Jurisdiction - Hong Kong
Reports and Analysis
Asia Pacific – Show Me The Money! Third-Party Funding In International Arbitration.

12 November, 2012

 

The legal and business communities are hotly debating whether third-party funding is ethical and legal, and whether third-party funding agreements should be disclosed to arbitrators.

 

 

Third-party funding in international arbitration has long been a source of contention in the legal and business world. Unfortunately, there is no definition of third-party funding in the context of international arbitration. 

One of the panellists, Michael Napier CBE QC of Harbour Litigation Funding, explained at the recent ADR in Asia conference that a classic third party funding arrangement is legal aid. In Hong Kong the supplementary legal aid scheme deducts a percentage levy from damages in a successful case. Because of the immunity of a legally aided party to pay costs if the case is lost there is a proper duty of disclosure of the funding arrangement to the other party. 

But that does not apply to a commercial third party funding arrangement where there is no costs immunity, so there should be no duty of disclosure said Napier, adding, “like legal aid which gave support to the David against Goliath case, third party funding today helps to level the access to justice playing field which is dependent on litigants being able to fund their case. “

The legal and business communities acknowledge third-party funding as a method of ensuring access to justice and putting the parties on a level footing. Whether there should be mandatory duty of disclosure of funding to arbitrators is another matter. 

“As an arbitrator… I would prefer not to have the funding disclosed because we are all human and you could be influenced in the decision you make,” said fellow panellist Bronwyn Lincoln of Herbert Smith Freehills.

There are instances where funding arrangements must be disclosed: in compliance with the regulatory regime of a jurisdiction, under stock exchange rules applying to the claimant and if there is a potential conflict of interest that could throw the arbitrators’ impartiality and independence into jeopardy.

“If you could clear conflicts without disclosing the funding arrangement, that would be a good thing in my opinion,” said Mick Smith of Calunius Capital.

The general consensus from the panel was that third-party funding agreements should not be disclosed to arbitrators, provided the integrity of the award is protected. 

But one arbitrator’s view from the audience was that in a recent case he adjudicated, the parties were not on an even footing, as one was a small start-up company and the other a multinational corporation. Until the final hour, he remained of the view that the “minnow” was being oppressed by the corporation until the minnow disclosed they had a third-party funder. This was relevant to the outcome and award in the case. Based on this, the speaker believed disclosure of a third-party funding arrangement to be vital to the integrity of the award in arbitration proceedings.

One thing is certain: there is no consistent view on the matter. As with all matters concerning the law, what lawyers and clients want to see is certainty and consistency. Definitive guidance from the International Chamber of Commerce will be posted on 26 November 2012. The legal and business communities hope that this guidance will provide clarity as to disclosure of third-party funding arrangements.

For further information, please contact:

 

editor@conventuslaw.com

Follow Conventus Law on Twitter @conventuslaw

Leave a Reply

You must be logged in to post a comment.