UK: Third-Party Funding In Investor-State Arbitrations: "A Common Practice" That Is "Relatively Widespread"

Last Updated: 1 November 2017
Article by Vannin Capital

Authored by Jeffery Commission Senior Counsel, Vannin Capital

Third-party funding has become "a common practice" in investor-state arbitration. That is how the ICSID tribunal in EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic – comprised of Pierre Mayer, Emmanuel Gaillard and Brigitte Stern – described the frequency of third-party financing in ICSID arbitrations in June 2015. Users of investor-state arbitration confirm as much. The use of third-party funding was reported as "relatively widespread" by 39% of respondents in the 2015 Queen Mary University in London and White & Case survey saying they encountered third-party funding in practice. An even higher percentage of respondents (49%) reported having used a particular form of third-party funding – conditional fee agreements in the form of discounted hourly rates with either a success fee calculated as a percentage of damages or by reference to counsel's hourly fees – in the 2013 Queen Mary and PwC survey.

The numbers of funded cases bear this out. A close review of publicly available information about ICSID and UNCITRAL arbitrations in recent years reveals that third-party funding has been used by claimants in at least 19 investor-state arbitrations. Over that same period, contingent or conditional fee agreements have been used by claimants (and at least one respondent) in at least 10 investor-state arbitrations. The actual number of funded cases (taking into account those that remain confidential) is undoubtedly even higher.

It is against this background that States and arbitral institutions involved in investor-state arbitration are – for the first time – considering whether or not to introduce provisions regulating thirdparty funding as part of their respective treaty-making and rule amendment processes. Although such provisions are not yet in force, a consideration of the scope and content of any potential rules merit consideration. To that end, in this article, we consider the third-party funding provisions in the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States (CETA) and the potential for amendments to the ICSID Arbitration Rules on the same issue.


The rationale, at least historically, for third-party funding in international arbitration is clear: access to justice. In the words of Myriam Seers, senior associate at Torys, third-party funding is "absolutely essential to allowing international investment treaty claims" to proceed to investor-state arbitration. According to Seers:

"The most common type of Canadian company affected by unfavourable measures taken by foreign governments are junior mining companies traded on the TSX Venture Exchange. That type of claimant typically has very little opportunity for financing beyond the equities market, which typically does not fund litigation. Third-party funding allows that type of claimant to pursue a claim it would otherwise have no means to pursue." Seers is not alone in her views on thirdparty funding. As explained by Hugh Meighen, senior associate at Borden Ladner Gervais, third-party funding has already enabled a successful claim for a Canadian investor – Crystallex International Corporation – that it may otherwise not have been possible to pursue. The result: one of the largest ICSID (Additional Facility) awards ever, US$1.4bn in compensation for the Venezuela government's expropriation of one of the world's largest untapped gold mines.

As Meighen explains, however, although "third-party funding has demonstrated its role in providing access to justice to claimants that would otherwise be unable to pursue worthwhile claims", it "also expands the commercial options for all would-be claimants." Indeed, although historically third-party funding has enabled access to justice for only impecunious claimants, that is no longer the case. Caroline Richard, partner at Freshfields Bruckhaus Deringer, who specialises in investor-state arbitration and acted as counsel in the Crystallex arbitration, explains:

"Third-party funding is not just about access to justice for impecunious companies. More and more, it is about sound financial management for companies who have cash available to fund their claims, but who want to de‑risk their litigation and take the costs off their balance sheet."


In May 2017, the Canadian Parliament approved Bill C-30, thereby enacting the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States, concluded in Brussels in October 2016. Although Canada's ratification of Bill C-30 is one of the last stages before the provisional application of CETA can begin, complete ratification still requires approval from national and provincial legislatures.

Third-party funding features in two provisions in Chapter 8, Investment, of CETA: Articles 8.1 and 8.26. Article 8.1 states that third-party funding:

"means any funding provided by a natural or legal person who is not a party to the dispute but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute."

Two observations bear note. First, as drafted, Article 8.1 covers third-party funded claims, as well as claims funded by counsel on a contingent fee basis. Second, the definition of "disputing party" in CETA Article 8.1 also includes both investors and respondents, leaving open the possibility for the funding of respondent legal and arbitration costs , such as the not-for-profit funding by the Anti-Tobacco Trade Litigation Fund created by Bloomberg Philanthropies and the Bill and Melinda Gates Foundation in the Philip Morris v. Uruguay ICSID arbitration. Richard agrees, adding that "there is no reason why States should not avail themselves of funding options where they are available". As she explained in more detail, "having non-profit groups fund a State's defense against investment treaty claims has the advantage of putting the State in control of the defense of its interests as opposed to having those groups submit amici briefs."

Article 8.26 addresses the question of disclosure of the name and address of the third-party funder, and the timing of that disclosure:

1. Where there is third-party funding, the disputing party benefiting from it shall disclose to the other disputing party and to the Tribunal the name and address of the third-party funder.

2. The disclosure shall be made at the time of the submission of a claim, or, if the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made.

The requirements of Article 8.26 are consistent with the practice of investment tribunals, which have tended to require the disclosure of the identity of a funder but not the terms of any funding agreement. According to Richard, the article "strikes the right balance" and "reflects the prevailing practice of investment tribunals". In her view, "the key reason for disclosing the identity of the funder is to enable arbitrators to assess possible conflicts of interest", and as a result, "the terms of a funding agreement are not relevant". Seers concurs, finding that the "provision as drafted strikes a fair balance", and that "disclosure of the terms of funding would be far more problematic, as it would give the adverse party an unfair advantage". Meighen rightly observes, however, that although Article 8.26 excludes disclosure of the terms of the funding agreement itself, "the provisions may nevertheless invite specific disclosure requests by parties regarding funding arrangements".

CETA is one of only two known trade agreements or investment treaties to include provisions on third-party funding. The only other agreement is the EU‑Vietnam FTA, which includes similar provisions, albeit with a few variations. As for arbitral institutional rules, the Singapore Investment Arbitration Centre introduced rules addressing third-party funding in January 2017, although they have yet to be tested as few treaties contemplate arbitration under the SIAC Investment Arbitration Rules.


In October 2016, ICSID launched an amendment process – the fourth of its kind – by inviting suggestions for rule amendments. One of the 16 topics identified for potential ICSID Rule amendment is "possible provisions on third-party funding", namely "whether there should be disclosure of third-party funding for the purposes of conflict checking and/or for the purposes of security for costs".

Asked about the timing for the introduction of any new rule on thirdparty funding, Meg Kinnear, Secretary- General of the ICSID at The World Bank explained that "no date has yet been established" since "the effective date of any amendments will depend on when they are adopted by the Administrative Council, which would also specify an inforce date". In practice, that means the earliest they would be presented to the ICSID Administrative Council is October 2018, but that necessarily depends on the scope of consultations and feedback received, so the process may end up taking longer.

A review of current ICSID practice does not demonstrate that a rule promulgated at the institutional level is necessary for the purposes of "conflict checking" and/or "security for costs". First, like claimants, funders are interested in the same final result, an enforceable arbitration award, and any potential conflict of interest that could form the basis of a subsequent challenge jeopardises that interest. For that reason, claimants are increasingly publicly disclosing that they have secured funding to pursue arbitration, thereby obviating the need for any specific rule. Second, tribunals have confirmed time and again that the existence of a funder does not evidence the impossibility of payment or insolvency, and is therefore not determinative in deciding security for costs applications. In the words of the UNCITRAL tribunal in South American Silver v. Bolivia: "It is possible to obtain financing for other reasons. The fact of having financing alone does not imply risk of non-payment." Indeed, despite the increased frequency of third-party funding in investor-state arbitrations in recent years, not one unpaid costs order has been reported in a funded arbitration.

Third, the introduction of a rule for purposes of security for costs is questionable when a number of tribunals have expressed doubt as to whether or not there is even a "right" entitled to protection. As explained by the ICSID tribunal in Eskosol v. Italy, "there is something analytically curious about the notion that an ICSID tribunal, while not empowered to protect a claimant's ability to collect on a possible merits award, nonetheless should intervene to protect a State's asserted 'right' to collect on a possible costs award."

Finally, the introduction of a rule that focuses solely on third-party funding would ignore other types of financing in ICSID arbitration, such as by shareholders, significant lenders, or insurers. As explained by Richard, there is "no need for arbitral institutions to regulate party disclosures relating to litigation funding in any greater detail than they regulate other types of party disclosures." The reason, according to Richard, is straightforward: "the nature and scope of disclosures relevant to the assessment of conflicts of interest have generally not been the subject of arbitration rules" and there is no reason "why this would be different with respect to third-party funding."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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