Originally from The American Review of International Arbitration (ARIA)

PREVIEW PAGE

Third-party funding has long been a topic of particular interest and controversy in international arbitration proceedings, not in the least because it has generated issues pertaining to the transparency of arbitration proceedings and conflict of interest. Litigation and arbitration funding markets are growing exponentially, and national regulators and international arbitral institutions have only recently started to implement rules that specifically target the disclosure obligations around the involvement of third-party funders aimed at enhancing transparency. But the corrective steps in this sense have been piecemeal, disharmonious, and insufficient. It is for this reason that a governance-based, inter-institutional solution to disclosure obligations is needed. This article examines the main causes of potential conflict of interest and suggests a potential approach to conflict-checking. The solution relies on the use of advanced technological solutions like shared databases, blockchain technology, smart contracts, and zero-proof knowledge concepts. Implementing the solution would allow the streamlining of disclosure, protect the integrity of the proceedings, and safeguard confidentiality in the field of institutional, commercial, and investment arbitration. The proposed solution does not tackle ad-hoc arbitration.

1. THE ISSUE—WHY SHOULD THIRD-PARTY FUNDING STILL BE DISCUSSED?

The literature on third-party funding (TPF) in international arbitration is rife and its many facets have been extensively discussed by academic commentators. Papers have been written, task forces have been convened, and working groups have assembled to analyze almost every aspect of this growing phenomenon; namely, its impact on international arbitration procedures, regulatory developments on the national and international level, and the sentiment of system users around this topic.

This paper is of a narrower and more pragmatic scope. It analyzes potential conflict of interest situations that arise in international commercial arbitration particularly in light of the increased specialization of international contracts requiring specific industry expertise from arbitrators.  This paper also suggests a practical solution for identifying potential conflict of interest between arbitrators and funders in a manner that safeguards the competing needs of preserving the integrity of the proceedings and enforceability of the award by eliminating the likelihood of conflicted arbitrators, on the one hand, and of preserving commercial confidentiality in respect to funding agreements and the arbitrator’s private relationships with third-party funders, on the other.

The analysis is particularly timely, not in the least due to the growth of global litigation and the arbitration funding market, which is likely to result in a corresponding increase in the risk of a conflict of interest between arbitrators and funders in the coming years. For example, a 2018 joint report on TPF from the International Council for Commercial Arbitration (ICCA) and Queen Mary University London (ICCA-Queen Mary TPF Report) indicates that assets available for TPF may be in excess of $10 billion and this number is “rapidly growing.”  More recently, a 2020 report indicated that the value of the pipeline of court cases and cash held by UK top litigation funders doubled in 2020 when it hit a record of £2 billion, compared to £1 billion in 2017.   The US litigation and arbitration funding market is also estimated at $10.5 billion alone.