firmly
against the possibility of separating the ownership of an underlying substantive right
from the entitlement to enforce such right in court.
In other words, the claimant, in its capacity as holder of the substantive right, is not
allowed to claim enforcement of that right in court by vesting in a different party the
power to do so behind the shield of the claimant’s name. The most famous, concise
statement of this principle is the French expression nul ne plaide par procureur, meaning
that the holder of the substantive right must be at the outset and must remain during the
subsequent development of the proceedings the person who actually exercises in court
the procedural prerogatives associated with the substantive right. As a consequence and
a fortiori, the standing for the judicial enforcement of the claim cannot be traded
separately from the ownership of the underlying substantive right. (21)
It is submitted that there are very good reasons for applying this prohibition of
separating (decoupling) ownership from standing to enforce also in arbitration and in
international commercial arbitration in particular.
It is true that at first sight, the application of this principle in arbitration may appear not
to be consistent or aligned with the largely prevailing view that the essence of arbitration
is based on contract and, more specifically, on the privity of the contract between the
claimant and the respondent.
Bearing in mind this postulate, some arbitrators may be led to consider that they lack
not only the power to pass judgment on whether or not third-party funding is compatible
with the arbitral proceedings pending before them but also a fortiori that they lack the
power to go one step further, should they find on any view that third-party funding is not
a reason per se for dismissing the proceedings from the outset. In particular, arbitrators
may consider that it is not within their jurisdiction to investigate whether the claimant
P 316 has simply become a “front” for the purposes of exercising procedural rights
associated with the claim, while the real master of the claim is the funder, irrespective of
how this result has been achieved (whether by express written stipulation or by de facto
consent to the transfer of all the relevant powers).
In evaluating the issue of whether or not the above-described decoupling is permissible
in international arbitration, the attitudes may be significantly different depending on the
different legal cultures that arbitrators (even when they are experienced international
arbitrators) unavoidably carry on their shoulders.
In particular, arbitrators educated in the common law legal culture may be more
indulgent than their colleagues coming from a civil law tradition toward the notion of
decoupling: after all, in a common law perspective the distinction and the interrelation
between the legal title held by the trustee and the underlying economic ownership or
beneficial right pertaining to the cestui que trust may appear very much like a decoupling
occurring by contract in the context of a judicial or arbitral enforcement of the
substantive claim.
However, this apparent resemblance is ultimately deceiving. The claimant, who formally
continues to participate in the arbitral proceedings as a “front,” cannot be assimilated to
a trustee, holder of the legal title and openly acting on behalf of the cestui que trust. The
claimant is rather the apparent holder of the legal title who pretends, on the one hand,
not to have changed its original status but who conceals, on the other hand, the fact that,
as a result of a formal or de facto arrangement with the funder, it no longer has a
sufficient interest in the outcome for preserving the entitlement to actually exercise
his/her/its formal procedural powers.
As stated above, in the extreme cases whose identifying features are sought to be
discussed here, the claimant is simply a front: the claim is brought in its name but the
reality is that the arbitral process serves the interests of someone else, who remains
outside of the center stage and whose conduct cannot be subjected to any scrutiny by the
arbitrators, unless the “strict privity” notion of the essence of the arbitral process is set
aside to the extent necessary to preserve its integrity.
Accordingly, taking the view that even the most evident decoupling is an irrelevant
circumstance in international arbitration presupposes a blind acceptance of the idea
that whatever is outside of the realm of the contract and the arbitral agreement between
the claimant and the respondent must be ignored or treated as irrelevant by the
arbitrators. By applying the same logic, the arbitrators should recognize that they have
no jurisdiction for ascertaining facts that, although contiguous to (but not included in) the
contract between claimant and respondent, are unanimously considered as falling within
their jurisdiction: suffice it to mention once again the “behavioral” cases that may
8
externally threaten the integrity of the arbitral process, such as conflicts of interests, lack
of transparency on relevant facts, potentially improper uses of the arbitral proceedings
and the like.
It is submitted that this cannot be right. The crucial point, however, is not whether the
arbitrators lack the power to investigate substance over form: there is, I think, no doubt
that they have such power. The crucial point is whether within the community of
international arbitrators the hostility against decoupling enjoys a sufficiently widespread
support.
P 317
Although, if bluntly posed, the majority view is presumably that open and total
decoupling would not be permitted in international arbitration, in practice the overall
picture is characterized by a much greater complexity.
It may be extremely difficult to distinguish between situations of decoupling deserving to
be treated as “structurally” prohibited and situations of normal and bona fide
cooperation between the claimant and the funder, which are certainly permitted and
expected to be beneficial in terms of increasing the chances of recovery.
The difficulty of concretely distinguishing these situations may encourage arbitrators to
be very prudent in exercising their discretionary powers in investigating circumstances
that may affect the integrity of the arbitral process, including, in particular, the structural
risk of an improper, radical decoupling.
While extreme cases of unacceptable decoupling in the context of a third-party funding
arrangement are conceivable and deserve to be sanctioned if and when any such
decoupling comes to the surface, it is unlikely that they will be effectively investigated
and detected in practice, notwithstanding the existence in principle of sufficient
discretionary procedural powers of the arbitrators to do so.
On a final and very pragmatic note, the view may be expressed that, to avoid quarrels
concerning the issue of whether or not a prohibited decoupling has actually occurred in a
given case where the role of the funder has ex hypothesi become preeminent in the
determination of the procedural strategy, the claimant and the funder should seriously
consider replacing the (actual or alleged) decoupling by a straightforward purchase by
the funder of 100% of the underlying substantive claim, an outcome which undoubtedly
would wipe out any ground for raising doubts as to the legitimacy of the procedural
position of the former funder and now real new holder of the substantive right, which is
being enforced.
§17.09 SPECIFIC CONSIDERATIONS APPLICABLE TO ICSID ARBITRATIONS

As stated above, investment treaty arbitrations and international commercial
arbitrations do not pose significantly different problems with respect to the issue of
third-party funding. In both types of arbitration, the correct characterization of the issue
is that it is a procedural matter. As a result of the New York Convention of 1958, matters of
procedure are no longer inevitably governed by the procedural law of the State of the
seat. As such, the compatibility of third-party funding with the procedure applicable to
any given international arbitration is to be adjudicated largely on the basis of the
prudent exercise by the arbitrators of their inherent procedural powers (see above
§17.04-§17.07).
These powers do not stem from the procedural law of the State of the seat (unless the
parties have made an express or implied choice to that effect), but rather from the
principle of party autonomy, which is equally applicable to the choice of the rules of
substantive law as well as to those of procedural law.
To achieve the underlying policy goal, the answer may simply be that it is incumbent
upon the arbitrators to ensure and protect the integrity of the arbitral process. To that
P 318 end, arbitrators are entitled to investigate substance over form, including relevant
“external” circumstances such as third-party funding and related implications, without
suffering a strict limitation to their jurisdiction because of a formalistic and restrictive
construction of their powers.
Thus, vis-à-vis third-party funding, there is (or there should be) a substantially equivalent
attitude or approach in international commercial arbitration as well as in investment
treaty arbitrations, such as, in particular, treaty arbitrations conducted under the
UNCITRAL Rules or the ICC Rules or even under the ICSID Additional Facility.
The only exception concerns ICSID arbitrations in the strict sense, i.e. arbitrations
governed by the Washington Convention of 1965 (the “ICSID Convention”).
For the purposes of this chapter, two major differences characterize ICSID arbitrations in
the strict sense.
First, the lex arbitri of an ICSID arbitration is the ICSID Convention itself; i.e. the
Convention itself provides the procedural rules which are applicable to the arbitration,
irrespective of the physical place where the arbitration is located. (22) Accordingly, the
procedure of these arbitrations is internationally uniform and, at least in principle,
9
autonomous and self-sufficient with respect to the procedural laws of the States which
are parties to the Convention. It follows that the answer to the query as to whether third-
party funding is compatible with the procedure governing ICSID arbitrations should
depend on the construction of the procedural rules of the Convention itself and the
practices developed in its application. Regarding the compatibility of third-party
funding with the ICSID Convention as lex arbitri, the answer is yet to be given but it can be
strongly argued that it must be based on the contents of the Convention itself, as
interpreted under principles of public international law. Obviously, this is a quite
different approach from the one prevailing in other investment arbitrations, where the
governing principle is that even in procedural matters prevalence must be given to party
autonomy and the consequential discretionary powers of the arbitrators in deciding
procedural issues, when the parties have not expressly or impliedly chosen the
application of a specific procedural State law.
Second, the ICSID system does not contemplate recognition and enforcement of “foreign”
awards, i.e. recognition and enforcement to be sought by the winning party in a State
other than the one where the award was originally issued via an exequatur proceeding
governed either by (i) an applicable Convention or an equivalent international
instrument, such as the New York Convention of 1958 or the Geneva Convention of 1961; or
(ii) the local law of the State where enforcement is sought.
Notoriously, ICSID awards have immediate executory effects, i.e. are directly enforceable
in any Member State adhering to the ICSID Convention, with no need of any additional
P 319 exequatur proceedings and with no possibility for the defeated party of challenging
the award other than by bringing an internal appeal governed by the ICSID’s own
procedural law. (23)
It therefore follows that any decision concerning third-party funding in an ICSID
arbitration would enjoy, as is true in general for ICSID awards, a high degree of stability
and effectiveness, in that there would be no possibility of challenging the award other
than via the internal ICSID appeal route and the award would have immediate automatic
enforceability not only in the State where issued but also in all Member States adhering
to the ICSID Convention, with no need of any additional exequatur or similar proceedings.
Additional Bibliography and Sitography

T. Alonso, Third-Party Funding’s Older Sibling: Legal Costs Insurance and the Issue of
Regulation, in Kluwer Arbitration Blog, 2017, available at [http://arbitrationblog
.kluwerarbitration.com/2017/08/31/third-party-fundings-older-sibling-legal-co....
L. Bench Nieuwveld, Third Party Funding – Maintenance and Champerty – Where Is It
Thriving?, in Kluwer Arbitration Blog, 2011, available at
[http://arbitrationblog.kluwerarbitration.com/2011/11/07/third-party-funding-
maintenance-and-champert....
F. Blavi, It’s about Time to Regulate Third Party Funding, in Kluwer Arbitration Blog, 2015,
available at [http://arbitrationblog.kluwerarbitration.com/2015/12/17/its-about-time-to-
regulate-third-party-fundi....
N. Casado Filho, The Duty of Disclosure and Conflicts of Interest of TPF in Arbitration, in
Kluwer Arbitration Blog, 2017, available at
[http://arbitrationblog.kluwerarbitration.com/2017/12/23/duty-disclosure-conflicts-
interest-tpf-arbit....
J. Clancy, Navigating the Waters of Third Party Funding in Arbitration, in The International
Journal of Arbitration, Mediation and Dispute Management, 2016, 222-232, available at
[http://www.Imaa.london/uploads/documents/Clanchy%20Article.pdf].
Conseil de L’ordre des Avocats de Paris, Rapport de la Commission Arbitrage International
présenté le 21 février 2017 au Conseil de l’ordre des avocats de Paris, 11, available at
[http://www.avocatparis.org/mon-metier-davocat/publications-du-conseil/rapport-sur-
le-financement-de-....
B.M. Cremades, Third Party Litigation Funding: Investing in Arbitration, in Transnational
Dispute Management, 2011, available at [https://www.transnational-dispute-
management.com/journal-browse-issues-toc.asp?key=37].
P 320
E. De Brabandere and J. Lepeltak, Third-Party Funding in International Investment
Arbitration, in 27(2) ICSID Review – Foreign Investment Law Journal, 2012, 379-398.
M. De Fontmichel, Les societies de financement de procès dans le paysage juridique
français, in Revue des Sociétés, 2012, 279 et seq.
M. Distefano, Non-lawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone
Soup?, in Fordham Law Review, 2012, 2791-2845, available at
[https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4809&context=flr].
A. Frischknecht and V. Schmidt, Privilege and Confidentiality in Third Party Funder Due
Diligence: The Positions in the United States and Switzerland and the Resulting Expectations
Gap in International Arbitration, in Transnational Dispute Management, 2011, available at
10
[https://www.transnational-dispute-management.com/journal-browse-issues-toc.asp?
key=37].
V. Frignati, Ethical Implications of Third-Party Funding in International Arbitration, in
Arbitration International, 2016, 505-522, available at
[https://academic.oup.com/arbitration/article-abstract/33/1/109/2669347?
redirectedFrom=fulltext].
A. Goldsmith and L. Melchionda, Third Party Funding in International Arbitration:
Everything You Ever Wanted to Know (But Were Afraid to Ask) (Part I), in Revue de Droit des
Affaires Internationales (RDAI/IBLJ), 2012, 53-76, 221-243.
M.J. Goldstein, Should the Real Parties in Interest Have to Stand Up? – Thoughts about a
Disclosure Regime for Third Party Funding in International Arbitration, in Transnational
C. Gonzáles-Bueno, Third Party Funding Again under the Spotlight, in Kluwer Arbitration
Blog, 2014, available at [http://arbitrationblog.kluwerarbitration.com/2014/10/08/third-
party-funding-again-under-the-spotligh....
D. Hasselback, In Valent Case Ontario Judge Opens the Door for Third-Party Funder to Invest
in Lawsuit, in Financial Post, 2015, available at [http://business.financialpost.com/legal-
post/in-valeant-case-ontario-judge-opens-the-door-for-third-....
K.N. Hilton, Toward a Regulatory Framework for Third-Party Funding of Litigation, in DePaul
Law Review, 2014, 527-546, available at [https://ssrn.com/abstract=2281453].
M.N. Iliescu, A Trend Towards Mandatory Disclosure of Third Party Funding? Recent
Developments and Positive Impact, in Kluwer Arbitration Blog, 2016, available at
[http://arbitrationblog.kluwerarbitration.com/2016/05/02/a-trend-towards-mandatory-
disclosure-of-thir....
T. Jones, English Court Approves Recovery of Third-Party Funding Costs, in Global Arbitration
Review, 2016, available at [https://globalarbitrationreview.com/article/1068619/english-
court-approves-recovery-of-third-party-f....
J.E. Kalicki, Third-Party Funding in Arbitration: Innovation and Limits in Self-Regulation
P 321 (Part 1 of 2), in Kluwer Arbitration Blog, 2012, available at [http://
arbitrationblog.kluwerarbitration.com/2012/03/13/third-party-funding-in-arbitration-
innovati....
J.E. Kalicki, Third-Party Funding in Arbitration: Innovation and Limits in Self-Regulation
(Part 2 of 2), in Kluwer Arbitration Blog, 2012, available at
[http://arbitrationblog.kluwerarbitration.com/2012/03/14/third-party-funding-in-
arbitration-innovatio....
S. Khouri, K. Hurford and C. Bowman, Third Party Funding in International Commercial and
Treaty Arbitration – A Panacea or a Plague? A Discussion of the Risks and Benefits of Third
Party Funding, in Transnational Dispute Management, 2011, available at
[https://www.transnational-dispute-management.com/journal-browse-issues-toc.asp?
key=37].
W. Kirtley and K. Wietrzykowski, Should an Arbitral Tribunal Order Security for Costs When
an Impecunious Claimant is Relying upon Third-Party Funding?, in Journal of International
Arbitration, 2013, 17-30.
P. Pinsolle, Le financement de l’arbitrage par les tiers, in Revue de l’arbitrage, 2011, 385-
414.
P. Pinsolle, Third Party Funding and Security for Costs, in Les Cahiers de l’Arbitrage, 2013,
399.
M. Scherer and C. Flechet, Third Party Funding in International Arbitration in Europe (Part I),
207-219, 649-665.
V. Shannon Sahani, Recent Developments in Third-Party Funding, in Journal of International
Arbitration, 2013, 443-452.
V. Shannon Sahani, Judging Third-Party Funding, in UCLA Law Review, 2016, 338-448.
V. Shannon Sahani, Reshaping Third-Party Funding, in Tulane Law Review, 2017, 405-472.
M. Steinitz, Whose Claim Is This Anyway? Third Party Litigation Funding, in Transnational
M. Szymanski, Recovery of Third Party Funding Ordered by ICC Tribunal and Confirmed by
the English High Court – An Under – Theorised Area of the Law, in Kluwer Arbitration Blog,
2016, available at [http://arbitrationblog.kluwerarbitration.com/2016/10/08/recovery-
of-third-party-funding-ordered-by-i....
F-X. Train, Impécuniosité et accès à la justice dans l’arbitrage international à propos de
l’arrêt de la Cour d’appel de Paris du 17 novembre 2011 dans l’affaire LPc/Pirelli, in Revue de
l’arbitrage, 2011, 267-305.
11
C. Veljanovski, Third Party Litigation Funding in Europe, in Journal of Law, Economics and
Policy, 2012, 405-501, available at [https://papers.ssrn.com/so13/papers.cfm?
abstract_id=1971502].
P 322
P 322
References
*) The author wishes to thank Ms. Sun-Hyung Lyou for the precious, efficient and
expeditious assistance received in carrying out the research, without which this
chapter could not have seen the light.
1) For an overall, comprehensive view of the phenomenon: L. Bench Nieuwveld and V.
Shannon Sahani, Third-Party Funding in International Arbitration, 2nd ed., The Hague,
Kluwer Law International, 2017; ICCA, Report of the ICCA-Queen Mary Task Force on
Third-Party Funding in International Arbitration: The ICCA Reports No. 4, April 2018,
available at http://www.arbitration-icca.org; J. Von Goeler, Third Party Funding and Its
Impact on International Arbitration Proceedings, The Hague, Kluwer Law International,
2016; N. Rowles Davies and J. Cousins QC, Third Party Litigation Funding, Oxford, OUP,
2014; B. Cremades and A. Dimolitsa (eds.), Third Party Funding in International
Arbitration, Paris, ICC Publications, 2013; C. Kessedjian (ed.), Le financement de
contentieux par un tiers, Third Party Litigation Funding, Paris, Editions Panthéon Assas,
2012; see also in somewhat broader perspectives: S. Brekoulakis, Third Parties in
International Commercial Arbitration, Oxford, OUP, 2010; C. Rogers, Ethics in
International Arbitration, Oxford, OUP, 2014; N. Pitkowitz (ed.), Handbook on Third-
Party in International Arbitration, New York, Juris Publishing, 2018; C. Hodges – S:
Vogenauer – M. Tulibacka, The Costs and Funding of Civil Litigation: A Comparative
Study, Oxford, Hart Publishing, 2010.
The number of shorter articles, contributions or comments on specific issues,
illustrative materials and practical guides is very large: a detailed, yet
nonexhaustive, note setting out additional bibliography and sitography is inserted at
the end of this chapter.
2) In this context “claimant” may also mean a respondent as a counterclaimant with

respect to the counterclaim, since the nature of the counterclaim does not differ,
legally and/or economically, from that of the claim triggering the arbitration.
3) De facto ranging anywhere from 5% to 50% depending on the circumstances; but
there is no ceiling imposed by any express provision of law.
4) “Le financement du contentieux par un tiers-financeur implique une évolution de la
vision classique que l’on a en France du procès décorrélé de toute idée de profit”, Club
des Juristes, Rapport du Club des Juristes: financement du procès par les tiers,
available at http://leclubdesjuristes.com, 2014, 9. See also P.J. Kirby QC, Third Party
Funding: Access to Justice or Access to Profits, in Hardwicke, 2017, available at
[http://www.hardwicke.co.uk/insights/articles/third-party-funding-access-to-justice-
or-access-to-prof....
5) See e.g. the definition set out in Article 8.1 of the Comprehensive Economic and Trade
Agreement (CETA) between the European Union (EU) and Canada of September 2017:
“Art. 8.1: Third party funding means any funding provided by a natural or legal person
who is not a disputing party but who enters into an agreement with a disputing party
in order to finance part or all of the costs of the proceedings either through a
donation or grant, or in return for remuneration dependent on the outcome of the
dispute.” Clearly, this definition includes not only the cases of “commercial funding”,
which are the subject matter dealt with in this chapter but also the cases of “pure
funding” resulting from a donation or grant. The distinction between “pure funding”
and “commercial funding” is pinpointed in a famous case of the English Court of
Appeal: Excalibur Ventures LLC v. Texas Keystone Inc. & Ors. (2016), EWCA, Cir. 1144.
See also the definition of “funder” in the recent Hong Kong legislation (Arbitration and
Mediation Legislation (Third-Party Funding) Amendment Ordinance 2017, Part 10A,
Division 2, 98J): “any person who is a party to a funding agreement . . . and who does
not have an interest recognised by law in the arbitration other than under the
funding agreement”. Under this definition, for instance, law firms and/or individual
lawyers rendering their services on a contingent fee basis may be characterized in
law as “funders.”
6) See the cases cited by P. Bernardini, Third Party Funding in International Arbitration,
in Rivista dell’Arbitrato, 2017, 1-20; J.C. Honlet, Recent Decisions on Third-Party
Funding in Investment Arbitration, in ICSID Review – Foreign Investment Law Journal,
2015, 699-712. However, third-party funding is growing significantly also in
international commercial arbitration: B. Osmanoglu, Third-Party Funding in
International Commercial Arbitration and Arbitrator Conflict of Interest, in Journal of
International Arbitration, 2015, 85-103.
12
7) “Maintenance may be defined as the improper provision of support to litigation in
which the supporter has no direct or legitimate interest.” Champerty, on the other
hand: “is an aggravated form of maintenance and occurs when a person maintaining
another’s litigation stipulates for a share of the proceeds of the action or suit”:
Camdex International Ltd. v. Bank of Zambia [1998] Q. B 22, 29, per Hobhouse L.J.
Champerty may thus be described with only a little exaggeration as a secular form of
simony within the legal system, for, as Hobhouse L.J. aptly put in Camdex
International, what “is objectionable is trafficking in litigation”: Greenclean Waste
Management Limited v. Maurice Leahy Practising Under the Style and Title of Maurice
Leahy & C. Solicitors and DAS Legal Expenses Insurance Company Ltd., [2014] IEHC 314,
para. 10.
The survival of the common law prohibition of maintenance and champerty under
Irish law is the central holding in the leading case of the Irish Supreme Court: Persona
Digital Telephony Limited and Sigma Wireless Networks Limited v. The Minister for
Public Enterprise, Ireland and the Attorney General [2017] IESC 27.
8) The pre-2006 text of Article 2233(3) of the Italian Civil Code read as follows: “Counsel,
attorneys-at-law and patronizers are not allowed, not even indirectly (through
nominees), to enter into any agreement with their clients in respect of assets that are
the subject matter of the dispute in respect of which they have been appointed as
defenders, subject to the sanction of nullity and damages in case of breach”
(unofficial translation from the Italian original). The view was unanimously held in
Italy that the underlying intent of this provision was to discourage any member of the
legal profession from stipulating any kind whatsoever of champerty agreement with
any client.
9) A. Panchaud, Le siège de l’arbitrage international de droit prívé, in Revue de l’arbitrage,
1966, 2 et seq.; R. Goode, The role of the lex loci arbitri in international commercial
arbitration, in Arbitration International (2001), 19 et seq.
10) A. Samuel, The effect of the place of arbitration on the enforcement of the arbitration,
in Arbitration International (1992), 257 et seq.
11) Perhaps the most widely known statement of this duty is set out in Article 42 of the
2017 ICC Arbitration Rules: “General Rule. In all matters not expressly provided for in
the Rules, the Court and the Arbitral Tribunal shall act in the spirit of the Rules and
shall make every effort to make sure that the award is enforceable at law (emphasis
added).” See also the very similar provision set out in Article 47 of the 2010 SCC
(Stockholm Chamber of Commerce) Arbitration Rules.
12) Two States only have so far passed clearly enabling legislations, legitimizing third-
party funding: Singapore, through the Civil Law (Third-Party Funding) regulations 2017,
which came into force on 1 March 2017; and Hong Kong, through the Arbitration and
Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, which was
enacted on 23 June 2017.
There is a growing trend toward acknowledging the existence of third-party funding
and requiring disclosure of it in the new texts of investment treaties: see e.g. Article
8.1 of CETA (supra n. 5) and Article 26 of the same Treaty, providing for disclosure of
the existence of the funding arrangement and the name and address of the funder;
see also Article 8.1 of the draft Transatlantic Trade and Investment Partnership (TTIP)
between the EU and the United States: a treaty which realistically may be
considered as “dead”); see finally Article 11 of the 2016 agreed text of the Free Trade
Agreement between the EU and Vietnam (yet to be signed).
References to third-party funding may also be found in arbitral rules: see e.g. Arts
24.1, 33.1 and 35 of Singapore International Arbitration Center (SIAC) Investment
Arbitration Rules (1st Edition, 1 January 2017) available at
[http://www.siac.org.sq/our-rules/rules/siac-ia-rules-2017]; Article 27 of China
International Economic and Trade Commission (CIETAC) Investment Arbitration Rules
(entered into force on 1 October 2017), available in Chinese at
[https://www.yidayiln.gov.cn/wcm.files/upload/CMSSyylgw/201709/201709260955044
.pdf]; Practice Direction No. 2 of the Dubai International Financial Center (DIFC)
Courts, available at [https://www.difccourts.ae/2017/03/14/practice-direction-no-2-
2017-third-party-funding-difc-courts/].
Finally, the 2014 version of the IBA Guidelines on Conflicts of Interest in International
Arbitration expressly include a very significant reference to third-party funding in the
explanations to General Standard 6(b): “Third-party funders and insurers in relation
to the dispute may have a direct economic interest in the award, and as such may be
considered to be the equivalent of the party.”
13
13) The clearest example of prohibition of third-party funding is offered by Irish law. The
Irish Supreme Court decided that the old common law doctrine on maintenance and
champerty should not be changed through an evolution of judge-made law but
should rather stand until and unless modified by a fully developed legislative
process: Persona Digital Telephony Limited and Sigma Wireless Networks Limited v. The
Minister for Public Enterprise, Ireland and the Attorney General (supra n. 7). It is unclear
if the Irish position still reflects the position of the generality of the common law
countries, other than those where third-party funding is certainly lawful (Australia,
United States, United Kingdom, Singapore and Hong Kong). In particular, it is unclear
whether the prohibition of third-party funding on grounds of the doctrine of
maintenance and champerty is still in force in the major common law jurisdictions of
Asia (such as India and Pakistan) or in New Zealand or in Canada. Particularly in
Canada, however, there are growing signals that third-party funding is on its way to
be treated as permissible, although not unconditionally, but subject to the showing
on a case-by-case basis that it is not tainted with improper motives, that would
warrant its characterization as unlawful champerty: Banglar Progoti Ltd. v. Ranka
Enterprises Inc., Ranka Marketing Inc. and 1007328 Ontario Limited, [2007] Can L11
16292 (Ontario Superior Court); Schenk v. Valeant Pharmaceuticals International Inc.,
[2015] Can L11 3215 (Ontario Superior Court); Seedlings Life Science Ventures, LLC v.
Pfizer Canada Inc., [2017] FC 826 (Ontario Federal Court).
In civil law countries, the financing of litigations has traditionally been considered as
permissible and encouraged particularly in Germany (probably, because of the
application of the cautio iudicatum solvi as a general rule), while it was prohibited in
Switzerland until 2005 (K. Spühler, Le Tribunal Fédéral annule l’interdiction et la
punissabilité du financement du procès, in Revue de l’Avocat (2005), 262 et seq.) and
continues to be prohibited or looked upon with hostility, particularly because of its
(rightly or wrongly) perceived affinity with the expressly prohibited agreements on
contingent fees (M. Faurew – F. Fernhout – N. Philipsen, No Cure, No Pay and
Contingency Fees, in M. Tuil and L. Visscher (eds.), New Trends in Financing Civil
Litigation in Europe. A Legal, Empirical and Economic Analysis, Cheltenham, Edward
Elgar, 2010, 33-56).
In France and Italy the continuing underlying reluctance or suspicion toward a full
acceptance of third-party funding is rooted more in its potential conflict with the
ethical duties of the lawyer assisting the funded party (duty to comply with the
obligations of professional secrecy; risks of conflict of interest if the lawyer is directly
paid by the funder) than on a negative judgment per se of the impact of the external
financing on the litigation.
14) See e.g. Article 816-bis of the Italian Code of Civil Procedure, providing that in
national as well as in international arbitrations the arbitrators shall freely determine
the rules (including the procedural rules) to be applied in the conduct of the
proceedings, unless the parties have agreed on the rules to be observed by the
arbitrators either in the arbitral agreement or in a separate written document
preceding the commencement of the arbitral proceedings.
14
15) Article 19 of the 2017 ICC Rules: “Rules Governing the Proceedings. The proceedings
before the arbitral tribunal shall be governed by the Rules and, where the Rules are
silent, by any rules which the parties or, failing them, the arbitral tribunal may settle
on, whether or not reference is thereby made to the rules of procedure of a national
law to be applied to the arbitration.”
Article 28 of the 2018 Vienna International Arbitral Centre (VIAC) Rules: “(1) The
arbitral tribunal shall conduct the arbitration in accordance with the Vienna Rules
and the agreement of the parties in an efficient and cost-effective manner, but
otherwise according to its own discretion. The arbitral tribunal shall treat the parties
fairly and shall grant the parties the right to be heard at every stage of the
proceedings.”
Article 19 of the 2010 Stockholm Chamber of Commerce (SCC) Rules:
(1) Subject to these Rules and any agreement between the parties, the
arbitral tribunal may conduct the arbitration in such manner as it
considers appropriate.
(2) In all cases, the arbitral tribunal shall conduct the arbitration in an
impartial, practical and expeditious manner, giving each party an
equal and reasonable opportunity to present its case.
Article 2 of the 2010 Milan Chamber of Arbitration Rules:
1. The arbitral proceedings shall be governed by the Rules, by the rules
agreed upon by the parties up to the constitution of the Arbitral
Tribunal if consistent with the Rules or, in default, by the Rules set
by the Arbitral Tribunal.
2. In any case, mandatory provisions which are applicable to the
arbitral proceedings shall apply.
3. In any case, the principles of due process and equal treatment of the
parties shall apply.
16) J. De Mot – M. Faure – L. Visscher, Third Party Funding and Its Alternatives: An Economic
Appraisal [available at https://www.researchgate.net/publication/296683654].
17) Reference is simply made to a limited number of very authoritative views: J.F.
Poudret and S. Besson, Comparative Law of International Arbitration, 2nd ed.
Thomson, Sweet & Maxwell, 2007, § 933 et seq.; P. Fouchard – E. Gaillard – B.
Goldmann, On International Commercial Arbitration, Kluwer Law Intl., 1999, § 1712; G.
Born, International Commercial Arbitration, 2nd ed., Kluwer Law Intl., 2014, 3646 et
seq.; N. Blackaby and C. Partasides with J. Redfern and M. Hunter, Redfern and Hunter
on International Arbitration, 6th ed., 2015, OUP, Oxford § 11.105 et seq.; P. Lalive, Ordre
public transnational (ou réellement international) et arbitrage international, in Revue
de l’arbitrage, 1986, 329 et seq.
18) See e.g. a very clear application of this view in Pencil Hill Limited v. US Città di
Palermo S.p.A. [2016] Q.B. (Manchester District Registry, Mercantile Court), Case No.
BA40MA109, per Judge Bird. The case involved the request of enforcement in the UK of
an award issued in Switzerland under Swiss Law, upheld by the Federal Tribunal of
Lausanne and containing inter alia the order to pay a penalty in a reduced amount
(under Swiss Law the arbitrators were empowered to equitably reduce the amount of
the contractually agreed penalty, if they found it to be excessive and unfair). The
defendant had argued that it would have been contrary to the UK public policy to
enforce an award containing a penalty. The argument was rejected by Judge Bird, who
very clearly stated: “In my judgment the public policy of upholding international
arbitral awards … outweighs the public policy of refusing to enforce penalty clauses.
The scales are tipped heavily in favour of enforcement.” See also a similar reasoning
in Banglar Progoti Ltd. v. Ranka Enterprises Inc. et al. (supra n. 13).
15
19) National legislations on arbitrations may well fail to include the situation described
in the text among the causes warranting the noneligibility or the removal of an
arbitrator. However, the arbitral practice and the arbitral rules of many arbitral
institutions are very clear and stringent in requiring not only disclosure but also the
carrying out by an arbitrator of reasonable inquiries whenever doubts as to his or her
impartiality or independence may come up. See in particular General Standard 7(d)
of the 2014 IBA Guidelines on conflict of Interest in International Arbitration: “An
arbitrator is under a duty to make reasonable enquiries to identify any conflict of
interest, as well as any facts or circumstances that may reasonably give rise to
doubts as to his or her impartiality or independence. Failure to disclose a conflict is
not excused by lack of knowledge, if the arbitrator does not perform such reasonable
enquiries.” This Standard should be read in combination with the explanations to
General Standard 6(b), referred to in supra n. 12.
As examples of the approach taken by the rules of arbitral institutions, see in
particular Article 18 of the 2010 Milan Chamber of Arbitration Rules and Article 16.3 of
the 2018 VIAC Rules (supra n. 15).
A strong plea for full disclosure of third-party funding is made by J.A. Trusz, Full
Disclosure? Conflict of Interest Arising from Third-Party Funding in International
Commercial Arbitration, in 101 Geo. L. J. 1649 (2013).
20) For instance, in lieu of a conflict of interest concerning an arbitrator entertaining or
having entertained a special relationship with the funder, a relevant conflict of
interest may subsist because of a special relationship of the funder with either the
claimant’s counsel or the respondent’s counsel. The ordinary remedy against
situations of conflict of interest involving counsel should presumably be sought in
and governed by the ethical and legal rules, regulating in each jurisdiction the duty
of lawyers vis-à-vis their clients. Conceivably, however, there may be cases in which a
breach of duty by counsel, committed in the carrying out of a strategy agreed upon
with the funder, may significantly disturb the integrity of the arbitral process. If an
individual arbitrator becomes aware of a situation of this kind, that arbitrator is,
arguably, bound to disclose the impropriety of the concerted action between the
funder and the unethical counsel to the other members of the tribunal; whereafter it
is submitted that the tribunal would have the power and the duty to take all such
measures as it may deem necessary and/or appropriate to neutralize the effects of
the improper concerted action on the arbitral proceedings. Should the impropriety
be discovered after the issuance of the award, it is submitted that under the
circumstances a challenge for annulment or a request of denial of enforcement in
State other than that of the seat might be upheld.
21) Needless to say, the prohibition does not come into play in the relationship between
the holder of the substantive right and counsel appointed for enforcing such right in
court: here no decoupling of ownership and standing in court occurs, since the holder
of the substantive right is in law not distinguishable from the lawyer representing
him/her/it in court. Equally, no breach of the prohibition is involved in cases where,
during the court trial, a new party succeeds in the entire position of an already
existing party to the proceedings. In this case the applicable procedural law may
well provide that the old party does not cease to be party to the proceedings in spite
of the loss of the standing to enforce the claim. Typically, however, the law so
provides for the main purpose, inter alia, of not releasing the old party from the
liability vis-à-vis the original counterparty stemming from the participation in the
trial prior to being succeeded by the new party.
22) C. McLachlan QC – L. Shore – M. Weiniger, International Investment Arbitration.
Substantive Principles, Oxford, OUP, 2007, 55.
23) Article 54(I) of the ICSID Convention: “Each Contracting State shall recognize an award
rendered pursuant to this Convention as binding and enforce the pecuniary
obligations imposed by that award within its territories as if it were a final judgment
of a court in that State.”
Notoriously, the fact that awards under the ICSID Convention may only be enforced to
the extent that they order the payment of monetary obligations may give rise to legal
and practical difficulties. See on this point C. McLachlan QC – L. Shore – M. Weiniger,
International Arbitration (supra n. 22), 343.
16
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Document information Chapter 17: Third-Party Funding in International

§17.03 PRELIMINARY DELIMITATIONS OF THE SCOPE OF THE ANALYSIS

§17.05 THE DRASTICALLY REDUCED ROLE OF THE PROCEDURAL LAW OF THE

§17.06 PRELIMINARY CHALLENGES AIMED TO PREVENT THE CARRYING OUT

§17.07 ARBITRAL PROCEEDINGS “FACILITATED” BY THIRD-PARTY FUNDING

§17.08 EXTREME CASES WHERE THIRD-PARTY FUNDING MAY WARRANT, IN

§17.09 SPECIFIC CONSIDERATIONS APPLICABLE TO ICSID ARBITRATIONS

Additional Bibliography and Sitography

2) In this context “claimant” may also mean a respondent as a counterclaimant with

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