Originally from Handbook on Third-Party Funding in International Arbitration, Second Edition

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1. The Importance of Defining Third-Party Funding

The increasing use of third-party funding (TPF) in the past years has not only led to a rising number of funded cases and capital available but also to a growing range of funding products and structures provided by a variety of market participants. This diverse funding landscape has gradually become the subject of rules and regulations by arbitration institutions as well as legislative and regulatory bodies all over the world.

While it is not an easy task to effectively define and address the multi-faceted TPF practice, it is an essential effort nevertheless as there are a number of practical issues and concerns surrounding the involvement of TPF in the arbitral process:

1. the potential conflict of interest of arbitrators (which, in the absence of an effective definition, might be discovered too late or not at all);
2. the potential impact on cost allocation and security for costs decisions (for which the presence of TPF or certain of its forms might be found relevant);
3. the undue control and influence of the funder on the arbitration proceedings;
4. the endangerment of confidentiality and privilege as a result of the sharing of information on the dispute with an external funder; and
5. the scope of a potential prohibition or limitation of TPF in (investment) arbitrations.