Third Party Funding - London CIArb / LCIA seminar

 

London Branch Event: third-party funding and implications for the arbitration process.

12 September 2019

A panel of legal and industry experts considers the growth of third-party arbitration funding, and the implications for arbitrators, funders, lawyers and clients.

L-R: Maddi Azpiroz, ClaimTrading Ltd; Simonie Dimitrellou, Augusta Ventures Limited; Prof Dr Jacomijn van Haersolte-van Hof, London Court of International Arbitration (LCIA); Paul Rose, chair, London Branch; Marie Kelly, Norton Rose Fullbright LLP; Iain Maxwell, Herbert Smith Freehills LLP.

Paul Rose, chair and convenor, London Branch, welcomed attendees and introduced the distinguished panel: Prof Dr Jacomijn van Haersolte-van Hof, Director General of the LCIA, who has arbitrated extensively in international disputes; Maddi Azpiroz, founder and Managing Director of ClaimTrading Limited, an independent brokerage firm that arranges funding for litigation and arbitration; Marie Kelly, solicitor and partner at Norton Rose Fullbright LLP, specialising in shipping litigation and whose clients include P&I Clubs; Simonie Dimitrellou, Investment Manager at Augusta Ventures Limited, focusing on the funding of energy, maritime and international trade litigation; and Iain Maxwell, a partner in Herbert Smith Freehills LLP specialising in international arbitration.

The panel began by defining third-party funding as where someone who is not involved in the case funds the litigation in exchange for a commercial return.  This is commonly done through sharing the amount awarded.  When third-party funding first emerged, it was typically used by a party who could not otherwise afford to litigate.  However now, a party may seek third-party funding because it wants to offload litigation risk or use funds it has for working capital or other projects, and is prepared to pay for that.   It was noted that in marine cases, P&I Clubs had effectively been providing a similar service for many years, in that risks are pooled amongst its members.  A major difference is that P&I Clubs may decide not to fund a case where it considers it is undesirable given the interests of the marine community as a whole.  A third-party funder does not have to take such factors into account, and in deciding whether to take a case will consider commercial factors such as the likelihood of success, time likely to elapse before the outcome and the size of the likely return.

A number of interesting procedural complications arise from the use of third-party funding in arbitration:

Should third-party funding be disclosed? The emerging consensus is that it should. Hong Kong and Singapore have adopted this position.  It was thought that tactically, it may be a good idea to reveal to the other party that the action is fully funded.

What about privilege? It was considered that in the UK, legal opinions could generally be shared with a funder without losing privilege.  That might not be the case in other jurisdictions.  If an opinion has been taken round the funding market in the search for funding, arguably privilege is lost, but given it is likely to be a positive opinion, that may not be disadvantageous.

Are there conflicts of interest? Conflicts of interest might arise given that funders can influence the appointment of an arbitrator, potentially to a significant number of cases.  P&I Clubs do on occasion support both parties to an arbitration, subject to a Chinese wall, on account of the community aspect. Other funders do not.   

Will funders provide security for costs? An arbitrator will not have the power to direct a funder to provide security for costs, but most funders will do so in appropriate cases.  Orders for security for costs have historically been common in P&I Club cases given a ship may be the only asset.  They are less common in non-maritime cases.  It was thought that orders for security for costs are more common where there is a funder, but that may be because originally parties using it were likely to be impecunious.  

Do arbitral institutions’ rules need amending for third-party funding?  The LCIA has considered this, but decided not to introduce special provisions into its rules, as any procedural issues arising from third party funding can be decided by the arbitrator in the normal way.

There followed a drinks reception kindly hosted by Herbert Smith Freehills LLP.