The role of third party funders in international arbitration has recently undergone an important evolution and expansion. An increasing variety of companies are now looking to third party funding as a means of financing their arbitral disputes. Correspondingly, more companies now view funding arbitration and litigation as a potentially lucrative investments. This increase and expansion in the use of third party funding, however, engages both new and old concerns about the role of the third party funder in the legal process. Different jurisdictions have addressed these concerns in different ways.
Third party funders have been generally accepted in jurisdictions like England and Australia, but are still predominantly self-regulated or subject to a decision maker's power over its own process. Some jurisdictions are silent as to whether third party funding is legal. Until recently both Hong Kong and Singapore did not allow for third party funding (either explicitly or implicitly). However, both jurisdictions have moved to amend their laws to explicitly permit third party funding and to create corresponding regulatory schemes. This represents an important step forward in the establishment and regulation of third party funding.
An Overview of Third Party Funders
Third party funding allows a party with no legal status in a dispute to fund some or all of a claimant's (or counterclaimant's) costs. Generally, the funder will receive a set portion of the amount recovered under the claim, and will not be paid unless the claim is successful. Traditionally third party funding assisted parties limited capital in pursuing their claim. However, it is steadily being used more and more by larger, well-capitalized parties as a means of controlling risk and protecting capital from being otherwise tied up during the arbitration.
While third party funding may provide advantages to both the funding party and the claimant it also poses challenges. Historically, third party funding has run the risk of running afoul of the doctrines of maintenance and champerty.1 This includes concerns about a third party funder's involvement in the litigation process and that the funder will support and encourage frivolous and/or non-meritorious claims. Other concerns include the disclosure of the existence and identity of a third party funder, which goes to larger concerns about transparency in the arbitration process. The effect of a third party funder on privilege, cost recovery...