« He that cannot pay, let him pray », the English proverb once said. But thanks to the introduction and acknowledgment of the Third Party Funding mechanism, nowadays impecunious parties will be able, not only to pray, but to act too. This article gives a general and none-exhaustive overview of the Third Party Funding mechanism in International Arbitration and the recent developments of one of the most controversial issues which is the “disclosure” related thereto.

What is Third Party Funding mechanism? A quick reminder for the road

Definition of Third Party Funding: As many of us may already know, Third Party Funding, or commonly known by its acronym TPF, is a mechanism by which a Third Party Funder agrees, by means of a Funding Agreement, to take in charge the process fees on behalf of one of the parties, known as the Funded Party, who may be a physical or moral person, impecunious or even affluent.

In counterpart, the Third Party Funder earns a certain percentage (usually between 20% and 50%)1 of “any award or a success fee (for example, a multiple of the monies invested) or a combination of the two, as agreed between the Funded Party and the Third Party Funder. If the case fails, however, the funder loses its investment and will not be entitled to any payment2« .

The Third Party Funder- Funded Party relation is, in its entirety, regulated by a Funding Agreement that should not be confused with another funding mechanisms, like loans, insurance, assignment of claims, company contribution and gambling3.

History of TPF: This mechanism made its first appearance in Australia in 1980 as a funding method for litigation suits, despite the historical prohibition of the doctrines of Champerty and Maintenance. It, then, made its way successfully to arbitration to gain even more “fame”.

Even though the acknowledgment and regulation of such mechanism were far from an easy process, many of the judicial systems became recently aware of the importance of the TPF in order to grant a more open legal system and easy access to justice.

Advantages of TPF: In less than half of a century, TPF has gained a wide success thanks to its multiple advantages and the proof is that the global market of dispute funding is believed to be now, in its billions4.

Frugally, TPF’s advantages may be summarized as follows: The mechanism was essentially conceived to give the chance to impecunious parties to bring a legal suit or initiate an arbitration and have an easy access to justice. But the merits of the mechanism did not stop here. As, affluent parties may also seek the help of a Third Party Funder. Indeed an affluent party may have enough funds to initiate an arbitration procedure, however by involving a Third Party Funder in the arbitral proceedings, the Funded Party “externalize” the risk of using large sums of money in an arbitration, as it will be the Third Party Funder who will take in charge all the arbitration costs, and bare the results.

In addition to the funding itself, Third Party Funder usually offers to the Funded Party its assessment of the case, the winning arguments and may suggest a counsel to represent the Funded Party, which is not necessarily practiced by the other traditional Funders5.

Last but not least, TPF has its own advantages for the Third Party Funder himself, since funding a party to initiate an arbitration constitutes a quasi-risk- free investment far from the volatility of many other investment markets. Indeed, before a Third Party Funder decides to fund a party, the former carries out a very punctual « due diligence » in order to make sure that it’s a winning case for the Funded Party.

Even though the mechanism of TPF is full of advantages, it is not free from downsides.

Downsides of TPF: It has been argued that one of TPF’s “cons”, is that the mechanism may encourage the increase in number of arbitration cases. Even though, in my opinion, this should be considered rather an advantage than a downside, as it promotes arbitration and gives the chance for everyone to have the access to the justice of tomorrow, other consider that TPF encourages frivolous claims, which is not necessarily true.

It is also believed that TPF has another major downside which is the degree of implication of the Third Party Funder and the consequences on the integrity of the procedures. As its name suggests, Third Party Funder is not a « party » to the arbitral proceedings. Nevertheless, Third Party Funder’s deep involvement, may lead to a situation where the Funded Party is nothing but a “puppet” of the Funder. However this may be easily solved. Suffices for the parties to the Funding Agreement to make sure that the implication of the Third Party Funder does not exceeds a bona fide funder’s degree of implication.

Status quo of TPF in International Arbitration: Nowadays, other Common Law countries followed Australia’s path, like England and Wales, the USA, Hong Kong and Singapore, becoming now the leaders of the practice in the world6. This is a self-evident consequence due to the costly nature of the litigation suits in Common Law countries that encouraged them to acknowledge the principle easier than their Civil Law counterparts.

Subsequently applying the mechanism to arbitration was much easier for Common Law countries, which is not the case for Civil Law countries or Religious Law countries7. For Continental Europe TPF is still “in its infancy”8. Same applies for Africa or the Middle East, where the practice is quasi inexistent.

New Regulations? Even though TPF is not fully regulated, neither by arbitral institutions nor by national legislations, countries are slowly one after another deciding to expressly regulate the mechanism and all of its related principles.

As a matter of illustration, Sweden has lately considered to take a positive step towards the regulation of TPF. Even though it is highly doubtful that a specific national regulation will be introduced soon, since the practice is not developed internally, “Swedish law may have inferences on TPF in international arbitration seated in Sweden as well as on the prospective emergence of a domestic funding market”9.

But not only Sweden who is “crawling” to reach the regulation of TPF in international arbitration: Indeed, the regulation of TPF is mandatory in order to give a legal frame to the practice and ensure its prosperity. Therefore, TPF market has welcomed few days ago a “fully regulated asset management fund”, whose directors became aware of the importance of the regulation of the mechanism. In other words, the fund and its management company based in Paris will be both regulated by the Law of Luxembourg10. Which constitutes a great initiative from the Funder itself to regulate the mechanism.

This being said, understanding TPF cannot be completed without having a closer look on the controversial issues and recent developments of the mechanism. The following part of the article will be discussing one of the major issues related to the mechanism which is the disclosure of TPF in international arbitration.

Disclosure of TPF in international arbitration: where are we standing now?

Before going through the issue’s new trends, a brief overview of the disclosure principle is a must.

What is the “disclosure” principle? Disclosure, in its simplest, is “make something known for the others”11 or the “act of making new or secret information known”12. And this should not be confused with transparency, since disclosure may be considered as the mean while transparency the result.

Disclosure and TPF in international arbitration: Whereas the disclosure principle itself exists in different fields of law, introducing it to the TPF was not easily accepted. Disclosure in TPF concerns mainly the existence of TPF, identity of the Third Party Funder and terms of the Funding Agreement. In this regard, many questions are triggered: should the existence of Third Party Funder be disclosed to the Arbitral Tribunal and the opposing party? What exactly should be disclosed? Who should disclose it? How should it be disclosed? And most importantly, why should it be disclosed?

The necessity of the disclosure of TPF, relies on the idea of preserving the credibility and integrity of the arbitral proceedings. In other words, by imposing an obligation on the Funded Party to disclose the existence of a Third Party Funder and its identity, arbitrators and opposing parties will be able to carry out their « conflict of interests check » in order to make sure that none of the arbitrators are partial or biased. Also, the opposing party will be tracking this “conflict of interests check” in order to be sure that none of the arbitrators are partial or biased.

In addition, disclosing the terms of the Funding Agreement helps the opposing party as well as the arbitrators to determine the degree of implication of the Third Party Funder and make sure that he is not “The” party in the arbitration, and eventually saving the coherence and integrity of the proceedings.

Status quo of the disclosure of TPF in international arbitration: Even though the vast majority of arbitral institutions as well as national legislations does not regulate the issue of disclosure, and even worse, does not regulate the TPF at all, we should never lose hope.

In fact, Hong Kong’s Arbitration Ordinance that amended the Bill of 2016, included a specific provision ordering the mandatory disclosure of the existence of TPF and the identity of the Funder to the Arbitral Tribunal as well as the opposing party, on the commencing of the arbitration or within 15 days from the commencement date of the arbitration proceedings13.

Also, CIETAC new Arbitration Rules provides a systematical disclosure of TPF14. Same applies for SIAC Investment Arbitration rules, giving the full power to the Arbitral Tribunal to request the disclosure of the existence and identity of the Third Party Funder, as well as the details of the Funding Agreement if necessary15. Does « details of the Funding Agreement » entails the disclosure of its terms?

On the other hand, Soft Law rules did not stand still. In 2014 the IBA Guidelines on Conflict of Interest were the first to refer explicitly to TPF. General Standard 6 (b) obliges the arbitrators to disclose the existence of any relation between them and the Third Party Funder. Even though IBA’s initiative was much than appreciated, it has been proved that the provision lacks some « pragmatism ». In most cases, arbitrators are not aware of the existence of TPF unless the Funded Party reveals it. How can the arbitrator be therefore able to disclose a relationship that he is not aware of? In other words, prior to the obligation of disclosure by the arbitrator of the existence of any relationship between himself and the Third Party Funder, the Funded Party should be under an obligation to disclose the existence and the identity of the Third Party Funder.

This was however taken into account by ICCA Queen Mary task force Report of 2018. By virtue of this Report, the Funded Party or its counsel are under a systematical and mandatory obligation to disclose to the Arbitral Tribunal the existence of a TPF and the identity of the Funder, through the first submission/appearance or as soon as the Funded Party enters into a Funding Agreement. Also, the Arbitral Tribunal may request, by its own initiative, the disclosure of the aforementioned information. Nothing, however was mentioned as to the disclosure of the terms of the Funding Agreement16.

Recent developments: Implementation of a full disclosure of TPF in international arbitration: Till recently we had reached a « mandatory and systematic » disclosure, as mentioned earlier. But what about a « full » and “mandatory” disclosure?

HKIAC has recently introduced amendments to its arbitration rules of 2013, and has announced several new provisions and amongst them, some related to TPF. One may not forget that Hong Kong has been amongst the pioneers to regulate TPF and include regulatory provisions as to the disclosure of TPF.

Thanks to these new provisions, it is mandatorily required to disclose not only the existence of a Funding Agreement, the identity of the Third party Funder, but also terms of the Funding Agreement that are related to the arbitration. These new provisions give also the full discretion to arbitrators to “take into account any funding arrangement when fixing or appointing costs of arbitration”17.

Arbitrators have also proved to be supportive of a full disclosure: In Manuel Garcia Armas and others v. Venezuela18, the Arbitral Tribunal ordered Claimants to disclose the terms of the Funding Agreement “invoking a duty to protect the integrity of the procedure”19.

Not only the decision proves the general tendency towards an open and transparent system, trying to enforce a full disclosure to preserve the integrity of the arbitral proceedings, it also comes with great influence over ICSID as the decision “was rendered only months before the Proposals for Amendment of ICSID Rules”20.

ICSID catching the wave: In August 2018, ICSID announced several proposals to change and update its dispute resolution rules. These proposals touched upon several ICSID rules. Concerning the Arbitration Rules, the proposal contains an explicit obligation to disclose the existence of TPF, the identity of the Third Party Funder as well as the source of the funding. Knowing that these information should be provided before the appointment of the arbitrators in order to avoid any conflict of interests21.

Even though the proposal is much appreciated, it is not sure that it will be applicable in 2019 or 2020, since it depends on the votes that will be submitted in December 201822.

In fine, whether in favor or not of the TPF mechanism, it became in a very short time, a reality that should be dealt with, very carefully, especially when it comes to the disclosure issue. Justifying the lack of regulation by the unawareness of TPF can no longer be a valid excuse. If we do not take a positive stand in order to understand the mechanism and eventually regulate it, TPF and all of its related issues will remain unfathomable.

Salma Nasreldine
M2 « Arbitrage et Commerce International » (MACI) – UVSQ 


  1. DE FONTMICHEL, M., “Les sociétés de financement de procès dans le paysage juridique français, Revue des Sociétés”, 2012 p. 279, Dalloz Revue, https://www.dalloz-revues.fr/revues/Recueil_Dalloz-21.htm
  2. HARFOUCHE, R., & SEARBY, J., “Third party funding, incentives and outcomes”, 31 October 2012, The European, Middle Eastern and African Arbitration Review 2013, GAR,http://globalarbitrationreview.com/insight/the- european-middle-eastern-and-african-arbitration-review-2013/1036737/third-party-funding-incentives-and- outcomes
  3. CLUB DES JURISTES, Rapport de la Commission Financement de Procès par les Tiers, “Financement du procès par les tiers”, Juin 2014. http://www.leclubdesjuristes.com/wp-content/uploads/2014/01/CDJ_Rapport_Financement- proc%C3%A8s-par-les-tiers_Juin-2014.pdf
  4. ICCA- QUEEN MARY TASK FORCE, “Draft report for public discussion on third party funding in international arbitration”, 1st September 2017, http://www.arbitrationicca.org/media/9/75899457734281/submission_version_for_public_comment_draft.pdf
  5. SEPULT, E., “Le tiers financeur dans l’arbitrage: quand la finance rencontre la justice”, Master’s thesis in the Masters of business law, Liège University, academic year 2016-2017. https://matheo.uliege.be/bitstream/2268.2/2885/4/TFE%20%20Le%20tiers%20financeur%20dans%20l%27arbitra ge%20-%20quand%20la%20finance%20rencontre%20la%20justice.pdf
  6. SNIDER, Th., RAHMAN, J., HUSSIEN, H., SHAHDADPURI, K., Third Party Funding in the Middle East, 2018 https://www.lexology.com
  7. Ibid.
  8. PELOUZE, F., “The Third Party Litigation Funding in France”, Business-focused legal analysis and insight in the most significant jurisdictions worldwide, The Law Review, First Edition, January 2018. https://thelawreviews.co.uk/edition/the-third-party-litigation-funding-law-review-edition-1/1152251/france
  9. SIDKLEV, J., Third Party Funding in Sweden Uncovering Uncharted Territory, 2018 http://www.kluwerarbitration.com/
  10. JONES, T., A new “fully regulated” third-party funder opens in Paris, 2018 https://globalarbitrationreview.com/
  11. Cambridge Law Dictionary, https://dictionary.cambridge.org/fr/
  12. Oxford Law Dictionary, https://www.oxforddictionaries.com/
  13. Article 98U of the Arbitration Ordinance amending the Bill of 2016
  14. ICCA- QUEEN MARY TASK FORCE on Third Party Funding in International Arbitration Reports No.4:, “Chapter 4: Disclosure and conflicts of interest”, Volume 4, 2018. http://arbitrationblog.kluwerarbitration.com/
  15. SIAC Investment Arbitration Rules 1st Edition 1st of January 2017
  16. ICCA- QUEEN MARY TASK FORCE on Third Party Funding in International Arbitration Reports No.4:, “Chapter 4: Disclosure and conflicts of interest”, Volume 4, 2018, http://arbitrationblog.kluwerarbitration.com/
  17. LIU, J., HKIAC introduces new rules, 2018 http://arbitrationblog.kluwerarbitration.com/2018/10/22/hkiac-new- rules/
  18. Manuel García Armas et al. V. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, https://www.italaw.com/cases/6745 and LEVENTHAL, A.G., Towards an Exceptio Fundati? Assessing a (Potentially) Emerging Exception for Third Party Funding in Investment Treaty Decisions on Security for Costs in the Wake of Armas v. Venezuela, 2018 http://www.kluwerarbitration.com/
  19. LEVENTHAL, A.G., Towards an Exceptio Fundati? Assessing a (Potentially) Emerging Exception for Third Party Funding in Investment Treaty Decisions on Security for Costs in the Wake of Armas v. Venezuela, 2018 http://www.kluwerarbitration.com/
  20. Ibid.
  21. Backgrounder on Proposals for Amendment of the ICSID Rules, 2018 https://icsid.worldbank.org/en/Documents/Amendment_Backgrounder.pdf
  22. Ibid.