Originally from World Arbitration and Mediation Review

Third-party funding of legal disputes is a burgeoning industry and is becoming an increasingly popular way to alleviate the financial burden associated with international arbitral proceedings. Some have welcomed this development with open arms, arguing that it facilitates access to justice for parties with insufficient funds to engage in expensive arbitral proceedings.  In contrast, others contend that it will result in an increased pursuit of speculative claims. There is also a risk that the lack of legislation and other regulation dealing with the disclosure of third-party funding arrangements will undermine the perceived legitimacy of arbitral proceedings due to possible conflicts of interest. 

In response, some jurisdictions have adopted regulations and codes of conduct permitting third-party funding while hedging the creativity demonstrated by third-party funders. In contrast, others have expressly prohibited third-party funding.  International arbitral institutions amend their rules to comply with the laws of the jurisdiction in which they are seated.  Of interest to this article is how the International Centre for the Settlement of Investment Disputes (“ICSID”), the most-used institution to settle investment disputes,  plans to regulate third-party funding, since the institution is established under a Convention and its legitimacy is based on its Member States agreeing to abide by the arbitral awards it issues.  Now, ICSID is faced with the daunting task of amending its Arbitration Rules to satisfy the Member States that are both in favor of and opposed to third-party funding arrangements. 

In October 2016, ten years after the previous amendment process, ICSID started the current amendment process aimed at modernizing its Arbitration Rules (“Rules”).  One of the needs recognized in the amendment process is whether—and to what extent—there should be a disclosure of third-party funding.  Doing so is no easy feat since views on third-party funding vary significantly between the ICSID’s Member States.