Third-Party Funding in Investment Arbitration

  • Stavros BrekoulakisEmail author
  • Catherine A. Rogers
Living reference work entry


Modern forms of Third-party funding or Third-party financing (TPF) are no longer new to international arbitration. Recent years have seen significant increases in the number of funders, the number of funded cases, the number of law firms working with funders, and the number of reported cases involving issues relating to funding. As a result, third-party funding has increasingly drawn the attention of commentators and scholars, and even more recently of arbitral institutions, national regulatory authorities, and State trade negotiators. This chapter offers an overview of the existing state of regulation of TPF and focuses on the two most important areas which implicate TPF and ISDS, namely conflicts of interest and security for costs.


Third Party Funding International Treaty Arbitration Conflicts of Interests Ethics Security for Costs 


Modern forms of Third-Party Funding or Third-Party Financing (TPF)1 are no longer new to international arbitration. Recent years have seen significant increases in the number of funders, the number of funded cases, the number of law firms working with funders, and the number of reported cases involving issues relating to funding. As a result, third-party funding has increasingly drawn the attention of commentators and scholars, and even more recently of arbitral institutions, national regulatory authorities, and State trade negotiators.

Debates over third-party funding in the field of investment arbitration in particular are closely linked to the different structural views about the overarching purpose of investment itself and the role of investment treaty arbitration. On one side of the debate, investment arbitration may be regarded as a legitimate process only to the extent it facilitates sustainable development. Under this view, certain categories of cases are considered directly objectionable, and the overall rise in the number of cases has also been an independent cause for concern. For related reasons, the profit incentive of third-party funders is often regarded as inherently incompatible. The notion that some amounts recovered from States would go to third-party funders, instead of solely to investors, is considered inconsistent with the goal of promoting sustainable development.

On the other side of the debate, investment arbitration is regarded as an essential means of providing recourse for foreign investors when governments act in ways that violate applicable treaty-based protections for their investments. Under this view, third-party funding is regarded as an essential tool for facilitating access to justice, particularly for that class of investors who have been wrongfully expropriated and therefore lack the means to pursue an investment claim in the absence of third-party funding.

In a related vein, others argue that investor-claimants should not have to forego business opportunities by using their own capital to pursue recourse caused by wrongful conduct by a State. Alternative means of financing claims allows claimants to minimize continued harm from the alleged misconduct by States and strategically reduce the risks of pursuing the claims. Funders also argue, more generally, that modern third-party funding is not conceptually or economically distinct from alternative means of financing claims, such as corporate loans or contingency fees, and should not therefore be singled out for different treatment.

Overall, the very existence of third-party funding has been a uniquely divisive issue in investment arbitration, which explains why this issue has become a central topic in the discussions and potential reforms in a number of national policy makers who currently revisit national model BITs, as well as in ICSID, which is currently in the process of amending its rules, and of course in the UNCITRAL Working Group III.

In terms of organization and structure, this chapter starts with an overview of the existing state of regulation of TPF (section “Existing State of TPF Regulation”), it proceeds with a discussion on the complex question of definitions (section “Definitions”), and it then focuses on the two most important areas which implicate TPF and ISDS, namely conflicts of interest (section “Potential Conflicts of Interest”) and security for costs (sections “Security for Costs”).

Existing State of TPF Regulation

Despite the extensive public discourse and legal scholarship, in the last decade in particular, surrounding the role and potential implications of TPF in international arbitration, regulation of TPF varies considerably even within jurisdictions of the same legal tradition, such as common law jurisdictions.

In Ireland, for example, maintenance and champerty are both criminal offences and civil torts, and have been since the 1600s. The Irish Supreme Court in May 2017 reaffirmed the prohibition holding (with a clear majority of 4-1) that a third-party funding agreement between a claimant and an English third-party funder violates the laws on maintenance and champerty under ancient statutes from the fourteenth century to the Maintenance and Embracery Act 1634. Importantly, the Irish Supreme Court rejected the view that it should harmonize the old position of the common law on maintenance with recent developments on litigation funding and modern policy considerations such as the constitutional right of access to justice.2

Despite having reaffirmed the position of the common law prohibition of third-party funding, however, a number of Irish Justices expressed their disquiet over some important implications that such prohibition gives rise to. For example, Clarke J. noted that “it is difficult to take an overview of the circumstances of this case without a significant feeling of disquiet” observing that “it is at least arguable that there is a very real problem in practice about access to justice [which] is growing.”

Importantly too, the Justices invited the Irish legislator to act upon and regulate third-party funding in the future to address the conflicting considerations underpinning the doctrine of maintenance, on the one hand, and the right of access to justice on the other.

For example, McKechnie J. noted that it would be preferable to defer the making of an order on this matter “until such time as the State has been given an opportunity to address the deeply disturbing situation of the appellants being unable to prosecute this action solely because of the continuing existence of ancient principles of law, such as those of maintenance and champerty,” and observed that “the outcome of this case is manifestly troublesome from the perspective of the giving of effect to the constitutional right of access to the courts.

Ireland is in many respects rather unique. Other common law jurisdictions today take a different, arguably more progressive, approach to third-party funding, and have introduced reforms to expressly permit third-party funding in international arbitration. Notably, Singapore and Hong Kong have now enacted legislative reforms to permit third-party funding arrangements that were previously prohibited, while, at the same time, they establish certain disclosure obligations for funded parties, as well as ethical and other standards for counsel and third-party funders.3

In 2017, Singapore amended its law to permit third-party funding in relation to prescribed dispute resolution proceedings under certain conditions and qualifications.4 Regulation 4 of the Civil Law (Third-Party Funding) Regulations of 2017 sets out a number of qualifications for funders including the requirement that the funder “must carry on the principal business, in Singapore or elsewhere, of the funding of the costs of dispute resolution proceedings to which the third party funder is not a party” and must have “a paid-up share capital of not less than S$ 5 million or the equivalent amount in foreign currency or not less than S$ 5 million or the equivalent amount in foreign currency in managed assets.5

In June 2017, Hong Kong enacted the Arbitration and Mediation Legislation (Third-party funding) (Amendment) Ordinance 2017 (Amendment Ordinance) which expressly permits third-party funding arrangements that had been previously prohibited under the doctrines of champerty and maintenance.6 Importantly, in February 2019, the Hong Kong government published the Code of Practice for Third Party Funders, which was foreshadowed in the 2017 legislation. The Code is a significant piece of regulation of third-party funding activities, setting out standards and practices which third-party funders must follow in order to be permitted to operate in the Hong Kong arbitration market. These standards include the requirement that the funders maintain access to minimum capital of HK $20 million, maintain the capacity to “pay all debts when they become due and payable,” and maintain the capacity to “cover all of its aggregate funding liabilities under all of its funding agreements for a minimum period of 36 months.” The Code further prohibits that a funder seeks “to influence the funded party or the funded party’s legal representative to give control or conduct of the arbitration to the third-party funder, except to the extent permitted by law.” Importantly, the Code sets outs clear provisions on conflict of interest, requiring funders to “maintain, for the duration of the funding agreement, effective procedures for managing any conflict of interest that may arise in relation to activities undertaken by the third party funder in relation to the funding agreement.” Such procedures include the duty of the funder to monitor the funders’ operations in order to identify and assess potential conflicting interests and protecting the interests of funded parties.

In England and Wales, maintenance and champerty do not constitute criminal offences and civil torts, but only since the introduction of the Criminal Law Act 1967. At the same time, England and Wales have not passed formal regulation on third-party funding, which is subject to self-regulation in the form of a voluntary Code of Conduct for Litigation Funders (Code) which was adopted in January 2014 by the Association of Litigation Funders.7 While the Code refers expressly to “litigation funding,” it is generally accepted that the Code includes arbitration.8 Specifically, the Code provides:

Litigation funding is where a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings. In return, if the case is won, the funder receives an agreed share of the proceeds of the claim. If the case is unsuccessful, the funder loses its money and nothing is owed by the litigant.9

This definition is binding on all members of the Association, typically commercial funders,10 and mainly aims to regulate nonrecourse funding of individual cases. At the same time, the Code sets out a number of requirements for funders, notably that all funders retain a minimum of £2 million of capital and that they be audited by a recognized law firm. The Code also provides a dispute resolution procedure in case a disagreement over certain terms of third-party funding agreement arises. For example, Article 13.2 of the Code requires that, in case a dispute arises between the funder and the funded party over termination, “a binding opinion shall be obtained from a Queen’s Counsel who shall be instructed jointly or nominated by the Chairman of the Bar Council.” Only if the Queen’s Counsel agrees with the funder that it is lawful to terminate, will the Termination Notice be valid.

Other jurisdictions have more recently enacted legislation on third-party funding. For example, the Chief Justice of Abu Dhabi Global Market Courts, acting under powers delegated to him by the Board of Directors of Abu Dhabi Global Market, prescribed the Litigation Funding Rules 2019 in April 2019.11 Notable requirements here include the requirement for funders “to carry on as a principal business the funding of proceedings to which the Funder is not a party” and to have qualifying assets of not less than US$5 million or the equivalent amount in foreign currency. Further, under the Litigation Funding Rules 2019, a funder “must not be owned (whether wholly or partly, and whether directly or indirectly, and whether by way of shares or otherwise) by a lawyer or a law firm: (a) who has introduced or referred the Funder to a client in relation to the proceedings; or (b) whose client has a Litigation Funding Agreement in force with the Funder in relation to ongoing proceedings.” Finally, the Litigation Funding Rules 2019 includes regulation on conflicts of interest, providing that “the Litigation Funding Agreement must not contain any terms that: (a) could induce the Funded Party’s lawyer or law firm to breach their professional duties which are owed to the Funded Party or to ADGM Courts including under the ADGM Courts Rules of Conduct; or (b) […] allow the Funder to influence the lawyer or law firm so that it takes control of the dispute or assumes conduct of it” and that “Litigation Funding Agreements which include more than one Funded Party must include provisions for managing conflicts of interest between the Funder, the Funded Parties and the lawyers.”

Further sources of regulation of third-party funding come from arbitration institutions, professional codes of practices, including the International Bar Association for the Conflicts of Interest, as well as a number of International Trade and Investment Agreements. These forms of regulation are in a considerable state of flux and new amendments mainly concern issues of conflicts of interest, which are discussed in detail in the relevant section below.


Evolving Character of TPF and Definitional Challenges

Any effort to regulate requires a definition of the object to be regulated. The precise definition of third-party funding, however, remains elusive. Even funders themselves disagree over the precise definition of third-party funding, with some arguing that it is not capable of definition.12

Third-party funding is difficult to define because various forms of financing claims and paying for legal expenses have long existed and many such forms are similar to or definitionally overlap with modern forms of third-party funding. In some jurisdictions, contingency fee arrangements facilitate legal representation and/or cover claimants’ expenses. Although rarely referenced explicitly as a form of third-party funding, law firms are nonparties that advance costs and waive payment of valuable fees contingent on the outcome of a case.

Similarly, modern third-party funding can be functionally similar to, serve purposes similar to, and operate as a market alternative for before-the-event (BTE), after-the-event (ATE), or traditional liability insurance. Some third-party funders are providing products that are effectively a form of ATE insurance, and ATE insurance is often purchased contemporaneously with entering into a third-party funding agreement.

The definition of third-party funding is also difficult because of the wide range of funding models that already exist and the rapid evolution and introduction of new models, including some designed to get around efforts to define. Funding may be structured through corporate debt or equity, as risk-avoidance instruments, or full transfers of the underlying claims or through “special purpose vehicles” (SPVs).13 Equity investing by third-party funders is also increasingly common. Under this mode, a funder purchases shares of a company (often one that is in financial distress) and then assumes seats on its Board. In that context, the funder (or its SPV) would be directly providing funding as an owner/shareholder. Under this scenario, neither the party nor the shareholder would be receiving funding from an outside source, which would make most traditional definitions inapplicable and may raise practical questions about the identity of the funder and the application of particular rules to a funder.14

More recently, “law firm financing” and “portfolio funding” have emerged as new models to fund an identified range of cases involving a particular party or law firm. In the latter instance, funding is provided to the law firm, not the party, which can raise additional practical, ethical and definitional challenges. One additional complexity with law firm and portfolio funding is that one portfolio of cases can be identified to receive funding, while another portfolio is the basis for a funder’s return or securitization of its investment. In that case, funding may be provided for one case, but a funder may not have any interest in the actual outcome of that particular case. More recently, funded cases and particularly portfolios of funded cases can be “refinanced,” meaning a second third-party funder (or multiple other investors) can invest in a portfolio or a “bundle” of cases of another funder.

Meanwhile, third-party funders may become involved either before a claim is filed or later in the process.15 Some funders specialize only in award execution or funding for expert witness costs, while others fund all costs, including a potential adverse award of costs. These distinctions raise questions about potential enforcement of any regulation imposed on funders, which must necessarily impose an ongoing duty to be effective.

While most funders invest in claims, it is also possible to invest on the respondent’s side of the case. For example, in the investment arbitration brought by Philip Morris against Uruguay, The Bloomberg Foundation and its “Campaign for Tobacco-Free Kids” provided outside financial support for the Uruguayan government.16 Such arrangements involve the funding of a case by a third party, but funding is for a respondent (not claimant) and the funder’s interest was tied to the political and policy implications of the award (not financial). Other types of respondent-side funding, more functionally similar to after-the-event insurance, have been discussed, but the general consensus is that such funding models are at best occasional and perhaps only hypothetical.

Respondent States can also be funded by another State or, as has been reported anecdotally by some funders, have their costs for defense or for counterclaims funded through a model similar to after-the-event insurance. There has also been at least one case in which a respondent State was funded by an oil company that had a competing claim to the oil rights being sought by the investor in the funded case.17

In sum, developing a complete a complete definition of third-party funding is associated with significant challenges, but it is necessary nevetheless. The nature of policy concerns may shift considerably depending on the funding models. Similarly, the extent and nature of the definition may change depending on the regulatory context. The definition adopted as a target of disclosure obligations for the purpose of identifying potential arbitrator conflicts of interest may differ from the definition adopted for the purpose of prohibiting funding.

Address Definitional Challenges: Functional Approach

Given difficulties in defining third-party funding in conceptual terms, this section examines functional and comparative aspects of funding that may be helpful in assessing alternative definitions. This functional approach aims to move beyond formal definitions to determine the key functions of different means of financing disputes in order to focus on those functions that are unique or not unique to third-party funding.

By identifying specific types of conduct, rather than conceptual categories, a functional or conduct-based approach may help avoid development of overly broad or unduly narrow standards, guidelines, or rules. A functional analysis may also facilitate more nuanced analysis to distinguish between conduct in which funders’ activities do not raise issues that are or should be the target of such rules and guidance. Alternatively, functional similarities between third-party funding and other types of finance may provide a basis for extending existing rules or doctrines that apply to other actors. For example, the need to assess cases in both contexts is part of the reason why some jurisdictions have extended the common interest privilege from the insurance industry to third-party funding.18

Case Assessment and Risk-Assumption: Insurance and Funding Portfolio

One important benefit third-party funders bring to dispute settlement is an ability to engage in a disinterested, dispassionate, and highly detailed assessment of claims. This function is necessary for their decision to fund a case, but differs from now either a client or its attorney may assess a case. A client, no matter how sophisticated, may be influenced by business incentives and subjective perceptions about the facts underlying the claim. Meanwhile, a party’s lawyers may, intentionally or unintentionally, be influenced both by an effort to please a client interested in bringing a claim and their own potential to earn hourly fees. By contrast, funders and traditional insurers have both structural detachment and financial incentives to engage in a uniquely independent assessment that, by many accounts, leads to an assessment of the case that is distinctly fine-tuned.

Leading funders report an average review-acceptance rate of 10-1, meaning that for every 10 cases reviewed, they only agree to fund one case.19 In deciding whether to accept a case, they assess its legal, factual, practical, temporal, and (sometimes) political variables to determine risks, likelihood of success, and potential rate of return. In making assessment, funders are free from many of the pressures that can cloud a party’s or law firm’s assessment of the same claim. They are also subject to pressures from shareholders to pick claims that are likely to deliver high rates of return.

In assessing claims, some argue that funders bring a level of sophistication and precision unique even among large, sophisticated multinational companies and law firms.20 There have also been anecdotal reports, however, of inadequate due diligence or inaccurate assessments in particular cases.21 In addition, one point repeatedly raised is that effective risk assessment is most feasible by the leading commercial third-party funders, which have considerable expertise and experience with international arbitration. Moreover, in the case of funders that are not sophisticated commercial funders, but, for example, may become involved for policy-related reasons, risk assessment may not be part of their calculus in deciding to fund an arbitration.

To assess risk, commercial third-party funders generally create a risk-assessment model or matrix that takes into account the percentage likelihood of different outcomes in light of specific factors. These factors include, among others, the jurisdiction of the claim, strength of the claimant’s legal arguments, strength of facts supporting the arguments, extent of loss flowing directly from the respondent’s conduct, a claimant’s motivation, commitment and honesty, the experience of the claimant’s legal team, the respondent’s ability/likelihood to pay, reasonable duration to obtain an award, and costs of bringing the claim.

Data for the matrix is obtained through due diligence by the funder, its legal team, and accountants (and other experts, such as intelligence and data recollection). The analysis entails inquiries of the claimant’s lawyers regarding timing and evidentiary issues, legal strategy, and compilation and assessment of material documents. Importantly, conducting this kind of due diligence often requires assessment of information that might otherwise be subject to privileges under applicable law. Based on this matrix, the funder determines the likelihood of estimated returns on investment over a period of years, which will be weighed against other investments in the funder’s overall portfolio.

It is uncertain the extent to which these case assessment procedures are as rigorous when cases are financed as part of a portfolio. “Portfolio financing” is a relatively new model that may challenge some of these basic features of conventional third-party funding. As one funder describes, “the portfolio approach is inherently flexible and ideally suited for defensive matters as well as claims, and for matters that would otherwise be less attractive for funding. Pricing is generally lower because risk is diversified.”22

Diversifying risk may make initial assessment of risk less essential. As a consequence, it is at least plausible that the assessment criteria are diluted when investment is made through a portfolio, which is designed to spread the risk of higher risk investments.

In portfolio financing, the rationale is apparently similar to contracting risks in the insurance industry. Indeed, in the words of one author, the “practice has shown that the losses can be offset by the wins across the board and as long as the value of the winning cases is greater than the amount expended on a losing case, the funder will make a profit.”23

Similarly, spreading the risk in terms of volume and quantity reduces the negative consequences of an unsuccessful portfolio. In this sense, a funder may well provide funds for 20 or more cases at a time, each of them with different chances of success and different amounts at stake. The funder may anticipate that it will likely lose some of those cases, but considers the overall investment will likely be worthwhile if success is achieved in a sufficient number of cases to render the overall portfolio profitable. At the same time, a loss incurred in a case will be unlikely to affect the performance of the portfolio as a whole.

It is unclear the extent to which portfolio funding involves only international arbitration cases, as opposed to a mix of international arbitrations in a mix with domestic litigation cases.24 No evidence has become publicly available regarding other funders actively engaging in portfolio funding exclusively in international arbitration, apart from anecdotal evidence of defense-side portfolio funding of states in investment arbitration.

To the extent portfolio funding becomes more prevalent, it may require reconsideration of issues relating to how cases are assessed for funding. If assessment (and control) are minimized in certain types of portfolio funding, it may be that that funding model more resembles other forms of passive corporate financing that do not implicate certain issues implicated in third-party funding of individual cases.

Control and Cost Containment

Another functional consideration that may affect whether or how to regulate third-party funding is the level of control that a funder may exercise over case strategy, particularly in its efforts to control costs. Control over case management is not viewed as either an inherently good or bad feature of funding, but it may be relevant in evaluating certain issues such as how similar modern third-party funding is to other means of dispute financing, which may in turn affect analysis of certain issues, such as disclosure and conflicts.

In some jurisdictions, the exercise of control by a funder – particularly over a case’s larger objectives like settlement – can also raise ethical issues for counsel. As national ethical rules vary considerably both on whether and how they regulate these issues, it is difficult to consider or endeavor to articulate any guidance about attorney obligations in light of funder control. The extent, nature, and conditions of control are largely a function of the funding agreement negotiated by the party and funder, applicable law, and, in some jurisdictions, applicable ethical or industry rules.

Unfortunately, there are inconsistent reports and no empirical evidence regarding the actual degree of control that funders exercise over management of a case. Some funders report that, after careful initial assessment, they function only as distant and detached monitors who are entitled to receive regular updates.25 Other anecdotal reports indicate that, on more than one occasion, a third-party funder has directly appointed an arbitrator or physically appeared at an arbitral hearing.

Meanwhile, some argue that a relatively high degree of control would be important for funders to be able to protect their investment and ensure that a case is prosecuted consistent with the assumptions and analysis that facilitated the funding in the first place. This view has effectively been endorsed by the Court of Appeal in England, which reasoned that a third-party funder’s “rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals’ is what is to be expected of a responsible funder.”26

Consistent with this view, third-party funders may control or exercise detailed oversight over numerous strategic decisions in a case, including arbitrator selection, expenditure of significant funds (such as retention of experts), changes in legal teams, drafting of memoranda, oral pleadings, and settlement. The extent to which any particular funder in any particular case exercises all or some of these controls will depend on internal practices and protocols of the funder, the nature of the case, the professional relationship the funder has with the funded party and legal team, the financial terms in the funding agreement (which may include financial incentives that reduce the need for monitoring), as well as specific provisions in the funding arrangement that either expressly authorize or limit certain forms of control.

Termination rights also factor into concepts of control. As Jonas von Goeler explains: “when some major litigation funders emphasise in their webpages that they do not control cases, perhaps what they mean is that such express contractual rights to veto specific decisions tend to be absent. However, to what degree a litigation funder will be able to exercise control over the conduct of a claim is not only determined by the existence or not of express veto rights over key decisions. This will also depend on the funder’s termination rights and, not least, on the configuration of the litigation funder’s case monitoring.”27 Good funding agreements set clear expectations and conditions regarding termination of the funding relationship.

Potential Conflicts of Interest

General Observations

Potential arbitrator conflicts of interest were among the first and most prominent issues that attracted attention with respect to third-party funders’ participation in international arbitration. More specifically, questions have arisen as to whether, how, to what extent and by whom disclosures should be made to allow arbitrators, parties, and institutions to assess potential conflicts of interest involving funders.

Concerns about potential conflicts of interest have increased as a number of leading arbitrators have taken positions within, or ad hoc consultant roles with, some funders.28 Other sources for concern about potential conflicts include the increasing number of cases involving third-party funding, the highly concentrated segment of the funding industry that invests in investment arbitration, the symbiotic relationship between funders and a small group of law firms, and related links among elite law firms and some leading arbitrators.29

Until relatively recently, there was debate about whether it was even possible for funders, or at least certain types of funding arrangements, to create conflicts of interest for arbitrators. Third-party funding, it had been argued, could not raise potential conflicts of interest because it is simply one among many possible forms of financial support for pursuing or defending a dispute. The source of financing for a dispute is irrelevant to the merits of the dispute, the argument went, and consequently there was no reason to treat third-party funding as subject to any special treatment that would not apply, for example, to a corporate loan taken out for the purpose of pursuing a claim.30 This line of argument has largely faded from public discussions, but it did preview continuing challenges to define third-party funding in light of the expansion and evolution in funding models.

Opposition to disclosure, some funders explain, is not so much related to maintaining their presence or identity as secret. It is instead a reaction to perceived procedural and strategic consequences of disclosure, such as allegedly frivolous challenges to arbitrators and unfounded requests for security for costs.31 It was also suggested by some that these responses to disclosure may not simply be a matter of case strategy, but an intentional effort to drive up the cost of the case to make the funding model untenable.

It has also been argued that unknown conflicts of interest cannot be a basis of an effective challenge to an arbitrator or an award. Some, though not all, courts have found that unknown conflicts cannot be a basis for refusing enforcement of awards.32 Even though a resulting award may not always be subject to set aside or refused enforcement, there are other potential costs to undisclosed conflicts.

A conflict of interest relating to a third-party funder may be initially unknown, but discovered later in the process, with the result being the removal of an arbitrator or an effective challenge to the award that costs the parties and the funder waste time and money. An arbitrator may suffer the embarrassment of a public questioning of his or her integrity. And finally, the integrity and legitimacy of international arbitration may suffer generally. It is for these reasons that legal frameworks and practices regarding arbitrator conflicts are not based on a see-no-evil model, but instead on an affirmative duty for arbitrators to investigate potential conflicts.

Today the prevailing consensus in the international arbitration community is that that the existence of third-party funding can raise potential conflicts of interest for arbitrators, and therefore the identity of funders should be disclosed.

Existing sources that govern potential arbitrator conflicts of interest are numerous and include arbitral rules, national law, and international soft law instruments, such as the IBA Guidelines on Conflicts. More recently in the context of proposals for amendment of the ICSID Rules, proposed Rule 13 introduces an obligation for a party to disclose the name of any nonparty from which the party, its affiliate, or its representative has received funds or equivalent support for the pursuit or defense of the proceedings.33 Notably, the party is obliged to make the disclosure upon registration of the request for arbitration or immediately upon concluding a third-party funding arrangements after registration. This requirement will then allow the arbitrators, when accepting an appointment, to make a fully informed declaration of their independence and/or disclose any relationship with any funder.

Given that modern third-party funding is a relatively recent phenomenon, however, many of these sources have not yet specifically addressed the issue of potential conflicts of interest involving third-party funding.

The IBA was the first organization to formally address issues relating to third-party funding conflicts by implementing the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration. As examined in greater detail below, the IBA Guidelines define third-party funders and insurers as relevant to conflicts analysis if they have a “direct economic interest” in an award. This definition, however, still leaves unresolved some questions regarding the scope and application of the IBA Guidelines to certain types of dispute financing.

A definition similar to the IBA definition has subsequently been adopted by the Singapore International Arbitration Centre in its Practice Note34 and the 2 February 2016 Guidance Note on conflict disclosures by arbitrators adopted by the ICC.35 Other sources, such as recent legislative reforms in Hong Kong and Singapore, as well as proposed Bilateral Investment Treaties and trade agreements, have adopted different definitions. ICSID is also, as of the time of this writing, grappling with new definitions to capture the range of interests that may be implicated in funding arrangements.

Security for Costs

There are two main doctrinal questions which arise in connection to TPF and security for costs. The first, and more straightforward, question is whether arbitral tribunals have the power to award security for costs. Here, it is generally accepted36 that arbitral tribunals have the power to award security for costs either pursuant to legal provisions which expressly authority the issuance of security for costs orders (e.g., under the English Arbitration Act 1996)37 or pursuant to general provisions on interim measures.38

In relation to ISDS arbitration proceedings under the ICSID Rules in particular, it has been noted that one of the reasons why the general clause on interim measures contained in Article 47 ICSID Convention should cover security for costs is that, when the ICSID Convention was drafted in 1965, “issues such as third-party funding and thus the shifting of the financial risk away from the claiming party were not as frequent, if at all, as they are today.39

The proposals for amendment of the ICSID Rules include a specific provision on security for costs granting ICSID tribunals the authority to “order any party asserting a claim or counterclaim to provide security for costs” upon request of a party.40

Even if express legal provisions allow arbitral tribunals to grant orders for security for costs, it has been argued that a tribunal will still have the power to order security for costs on the basis of its inherent power to preserve the integrity of the proceedings.41

The second and more complex doctrinal question is whether the fact that a party is funded by a third-party funder affects the tribunal’s decision on security for costs.

Before we discuss the doctrinal considerations surrounding this issue, it is worthy addressing an important preliminary question with regard to whether states have a protected right to security for costs under ICSID arbitration in the first place.42

ICSID Convention provides that each party must abide by and comply with the terms of the award.43 However, it is generally accepted that execution of the award is left to the national applicable law,44 and therefore, because the ICSID Convention is not concerned with execution or collection of awards, including the collection of a possible costs award, some tribunals and arbitrators have questioned whether a defendant state has a “right” to security for costs which is protected under the ICSID regime.

In Maffezini v. Spain for example, the tribunal noted that there was no present right of the respondent state to be preserved.45 In Grynberg v. Grenada, the dissenting arbitrator stated that “the use of the words ‘preserve’ and ‘preserved’ in [ICSID] Article 47 and Rule 39 presupposes that the right to be preserved exists. Because Respondent has no existing right to an ultimate award of costs, the tribunal is thus without jurisdiction.”46

Other ICSID tribunals, such as the tribunal in EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic47 and the majority decision in Grynberg v. Grenada, accepted that states have a right in a security for costs application, which is protected under the ICSID regime, even if under the circumstances of the case, the requested security for costs was rejected.

Relatedly, the tribunal in the recent, Eskosol S.P.A. in Liquidazione v. Italian Republic,48 noted that “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.” While the tribunal in the Eskosol case decided not to address this matter as the respondent had failed to demonstrate that the security for costs request was urgent even assuming that the state had a protectable right, it went on to observe that:

The tribunal accepts that respondent States have genuine concerns about their ability to enforce an eventual costs award against unsuccessful claimants, and some States are starting to raise the possibility of reforms to the ICSID system to protect themselves more systematically. But at the same time, such States would be unhappy to see a similar argument about a right to effective relief used against them, for example by claimants worried about collection risk associated with any final merits award of compensation.49

While this is still an emerging issue, it is important to emphasize that eventually only a relatively small number of tribunals have questioned, and mostly in a tentative fashion, states’ right to security for costs under ICSID arbitration. Accordingly, it would be safe to argue that unless there is a critical mass of ICSID awards deciding otherwise, there is currently no valid doctrinal justification that would prevent a state from pursuing a security for costs application before an ICSID tribunal.

We now turn to discuss the question of whether the existence of a third-party funding agreement may affect the tribunal’s decision on security for costs.50 From a review of a growing number of cases dealing with this matter, it appears that tribunals in ICSID arbitration tend to adopt a stricter test than the claimant’s impecuniosity to order security for costs: they usually require evidence of abusive conduct or bad faith on the part of the claimant,51 such as evidence that the claimant has a track record of deliberately failing to comply with costs awards.

While this appears to be an increasingly accepted test for investment arbitration tribunals, it is questionable whether such a high threshold is warranted. It can reasonably be argued that if the respondent state was subject to an unsuccessful claim, it should be able to recover costs at the end of the arbitration regardless of whether the claimant is acting in bad faith or not. On the other hand, an investor may claim that it would be unreasonable for a tribunal to order an investor to meet a security for costs order, because the state’s unlawful conduct (assuming that the state’s conduct in question is indeed unlawful) has diminished or even expropriated their investment in the first place and has left the investor with limited or no available funds to conduct a usually costly investor-state arbitration. This can be a powerful argument, not least because it raises issues of access to justice.52 Of course, these arguments are predicated on larger policy considerations, which are discussed in more detail below.

In practice, when investor-state tribunals decide security for costs requests, usually at an early stage of the arbitration process, they tend not to presume that the state’s conduct has actually left an investor with limited available funds to avoid prejudging the merits of the dispute and thus violating fundamental principles of procedural fairness.

This explains why investment tribunals tend to focus on other considerations, which are not directly related to the merits of the dispute, but nevertheless set a high threshold for a claimant to be subject to a security for costs order in investment arbitration, including, for example, the requirement that the claimant has exhibited abusive conduct by repeatedly failing to comply with costs orders or deliberately dissipating its assets.

Against this background, it is perhaps unsurprising that investment arbitration tribunals have consistently dismissed applications for security for costs in the past. In doing so, these tribunals have relied on a range of different arguments, such as the following:
  • Impropriety of prejudging the claimant’s case on the merits.53

  • Failure on the part of the respondent to establish concrete risk of nonpayment.54

  • There is nothing unusual in the fact that the claimant is a vehicle or has no assets and this does not justify a security for costs award.55

  • A security for costs award would limit claimant’s access to justice.56

  • The rejection of the security for costs application does not pose a threat to the integrity of the proceedings.57

In a well-known assenting opinion in the RSM Production Corporation v. Saint Lucia, it was stated that the existence of a third-party funding agreement is in itself a reason for ordering security against the funded party, or at least shift the burden of proof to the effect that the funded party must make a case why security should not be granted.58 The implication behind this view is that the existence of third-party funding can be taken as an element of bad faith on the grounds that the simple fact of recourse to funding can result in situations where the claimant’s expenses are being covered by a third party who stands to gain if the claimant wins, but would not be liable to meet any award of costs that might be made against the claimant if it lost.

However, to date, the overwhelming majority of ISDS awards have rejected the suggestion that mere recourse to third-party funding is a manifestation of bad faith which can in turn justify a security for costs award. Thus, the existence of a funding agreement alone has not been found by arbitration tribunals to be sufficient to grant security for costs.

Specifically, the first case to explicitly address the issue was Guaracachi America Inc. and Rurelec plc v. Bolivia, in which the tribunal refused to order security for costs.59 Given the controversy that the question generated in the wake of RSM Production Corporation v. St Lucia, discussed below, it is worth citing the tribunal’s reasoning in extenso: “[a]lthough investment treaty tribunals clearly hold the power to grant provisional measures, an order for the posting of security for costs remains a very rare and exceptional measure. (…) The Respondent has not, however, been able to supply evidence to justify the extraordinary measure that it requests. As a factual matter, the Respondent has not shown a sufficient causal link such that the tribunal can infer from the mere existence of third-party funding that the Claimants will not be able to pay an eventual award of costs rendered against them, regardless of whether the funder is liable for costs or not.

The Respondent’s analysis of Rurelec’s balance sheet and other related financial documents also does not sufficiently demonstrate that Rurelec will lack the means to pay a costs award or to obtain (additional) funding for that purpose. To the contrary, Rurelec appears to be an ongoing concern with assets beyond those involved in this arbitration and the Claimants have promptly paid all the requested deposits of costs with no suggestion that they have had trouble finding the necessary funds to do so.”60

In RSM Production Corporation v. St Lucia, where an ICSID tribunal – for the first time ever in investment treaty arbitration – issued a security for costs order.61 The respondent argued that, while no ICSID tribunal had ordered security before, such measure would be justified here, pointing out that the claimant had failed to pay ICSID’s advance on costs, had not honored costs awards rendered against it in a number of previous ICSID arbitrations, and that “the proceedings initiated by Claimant are funded by third parties.” Claimant’s counsel had admitted this already at a hearing on ICSID’s advance on costs. The respondent further claimed that these third parties would not be liable for adverse costs, enabling the claimant to engage in “arbitral hit and run.” The claimant contested the tribunal’s jurisdiction to order security and additionally argued that a difficult financial situation would not be sufficient to justify a grant of security payment against claimants in ICSID proceedings. Additionally, claimant challenged whether its current conduct would give reason to doubt about its willingness to pay adverse costs.

In reaching its decision to order security, the RSM tribunal did take into account that the claimant was impecunious and was funded by a third-party that could presumably not be made responsible for any adverse costs award. Notably, the tribunal pointed out that it would be “unjustified to burden Respondent with the risk emanating from the uncertainty as to whether or not the unknown third party will be willing to comply with a potential cost award.” Yet, the decisive factor for the tribunal to grant the requested security for costs was the fact that the claimant had a proven history of not complying with costs awards rendered against it. The fact that the third-party funder was not revealed (and was therefore unknown) to the tribunal was incidental in the tribunal’s reasoning.62

In EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic,63 the respondent advanced strikingly similar arguments, arguing not only that it had a good case on the merits, but also that the claimants “‘have a history of engaging in fraud and reneging on payment obligations’ and that they do not have the means to pay for the costs of the arbitration proceedings, which are entirely funded by third parties.” The claimants contested the tribunal’s power to order security for costs and argued that ordering security would unduly restrict their access to justice, and that their financial difficulties were “in large part attributable to acts and omissions of Respondent.”

In EuroGas, the arbitrators explicitly distinguished the case before them from RSM Production Corporation v. Saint Lucia and denied the respondent’s security request, pointing out that “the underlying facts in [the RSM] arbitration were rather exceptional since the claimant was not only impecunious and funded by a third party, but also had a proven history of not complying with cost orders. As underlined by the arbitral tribunal, these circumstances were considered cumulatively.” The tribunal went on to note that the respondent had failed to establish that the claimants had defaulted on their payment obligations in the present proceedings or in other arbitration proceedings. It concluded by making it clear that “financial difficulties and third-party funding – which has become a common practice – do not necessarily constitute per se exceptional circumstances justifying that the Respondent be granted an order of security for costs.”

In South American Silver Limited v. The Plurinational State of Bolivia, the respondent argued that the claimant was an impecunious shell company which was funded by a third party, which in combination, according to some arbitrators, would create “a prima facie case for granting the cautio judicatum solvi,” meaning that the burden of proof is transferred to the funded party, who must prove why the cautio judicatum solvi should not be ordered.64 Referring to RSM v. St. Lucia, the claimant pointed out that “the only investment tribunal that has ever issued security for costs did so primarily because of the claimant’s notorious history of failing to pay prior cost awards,” and that the position that “the mere uncertainty as to the existence of a third-party funder’s obligation to reimburse constitutes ‘compelling grounds for security for costs’ correspond[s] to a minority view,” while “[t]he majority of international tribunals have stated the contrary in recent decisions, and on the contrary, the existence of a funder indicates that the claim is plausible on the merits.”

The PCA tribunal transferred the “extreme and exceptional circumstances-test” favored by ICSID tribunals into the framework of Article 26 of the applicable UNCITRAL Arbitration Rules, concluding that “Bolivia’s mere analysis of SAS’ or SASC’s balances and other related accounting documents, or the mere existence of a third-party funder do not meet the high threshold set forth by investment tribunals.”65 In reaching this conclusion, the tribunal explicitly referred to the two previously mentioned cases and confirmed that “the mere existence of a third-party funder is not an exceptional situation justifying security for costs,” explaining that:

[i]f the existence of these third-parties alone, without considering other factors, becomes determinative on granting or rejecting a request for security for costs, respondents could request and obtain the security on a systematic basis, increasing the risk of blocking potentially legitimate claims.66

In a procedural order issued in April 2017 in the case Eskosol S.P.A. v. Italy,67 the tribunal rejected the respondent’s request for an order that the claimant post a bank guarantee of US$ 250,000 or prove it had obtained an undertaking from its third-party funder to pay any costs awards against it, notwithstanding the fact that the claimant had been declared insolvent and placed under receivership in 2013. In its security for costs application, the respondent argued that the claimant’s insolvency made it unlikely that it would be able to meet any adverse costs, if the claim was declined.

The respondent further argued that a security for costs order was necessary and urgent because it had “a suspicion” that the claimant was funded by a third-party funder, which – according to the respondent – increased the risk that the claimant would not comply with a costs order. Responding to the security for costs application, the claimant confirmed that it had been funded by a third-party funder which had assisted the claimant to purchase an ATE insurance policy protecting the company against adverse costs of up to Euro 1 million. While accepting that the claimant’s insolvency meant that the claimant would be unable to meet an adverse costs award from its own funds, the tribunal stated that the ATE insurance policy was sufficient to cover the amount of costs requested by the respondent. The tribunal thus concluded that the respondent had failed to demonstrate that it was either necessary or urgent to grant the security for costs application.

However, in two recent procedural orders issued in July 2017 in relation to the same investment dispute in the parallel cases of Luis Garcia Armas v. Venezuela and Manuel Garcia Armas et al. v. Venezuela,68 the tribunal (sitting in both cases) granted a security for costs order against the funded claimants.

In these two cases, the claimants had voluntarily disclosed the existence of a third-party funding agreement and the respondent requested a security for costs order from the tribunal.

Before deciding on the request for security, the tribunal, siting under the UNCITRAL Arbitration Rules, asked the claimants to provide reliable evidence of their solvency, including asset valuations. The claimants were also directed to inform the tribunal of the jurisdictions where those assets were located, in order to assess the enforceability of any future adverse costs order. Eventually, in a procedural order dated 20 June 2018, the arbitral tribunal ordered the claimants to issue a security for costs in the amount of US$1.5 million holding that the existence of a third-party funder and the fact that the third-party funding agreement expressly provided that the funder will not cover any adverse costs were relevant for determining if the claimant should be ordered to issue a security for costs.

Finally, in a recent decision issued on 27 January 2020 in ICSID Case No. ARB/18/35 Dr Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v Turkmenistan, the tribunal ordered the administrator of an insolvent German construction company who was bringing a third-party funded claim against Turkmenistan to pay security for costs, citing “exceptional circumstances.” In this case, not only the claimant was declared impecunious, but also and crucially the third-party funder did not accept liability for any adverse costs award. Thus, the majority of the tribunal held that the non acceptance of liability of the third-party funder for an adverse costs award presented a “more extreme situation,” in which it would be “effectively impossible” for Turkmenistan to collect such an award. To ensure that the claimant’s access to justice is not restricted by the decision, the tribunal decided to ask the Claimant to produce a bank guarantee, rather than to obtain and escrow the full amount of security for costs. At the same time, the tribunal ordered the Respondent to reimburse the expense of posting the security in the event the state would not win a costs award.

The discussion above sets out the legal framework and practical considerations which emerge through existing case law addressing security for costs in ISDS. In developing legal rules and principles on security for costs applications against the existence of third-party funding agreements, ISDS arbitral tribunals are naturally constrained by the applicable legal framework of the existing ISDS rules and BIT/IIA’s.

However, it is increasingly accepted that the existing legal framework does not necessarily capture some important policy considerations which have emerged in the course of the public and scholarly discourse in the last decade. This partly explains why the recent ICSID proposals for amendment of its Rules introduce a stand-alone provision on security for costs, which while it does not refer to the existence of third-party funding, it expressly confers wide discretion on ICSID tribunals, pursuant to proposed Rule 51(3), to “consider all relevant circumstances in determining whether to order security for costs.69

The recent ICSID Working Paper # 2 explains in this regard70:

Proposed AR 51(3) does not include other specific criteria suggested by commentators. In particular, WP # 2 does not implement the suggestion of many States to include an express reference to third-party funding. Including third-party funding among the listed factors in AR 51(3) would suggest that third-party funding is relevant in every case. However, there appears to be a consensus among the comments received that third-party funding is not always relevant to a request for security for costs. Parties know of the existence of third- party funding from an early stage in accordance with the disclosure obligation in proposed AR 13, and can assess whether to raise this fact in the context of a request for security for costs. To the extent third-party funding is relevant to a party’s ability to comply with an adverse cost award in a particular case, it would be considered under AR 51(3)(a).

As can be seen, the ICSID amendment process is rightly concerned to take account of the, often diverging, views and interests of a wide range of Member states, and in this respect, the proposed amended rule strikes the right balance between not limiting the right of investors to access justice and the right of states to be able to recover their costs in case they successfully defend an unmeritorious claim.


While third-party funding in investment arbitration raises a number of potential issues, to date many of these questions remain open. Even with recent rule changes to require disclosure, the actual practice and overall effect of funding remain uncertain. As a result, a clear view of the facts underlying the main policy questions remains uncertain.

For example, in a letter to ICSID, the Government of Panama raised concerns that prevailing States have pursued costs awards that have not been voluntarily paid by investors and, in a significant percentage of cases, States have been unable to collect on costs awards.71 Some speculate that the reason for states’ inability to collect may be because impecunious claimants cannot pay and funders are not liable on awards. These observations may raise structural issues about what standards should apply to requests for security for costs. But the underlying facts relating to these concerns are to date unknown and unknowable.

Meanwhile, in another example, some funders have pointed out that there has never been an award set aside based on conflict of interest between an arbitrator and a funder. Funders rely on this fact to support the argument that funders have an incentive to avoid potential conflicts that might potentially imperil an award. Nevertheless, there has been at least one case in which a significant conflict of interest involving a third-party funder was reported.72 Without more information, it is unknowable the extent to which such conflicts may exist or be prevented by disclosure.

In the future, more information about funding, which is bound to become available as rules and laws increasingly require disclosure about the existence of funding, will provide meaningful background to make effective and informed decisions about regulating third-party funding.


  1. 1.

    The terms “third-party funding” and “third-party financing” are used interchangeably in this Chapter.

  2. 2.

    Supreme Court Judgment Persona Digital Telephony Limited & Sigma Wireless Networks Limited v The Minister for Public Enterprise, Ireland and the Attorney General [2017] IESC 27.

  3. 3.

    See Chan M, Secomb M, Tan P (2016) Third-party funding: a new chapter in Hong Kong & Singapore, 29 July. Available at

  4. 4.

    Civil Law (Amendment) Act 2017 was passed by Parliament on 10 January 2017. See Henderson A, Waldek D (2016) Singapore arbitration update: third-party funding and new SIAC Rules 2016. Herbert Smith Freehills Arbitration Notes, 1 July. Available at

  5. 5.

    Section 2 of the Civil Law (Amendment) Act 2017 to amend the Civil Law Act (Chapter 43 of the 1999 Revised Edition) (the “Act”) and to make a related amendment to the Legal Profession Act (Chapter 161 of the 2009 Revised Edition), passed 10 January 2017 and assented by the President on 3 February 2017 (“Civil Law (Amendment) Act 2017”).

  6. 6.

    It is currently unclear in Hong Kong whether the doctrines of maintenance and champerty apply to third-party funding for arbitrations taking place in Hong Kong: see the Court of Final Appeal judgment in Unruh v. Seeberger (2007) 10 HKCFAR 31, at para. 123 where the Court expressly left open this question. While earlier in Cannonway Consultants Limited v. Kenworth Engineering Ltd, [1995] 2 HKLR 475, Judge Kaplan had held that the law of champerty did not extend to arbitration, later in Unruh v. Seeberger, (2007) 10 HKCFAR 31, at para. 123, the Court did not refer to this aspect of Judge Kaplan’s judgment. Accordingly, the permissibility of third-party funding with respect to arbitration in Hong Kong had been subject to uncertainty. See para. 1.6 of “The Law Reform Commission of Hong Kong Final Report on Third-party funding for Arbitration” (October 2016). Available at

  7. 7.

    See Nieuwveld B, Sahani S (2012) Third-party funding in international arbitration. Kluwer, p 114.

  8. 8.

    See Article (2.4) of the Code of Conduct for Litigation Funders (January 2014). Available at; Osmanoglu B (2015) Third-party funding in international commercial arbitration and arbitrator conflict of interest. J Int Arbitr 32:325, at p 338

  9. 9.

    See Association of Litigation Funders, definition. Available at

  10. 10.

    See Article (2) of the Code of Conduct for Litigation Funders (November 2011). Available at

  11. 11.

    The enactment was effected under section 225(3)(a) and (d) of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015.

  12. 12.

    This confusion is apparent even at a terminological level. As one commentator describes, ‘[t]he nomenclature to describe this kind of third-party capital investment in arbitration or litigation claims is all over the map and woefully undescriptive. It has been referred to as “third-party funding”, “third-party litigation funding or financing”, or most commonly “alternative litigation funding or financing”’. Destefano M (2012) Non-lawyers influencing lawyers: too many cooks in the kitchen or stone soup. Fordham L Rev 80:2791, at p 2794

  13. 13.

    See Sebok AJ (2011) The inauthentic claim. Vand L Rev 64:61, at pp 63–67. See Veljanovski C (2011) Third-party litigation funding in Europe. J L Econ Pol 8:405, at p 430 (“[Third-party litigation funding investors] rely on Special Purpose Vehicles, which … are legal entities created for … the acquisition, financing, or both, of a project or the setup of an investment. They are usually used because they are free from pre-existing obligations and debts, and are separate from the parties that set them up for tax and insolvency purposes.”).

  14. 14.

    For example, just as excessive repeat appointment of an individual arbitrator by a party or law firm can be a basis for challenging that arbitrator, under the IBA Guidelines on Conflicts of Interest in International Arbitration repeat appointment of an arbitrator by the same third-party funder can raise similar challenges. See IBA Guidelines 3.1.3. If funding is done through a special purpose vehicle created for the particular case, it may mask the repeated appointment by a particular third-party funder that owns the SPV.

  15. 15.

    See Kantor M (2009) Third-party funding in international arbitration: an essay about new developments. ICSID Rev 24:65, at p 74; Trusz JA (2013) Full disclosure? Conflicts of interest arising from third-party funding in international commercial arbitration. Georgetown Law J 101:1649, at p 1654; Chaisse J, Eken C (2020) The monetization of investment claims: promises and pitfalls of third-party funding in investor-state arbitration. Del J Corp Law 44(2):463–509

  16. 16.

    See Press Release by Uruguay’s Counsel, Foley HOAG LLP (2010) Government of Uruguay Taps Foley Hoag for representation in international arbitration brought by Philip Morris to overturn country’s tobacco regulations, p 8 (October 2010). Available at

  17. 17.

    See Cabrera Diaz F. RSM Production Corp. files second arbitration against Grenada, sues Freshfields. Available at

  18. 18.

    For an analysis of the common interest privilege for insurers and related privilege extended to third-party funders, see Chapter 5, pp 133–135.

  19. 19.

    Veljanovski, “Third-Party Litigation Funding in Europe”, p 420

  20. 20.

    See Smith M. Chapter 2: Mechanics of third-party funding agreements: a funder’s perspective, pp 28–35. Available at; Veljanovski, “Third-Party Litigation Funding in Europe”, pp 418–420

  21. 21.

    See, e.g., Blackett R. Still stuck in the stone: third party funding in the Excalibur case. Available at

  22. 22.

    Burford Capital. Beyond litigation finance. Available at See also Chaisse J, Eken C (2020) The monetization of investment claims: promises and pitfalls of third-party funding in investor-state arbitration. Del J Corp Law 44(2):463–509

  23. 23.

    See Rowles-Davies N (2014) Third-party litigation funding. Oxford University Press, p 72

  24. 24.

    See Reisman S. Burford clinches portfolio funding deal with UK firm. Available at

  25. 25.

    Molot J. “Theory and practice in litigation risk” and “Burford has no control over litigation or settlement decisions and it does not interfere with the attorney client relationship”. Available at

  26. 26.

    Excalibur Ventures v. Texas Keystone and others [2016] EWCA Civ 1144.

  27. 27.

    von Goeler J (2016) Third-party funding in international arbitration and its impact on procedure. Kluwer, p 35

  28. 28.

    It has also been reported by funders that they are occasionally approached directly by arbitrators or arbitration experts to provide such advice.

  29. 29.

    See Goldstein M (2011) Should the real parties in interest have to stand up? Transnat Dispute Manag 4:7

  30. 30.

    See Maniruzzaman M (2011) Third-party funding in international arbitration – a menace or panacea? Kluwer Arbitration Blog (29 December 2011). Available at

  31. 31.

    For an extended discussion of standards for granting security for costs, see ICCA-Queen Mary Task Force Report on Third-Party Funding International Arbitration, ICCA Reports No. 4 (2018), Chapter 6, and for an extended discussion of competing views in the underlying policy debate, see Chapter 8 of the same ICCA-Queen Mary Task Force Report.

  32. 32.

    Globally, there is some disagreement about the effect of an arbitrator’s lack of knowledge of a conflict. In the United States, the approach of US courts is summarized in the Reporters’ Notes to the Restatement: “Some courts have taken the view that an absence of knowledge about a conflict per se precludes a finding of evident partiality.”

  33. 33.

    See proposed Article 21 in ICSID Working Paper (March 2019) paras 121 et seq.

  34. 34.

    Singapore International Arbitration Centre Practice Note, PN – 01/17 (31 March 2017), Administered Cases under the arbitration rules of the Singapore International Arbitration Centre, On Arbitrator Conduct in Cases Involving External Funding (31 March 2017). Available at

  35. 35.

    See ICC Note to Parties and Arbitral tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration (22 September 2016) p. 5, at para. 24; Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of Arbitration (1 March 2017) para. 24. Available at

  36. 36.

    Born, International Commercial Arbitration, pp 2494–2495

  37. 37.

    Section 38(3) of the English Arbitration Act 1996 provides that “The tribunal may order a claimant to provide security for the costs of the arbitration.” See also Article 25.2 of the 2014 LCIA Rules providing that “[t]he Arbitral tribunal shall have the power upon the application of a party, after giving all other parties a reasonable opportunity to respond to such application, to order any claiming or cross-claiming party to provide or procure security for Legal Costs and Arbitration Costs by way of deposit or bank guarantee or in any other manner and upon such terms as the Arbitral tribunal considers appropriate in the circumstances.

  38. 38.

    See, e.g., French Code of Civil Procedure (2011), Art. 1468; Swiss Private International Law Act (2017), Art. 183(1); German Code of Civil Procedure, (2013) Art. 1041(1)

  39. 39.

    RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10) Decision on Saint Lucia’s Request for Security for Costs (13 August 2014) para. 55. Whether the explanation offered by the tribunal in this case is accurate or supported by the history of drafting the ICSID Convention is questionable, and the question of the propriety and jurisdiction to order a State to post security for costs is much more complex.

  40. 40.

    See proposed Rule 51(1).

  41. 41.

    Craig, Park and Paulsson, International Chamber of Commerce Arbitration, p 467 (who report that even when the ICC Rules did not yet contain a general clause for granting interim measures, ‘ICC tribunals had found that they had the power to grant security for costs as part of their inherent powers in connection with the conduct of arbitral proceedings’) (with further references); Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. the Republic of El Salvador, (ICSID Case No. ARB/09/17), Annulment Proceeding, Decision on El Salvador’s Application for Security for Costs (20 September 2012), para. 45.

  42. 42.

    See ICCA-Queen Mary Task Force Report on Third-Party Funding International Arbitration, ICCA Reports No. 4 (2018) pp 172–173

  43. 43.

    ICSID Article 53(1).

  44. 44.

    ICSID Article 54(3).

  45. 45.

    Emilio Agustín Maffezini v.Kingdom of Spain, (ICSID Case No. ARB/97/7) Procedural Order No. 2 (28 October 1999) para. 15.

  46. 46.

    Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, (ICSID Case No. ARB/10/6), tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010), para. 5.16, in fn. 9.

  47. 47.

    EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic (ICSID Case No. ARB/14/14), Procedural Order No. 3 (23 June 2015).

  48. 48.

    Eskosol S.P.A. in Liquidazione v. Italian Republic, (ICSID Case No. ARB/15/50) Procedural Order No. 3 (Decision on Respondent’s Request for Provisional Measures), (12 June 2017) para. 35.

  49. 49.

    Ibid., para. 34.

  50. 50.

    See in more detail, See ICCA-Queen Mary Task Force Report on Third-Party Funding International Arbitration, ICCA Reports No. 4 (2018), p 173 et seq.

  51. 51.

    See, e.g., South American Silver Limited v. The Plurinational State of Bolivia, (PCA Case No.2013-15), Procedural Order No. 10 (11 January 2016), para. 59; RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10), Decision on Saint Lucia’s Request for Security for Costs (13 August 2014), para. 75 and the cases cited therein.

  52. 52.

    See similar concerns expressed in commercial arbitration by Schwartz E (2016) Security for costs and third-party funding, a bridge too far. In: Liber Amicorum William Laurence Craig. LexisNexis, pp 371–388

  53. 53.

    Emilio Agustín Maffezini v. Kingdom of Spain, (ICSID Case No. ARB/97/7), Procedural Order No. 2 (28 October 1999), para. 21; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID Case. No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Guaracachi America, Inc. (U.S.A.) and Rurelec plc (United Kingdom) v. Plurinational State of Bolivia, (PCA Case No. 2011-17), Procedural Order No.14 (11 March 2013), para. 8.

  54. 54.

    Victor Pey Casado and President Allende Foundation v. Republic of Chile, (ICSID Case No. ARB/98/2), Decision on Provisional Measures (25 September 2001), para. 89; Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania, (ICSID Case No. ARB/11/18), Procedural Order No. 2 (3 May 2012), para. 39; Alasdair Ross Anderson et al. v. Republic of Costa Rica, (ICSID Case No. ARB(AF)/07/3), Award (19 May 2010), para. 9; Abaclat and others v. The Argentine Republic, (ICSID Case No. ARB/07/5), Procedural Order No. 10 (18 June 2012); Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, (ICSID Case No. ARB/10/6) tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010), para. 5.21; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID Case. No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Guaracachi America, Inc. (U.S.A.) and Rurelec plc (United Kingdom) v. Plurinational State of Bolivia, (PCA Case No. 2011-17), Procedural Order No. 14 (11 March 2013), para. 7, Dawood Rawat v. Republic of Mauritius, (PCA Case No. 2016-20), Order Regarding Claimant’s and Respondent’s Requests for Interim Measures (11 January 2017), para. 144.

  55. 55.

    BSG Resources Limited v. Republic of Guinea, (ICSID Case No. ARB/14/22), Procedural Order No. 3 (25 November 2015), para.78; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID Case. No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, (ICSID Case No. ARB/10/6) tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010), para. 5.19.

  56. 56.

    Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania, (ICSID Case No. ARB/11/18), Procedural Order No. 2 (3 May 2012), para. 41; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, (ICSID Case No. ARB/07/24), Award (18 June 2010), para. 17; Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. the Republic of El Salvador, (ICSID Case No. ARB/09/17), Annulment Proceeding, Decision on El Salvador’s Application for Security for Costs (20 September 2012), para. 52.

  57. 57.

    Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. Republic of El Salvador, (ICSID Case No. ARB/09/17), Annulment Proceeding, Decision on El Salvador’s Application for Security for Costs (20 September 2012), para. 49.

  58. 58.

    See notably RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10), Assenting Reasons of Gavan Griffith (12 August 2014).

  59. 59.

    Guaracachi America Inc. and Rurelec plc v. Plurinational State of Bolivia PCA Case No. 2011-17, Procedural Order No. 14 (11 March 2013).

  60. 60.

    Ibid., paras. 6–7.

  61. 61.

    RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (13 August 2014).

  62. 62.

    Ibid., para. 86. It is worth noting that on 15 pages of reasons, only one paragraph is in truth devoted by the tribunal to third-party funding.

  63. 63.

    EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, (ICSID Case No. ARB/14/14), Procedural Order No. 3 (23 June 2015).

  64. 64.

    South American Silver Limited Bolivia v. The Plurinational State of Bolivia, (PCA Case No.2013-15), Procedural Order No. 10 (11 January 2016), para. 27, citing RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10), Assenting Reasons of Gavan Griffith (12 August 2014).

  65. 65.

    South American Silver Limited Bolivia v. The Plurinational State of Bolivia, (PCA Case No.2013-15), Procedural Order No. 10 (11 January 2016), paras. 59, 83.

  66. 66.

    Ibid., para. 77.

  67. 67.

    Eskosol S.P.A. in Liquidazione v. Italian Republic, (ICSID Case No. ARB/15/50) Procedural Order No. 3 (Decision on Respondent’s Request for Provisional Measures), (12 June 2017). See also above p 173.

  68. 68.

    Luis Garcia Armas v. Venezuela and Manuel Garcia Armas et al. v. Venezuela, (ICSID AF Case No. ARB(AF)/16/1) Procedural Order (7 July 2017) administered by ICSID’s Additional Facility Rules; PCA Case No. 2016-08, administered by the Permanent Court of Arbitration, (Both with the seat in The Hague, The Netherlands).

  69. 69.

    Proposed Rule 51 which currently reads as follows:

    “Rule 51 Security for Costs
    1. (1)

      Upon request of a party, the tribunal may order any party asserting a claim or counterclaim to provide security for costs

    2. (2)
      The following procedure shall apply:
      1. (a)

        The request shall specify the circumstances that require security for costs.

      2. (b)

        The tribunal shall fix time limits for written or and oral submissions, as required, on the request.

      3. (c)

        If a party requests security for costs before the constitution of the tribunal, the Secretary-General shall fix time limits for written submissions on the request, so that the tribunal may consider the request promptly upon its constitution.

      4. (d)
        The tribunal shall issue its decision on the request within 30 days after the latest of:
        1. (i)

          The constitution of the tribunal

        2. (ii)

          The last written submission on the request or

        3. (iii)

          The last oral submission on the request

    3. (3)
      In determining whether to order a party to provide security for costs, the tribunal shall consider:
      1. (a)

        That party’s ability to comply with an adverse decision on costs and

      2. (b)

        That party’s willingness to comply with an adverse decision on costs

      3. (c)

        The effect that providing security for costs may have on that party’s ability to pursue its claim or counterclaim

      4. (d)

        The conduct of the parties and

      5. (e)

        All other relevant circumstances.

    4. (4)

      The tribunal shall specify any relevant terms in an order to provide security for costs and shall fix a time limit for compliance with the order.

    5. (5)

      If a party fails to comply with an order for to provide security for costs, the tribunal may suspend the proceeding until the security is provided. If the proceeding is suspended for more than 90 days, the tribunal may, after consulting with the parties, order the discontinuance of the proceeding.

    6. (6)

      A party must shall promptly disclose any material change in the circumstances upon which the tribunal ordered security for costs.

    7. (7)

      The tribunal may at any time modify or revoke its order for on security for costs, on its own initiative or upon a party’s request.”

  70. 70.

    Para 363.

  71. 71.

    Reporting on a recent survey, the letter notes that “Responses to the survey also indicated that, among the 22 costs awards in favour of respondent states that had been paid either in full or in part, 14 awards were paid voluntarily (64%), two awards were paid pursuant to a settlement (9%), and six awards were paid through enforcement (27%).” Ibid. at 3 (citing Judith Gill QC, Hodgson M (2015) Costs awards – who pays? Global Arbitr Rev 10(4). Available at

  72. 72.

    In one case, it seems there may have been concerns raised, but they became moot before ever being formally addressed. See Perry S. Pakistan fights bid to revive treaty claims as funder is revealed. Available at

    Notably, the issue never became ripe because the dispute in which the issue arose was transferred to another tribunal comprised of different arbitrators.

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.Queen Mary University of LondonLondonUK
  2. 2.Penn State Law SchoolUniversity ParkUSA

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