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Ms. Enisa Halili LL.M. THIRD-PARTY FUNDING AND Associate with Freshfields THE 2021 ICC RULES Bruckhaus Deringer, Frankurt In recent years, third-party funding has claim is unsuccessful, the risk of an gained increasing popularity in international unfavourable outcome for parties with arbitration. This blog post seeks to define funding is mitigated. It is also suitable for third-party funding, provides an overview of companies that wish to reduce their legal some advantages and potential practical costs or take these costs off their balance concerns. It then proceeds to address sheets. Third-party funders undertake a recent trends in institutional rules and in careful independent and objective case particular discuss the transparency and assessment before committing to a case, disclosure requirements for third-party which can assist the funded party gain a funding in the 2021 ICC Arbitration Rules better understanding of the strengths and (the “2021 ICC Rules”). weaknesses of its case. Definition of third-party funding Potential conflicts in relation to third party funding Third-party funding can be defined as an arrangement whereby a non-party entity While the mechanism of third-party funding provides financial support to a party in a can greatly facilitate dispute resolution dispute. The arrangement can cover part or proceedings, it also raises practical all of the costs of the proceedings. concerns such as the likelihood of conflicts Generally, funding will be provided in of interest created by the repeated exchange for remuneration, which is either appointment of an arbitrator by the same contingent on the outcome of the case or in funder. Factors that contribute to potential return for a premium. Third-party funders conflicts include, for instance, the increasing are usually hedge funds, private equity number of cases funded by third parties, the firms, and specialised third-party funding limited number of companies in the funding companies. industry, as well as the close relationship between funders and certain law firms. Advantages of third-party funding Another concern is the effect third-party funding may also have on party autonomy, Third-party funding has become attractive particularly in the context of a potential as it enables parties to pursue their claims settlement, which may be subject to the although they lack the financial means to do funder’s approval. so. But third-party funding is not only for cash-strapped companies. Given that third- Recent trends in institutional rules and soft party funders will not be reimbursed if the law Third-party funding has become the subject Note”) have similarly hinted at a disclosure of soft law and multiple institutional rules in requirement. In the context of arbitrator recent years. The main issue being disclosure independence and impartiality, the 2016 ICC of the presence of a funding agreement. The Guidance Note stated that arbitrators should 2014 IBA Guidelines on Conflicts of Interest consider “relationships with any entity in International Arbitration, for example, having a direct economic interest in the require disclosure of any third-party funders. dispute or an obligation to indemnify a party In 2018, a joint task force between ICCA and for the award” when making disclosures. Queen Mary University of London published a report that identified the issues that arise The new ICC Rules, applicable to arbitrations in relation to third-party funding in registered on or after 1 January 2021, now international arbitration and how those impose a duty on parties to disclose the issues should be addressed. existence and identity of any third-party Recent institutional rules have also reflected funders. The article reads as follows: the development of third-party funding. Arbitral institutions including HKIAC, SIAC, Article 11(7) SCC, the Milan Chamber of Arbitration, and ICSID (in the Proposals for Amendment to “In order to assist prospective arbitrators the ICSID Rules) have either updated their and arbitrators in complying with their duties rules or issued separate guidance notes to under Articles 11(2) and 11(3), each party address this matter. must promptly inform the Secretariat, the arbitral tribunal and the other parties, of the Third-party funding in the 2021 ICC Rules existence and identity of any non-party which has entered into an arrangement for Prior to the adoption of the 2021 ICC Rules, the funding of claims or defences and under the ICC had already addressed the which it has an economic interest in the disclosure of third-party funding in several outcome of the arbitration.” documents. In the 2015 report on Decisions on Costs in Although the disclosure of third-party International Arbitration, the ICC did not funders is mandatory, its scope extends only contemplate a compulsory approach to the to “the existence and identity” of any third- disclosure of third-party funding. Instead, party funders and does not require the arbitral tribunals had the discretion to disclosure of more detailed information, such discuss with parties whether the identity of as the provisions of the funding agreements. third-party funders should be disclosed. In It is noteworthy that the ICC adopts a rather the same vein, an arbitral tribunal could also broad definition of third-party funding, order disclosure of funding information if it referring to it as “an arrangement for the believed that the third-party funding exists. funding of claims or defences and under which [a non-party] has an economic Several versions of the ICC Note to the interest in the outcome of the arbitration” Parties and Arbitral Tribunals on the without specifying any contingency Conduct of Arbitration (the “ICC Guidance requirement or conditions of the arrangement. However, the 2021 ICC By contrast, a more limited disclosure can Guidance Note does not shed much light on preserve a party’s case strategy, avoid what could qualify as an “economic interest” frivolous challenges to arbitrators, and beyond the situation where a non-party is streamline arbitral proceedings. This entitled to “all or part of the proceeds of the balanced approach, adopted by the ICC and award”. Further, subject to a decision from reflected in Article 11(7)’s requirement that the arbitral tribunal stating otherwise, the only “the existence and identity” of the third- Guidance Note clarifies that the following party funder be disclosed, is also in line with circumstances would not normally fall within the best practices recommended by the the scope of disclosure under Article 11(7): ICCA-Queen Mary Task Force on Third-Party “(i) inter-company funding within a group of Funding in International Arbitration (2018). companies, (ii) fee arrangements between a Third, the disclosure of third-party funding party and its counsel, or (iii) an indirect may, however, also affect the ease with interest, such as that of a bank having which arbitrations are administered. granted a loan to the party in the ordinary According to the 2017 Note to Parties and course of its ongoing activities rather than Arbitral Tribunals on ICC Compliance, parties specifically for the funding of the could already be requested by the ICC to arbitration”. submit information concerning related entities (i.e. “entities or individuals affiliated Implications of Article 11(7) of the 2021 ICC to a party in the matter”) to ensure Rules compliance with international sanctions regimes and implement any necessary The 2021 ICC Rules seek to strike a balance administrative measures. The compulsory between transparency and the disclosure of third-party funders now means confidentiality and efficiency of the arbitral that to the extent that a funder may be listed proceedings. under an international sanctions regime, any First, Article 11(7) imposes the disclosure of applicable ICC compliance procedures any third-party funding to the Secretariat, would have to be implemented and the arbitral tribunal and the other parties. complied with. Prompt disclosures by the parties will permit Finally, from the arbitral tribunal’s arbitrators to make timely assessments of, perspective, the mandatory disclosure of and decisions on, potential conflicts of third-party funders may alleviate money interest. In the later stages of an arbitration, laundering concerns by clarifying the source the disclosures will also shield arbitrators of the funds involved in the arbitration, as from challenges. well as entities or persons ultimately benefitting from the arbitral award. Second, the obligation to disclose third- party funding could raise confidentiality and Looking to the future efficiency concerns. For instance, an overly broad disclosure obligation pertaining to the Cross-border disputes are expected to terms of the funding agreement could allude increase, whilst companies are faced with to the strategic considerations of the case. increasing financial restraints to pursue their Conduct of Arbitration (2016), ICC, https:// claims. Thus, the adoption of the disclosure rule by the ICC is of relevance as it sets up www.iccspain.org/wp-content/uploads/ a regulatory framework for the operation of 2015/04/Note-to-Parties-and-Arbitral-Tribunals- third-party funding mechanisms. The on-the-Conduct-of-Arbitration-22-sept-2016.pdf mandatory disclosure of the existence and Note to the Parties and Arbitral Tribunals on the identity of the third-party funder is a step Conduct of Arbitration (2021), ICC, https:// iccwbo.org/publication/note-parties-arbitral- towards greater transparency helping to tribunals-conduct-arbitration/ maintain a balance between transparency, Note to Parties and Arbitral Tribunals on ICC confidentiality and efficiency. Compliance (2017), ICC, https://iccwbo.org/ content/uploads/sites/3/2017/11/note-to-parties- Disclaimer: The views and opinions and-arbitral-tribunals-on-icc-compliance- expressed in this article are solely personal english.pdf statements of the author and any errors are Report of the ICCA-Queen Mary Task Force on the author’s own. They do not necessarily Third-Party Funding in International Arbitration reflect the stance of ICC Albania. The (2018), ICCA-Queen Mary Task Force, https:// content of the article is the original work of cdn.arbitration-icca.org/s3fs-public/document/ media_document/Third-Party-Funding- the author. The author takes the Report%20.pdf responsibility for any infringements of How Can Third-Party Funding Help Businesses authorship. during the Pandemic? Noiana Marigo, Natalia Zibibbo, -------------------------- https://riskandcompliance.freshfields.com/post/ Abbreviations: 102ge90/how-can-third-party-funding-help- businesses-during-the-pandemic ICCA - International Council of Commercial Third-Party Funding Finds its Place in the New Arbitration ICC Rules, Jonathan Barnett, Lucas Macedo, HKIAC - Honk Kong International Arbitration Jacob Henze, Center http://arbitrationblog.kluwerarbitration.com/ SIAC- Singapore International Arbitration Centre 2021/01/05/third-party-funding-finds-its-place- SCC- Arbitration Institute of the Stockholm in-the-new-icc-rules/ Chamber of Commerce The Challenges of Sanctions for Arbitral ICSID- International Centre for Settlement of Participants, Christopher Hunt, Colin Trehearne, Investment Disputes Eriko Kadota, http://arbitrationblog.kluwerarbitration.com/ References: 2015/10/05/the-challenge-of-sanctions-for- arbitral-participants/ The term "soft law" refers to quasi-legal The Secretariat’s Guide to ICC Arbitration, Jason instruments which do not have any legally Fry, Simon Greenberg, Francesca Mazza, ICC binding force, or whose binding force is Publication 729 (Paris, 2012). somewhat weaker than the binding force of Third-Party Funding in International Arbitration, traditional law. Hussein Haeri, Clàudia Baró Huelmo and Giacomo 2021 Arbitration Rules, ICC, https://iccwbo.org/ Gasparotti, https://www.lexology.com/library/ dispute-resolution-services/arbitration/rules-of- detail.aspxg=f0bf76ab-9607-4de0-92ee-70f9001 arbitration/ 277f5 Note to the Parties and Arbitral Tribunals on the
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