Investor-State dispute settlement (“ISDS”) is a system designed to resolve disputes between foreign investors and host States, and is intended to ensure, at least in theory, that foreign investors will have access to a neutral forum in which to resolve their disputes with host States. As the system has evolved, it has also become increasingly expensive, and it is indisputable today that not all foreign investors who might have meritorious claims against host States will have the funds necessary to pursue ISDS. This may be due to a variety of factors, not least of which is that the alleged illegal conduct of the host State that gives rise to the investor’s claim may have deprived the investor of substantially all of its capital. In other words, due to the alleged illegal measures, the investor may have lost not only its investment but also its ability to pursue justice in ISDS.
In light of developments in ISDS, it is no surprise that third-party funding (“TPF”), which has existed in various forms for decades if not centuries, is increasingly prevalent in investor-State arbitration. Advocates in favor of the use of third-party funding in investor-State arbitration observe that it increases access to justice, among other advantages. Because TPF increases access to the system and to justice, it should be welcomed. Opponents, by contrast, fear that third-party funding increases access to an already imbalanced system for unmeritorious claims and frivolous suits that unnecessarily increase the burden on states, who cannot benefit from TPF because they are almost exclusively respondents in ISDS.