Have courts in your jurisdiction considered third party funding in connection with arbitration proceedings recently?

International Arbitration (4th edition)

Argentina Small Flag Argentina

Although the topic of third party funding is well known to members of local arbitration community, Argentine courts have not addressed or considered the issue yet.

Austria Small Flag Austria

Up to now, no court decisions explicitly addressed third-party funding of arbitration proceedings in Austria. Third-party funding is not regulated in Austrian law. A 2013 decision of the Supreme Court, ruling favourably on the validity of the assignment of litigation claims to a third-party funder, generally suggested a positive approach to third-party funding.

In the previous years, the use of third-party funders has become considerably more frequent. There is, however, no reliable data available on how often parties finance arbitration proceedings through third-party funders.

Bulgaria Small Flag Bulgaria

No.

United States Small Flag United States

While courts in the U.S. have not yet weighed in on third party funding in connection with arbitration, third party funding has continued to become more prevalent. ICSID has proposed amendments to its rules including a requirement that a funded party disclose that it has third party funding and the funder’s name. See ICSID, Proposed Rule 21. The SIAC rules give tribunals the power to order the disclosure of the existence of and, where appropriate, details of the third party funder’s interest as well as liability for adverse costs. See SIAC Rule 24(l). Some treaties, like the Canada-EU Trade Agreement, now include mandatory disclosure of the presence and identity of third party funders. Recently, the ICCA and Queen Mary Law School recently published an extensive report on third party funding in international arbitration.

Canada Small Flag Canada

There has not been consideration of third party funding in connection with arbitration proceedings by Canadian courts in recent years.

Cyprus Small Flag Cyprus

No.

UAE Small Flag UAE

The local arbitration market has not been significantly impacted by Third Party Funding although the option has been promoted within the region to interested stakeholders.

United Kingdom Small Flag United Kingdom

In Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), the English Commercial Court confirmed that arbitrators have the power to award the costs of a third party funder. These are considered to be “other costs of the parties” under s.59(1)(c) of the 1996 Act. In early 2018, a joint task force of ICCA and the School of International Arbitration at Queen Mary University of London unveiled the final draft of its report on third-party funding.

Singapore Small Flag Singapore

Yes. In Re Fan Kow Hin, [2019] 3 SLR 861 at [22], the High Court of Singapore has recalled that ‘the 2017 amendments to the Civil Law Act restrict the ambit of maintenance and champerty, permitting third-party funding in respect of international arbitrations’.

South Korea Small Flag South Korea

There is no statute or regulation prohibiting third party funding in arbitration, or any court ruling regarding the issue. It is difficult to anticipate how courts may react to third party funding. On the one hand, Korean courts may take a conservative approach on the basis of (i) the Trust Act, which would under Article 6 render as null and void any trust “the main purpose of which is to have the trustee to proceed with litigation.”; (ii) the prohibitions under Article 34 of the Attorneys-At-Law Act that any person who is not an attorney may not operate law office by employing an attorney or receive a share of profits obtained from services which may only be provided by attorneys; and (iii) the Interest Limitation Act and the regulations capping the maximum interest rate on a loan at 24%. On the other hand, Korean judges may recognize that third-party funding is increasingly used widely in jurisdictions which also bar fee-sharing and partnership between an attorney and a non-attorney.

Germany Small Flag Germany

Neither the German arbitration provisions nor the DIS Arbitration Rules expressly address or regulate third-party funding. Third-party funding is generally permitted in Germany, both in litigation and arbitration. It has been gaining more relevance over the past few years. The main focus of third-party funding, so far, has been on antitrust litigation matters as well as mass litigation rather than individual claims in arbitration.

India Small Flag India

Currently, there are no provisions on third-party funding in India. However, recently, the Supreme Court in Bar Council of India vs. A.K. Balaji and Ors. (MANU/SC/0239/2018) observed that ‘there appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.’ However, there is a complete bar on the lawyers to be the third party to fund the litigation. Former SC judge B N Srikrishna and another former Chief Justice said that for third party funding to enter India, ideally Parliament should be asked to bring in a law. “It is going to be a difficult job if it were to be implemented merely by interpretation of existing position of law by the courts,” said Justice Srikrishna.

Indonesia Small Flag Indonesia

Third party funding is not common in Indonesia and is not specifically regulated. In principle, the law governing Indonesian advocates provides only that the counsel’s fee is subject to agreement between the client and advocate, which would allow for third party funding.

Liechtenstein Small Flag Liechtenstein

Interest for external financing of court and arbitral proceedings has been continuously increasing, but third party funding has not yet played a role in published decisions.

Malaysia Small Flag Malaysia

The High Court in Measat Broadcast Netowk Systems Sdn Bhd v AV Asia Sdn Bhd [2014] MLJU 1860 considered third party funding in arbitration and held that the apparent impecuniosity of a company despite third party funding is a relevant factor to be taken into consideration in a security for costs application. In this respect, the High Court held as follows:-

[63] …Suffice to state that on the facts of this case it appears that AV Asia will not be able to pay Measat’s costs if they lose their counterclaim and costs are awarded against them in favour of Measat. The third party, Chew Weng Kit, who has assisted by substantially funding AV Asia, will not be legally bound to pay such costs. This means that Measat will be deprived of the advantage of having an order for costs made in its favour against AV Asia, even if it succeeds in its counterclaim. It is also apparent from the entire factual matrix that Measat has been forced to initiate an arbitration (which is not inexpensive) by AV Asia, which appears to be impecunious, but has been able to fund proceedings thus far with the assistance of a third party. This to my mind, is a significant and relevant factor to be taken into consideration in this application.
[64] I am supported in arriving at this conclusion by, inter alia, an excerpt from a text, namely ‘Provisional Measures in International Arbitration by Gary B. Born (see Chapter 16) where the author states as follows:-
“Where security for costs may be ordered, tribunals typically consider the financial state of the party from whom security is requested, the extent to which third parties are funding that party’s participation in the arbitration (while arguably remaining insulated from a final costs award) and the likely difficulties in enforcing a final costs award. Where a party appears to lack assets to satisfy a final costs award, but is pursuing claims in an arbitration with the funding of a third party, then a strong prima facie case for security for costs exists. It is doubtful that the likelihood of a party’s success on the merits plays a significant role in determining whether it is appropriate to order security for costs.”’

France Small Flag France

This issue has not been addressed much before French courts.

In 2006, the Versailles Court of Appeal (Sté Veolia Propreté c. Fortis AG, Versailles, 12ème Ch. Sect. 2, 1 June 2016, No. 05/01038) was asked to decide if a successful party in an arbitration could claim the third-party funder who had funded the arbitration to pay the arbitration fees in lieu of the liable party. The Versailles Court of Appeal declined jurisdiction in favour of the German courts. However, it did not express any doubt regarding the validity of the third-party funding. It merely observed that the funding agreement is a sui generis contract, unknown to EU Member States with the exception of States with a Germanic culture.

On 21 February 2017, the Paris Bar Council (“Conseil de l’Ordre”) approved a resolution confirming that third party funding of legal proceedings in general is allowed under French law. The resolution requires that special attention be paid to the potential interference by a third party in the attorney-client relationship.

Moreover, the resolution addresses the issue of whether the funding arrangement should be disclosed to the arbitral tribunal. A lawyer should advise the client to disclose the existence of any funding arrangement to the arbitral tribunal and warn the client of potential consequences that lack of disclosure may create, such as annulment or problems regarding enforcement.

According to the resolution, French lawyers should not communicate with, or give advice to the third-party providing funds to their clients. They must not provide any information to third party funders or have meetings with them in the absence of their client.

Egypt Small Flag Egypt

There are no recent judgment with respect to third-party funding, as the Egyptian law generally and the EAL, more specifically, do not expressly address the issue of third-party funding in arbitration. Thus, it may not be argued that third party funding is prohibited per se under Egyptian law, insofar as the funding arrangement is not a gambling contract and counsel funding is not in the form of champerty. It is expected that, in due course, the matter will be subject to clear regulation to determine the legally permissible practices in this increasingly important area of arbitration practice, which may then lead Egyptian courts to consider it.

Czech Republic Small Flag Czech Republic

No. This avenue has not been considered in the Czech Republic. There are no limitations on third-party funding.

Chile Small Flag Chile

No. However, there are not legal restrictions against that business.

Mexico Small Flag Mexico

No, under Mexican legislation there are no provisions regarding third party funding and have not been any significant developments on this matter. However, this is not a forbidden practice.

Nigeria Small Flag Nigeria

No decided court case on third party funding exists in Nigeria. There are no rules on third-party funding in Nigeria. Third-party funding in arbitration is not prohibited in Nigeria. However, there are no known third party funders that are active in the Nigerian market.

Norway Small Flag Norway

No, we are not aware of third party funding having been raised as in issue in Norwegian arbitration proceedings recently. However, third party funding is a hot topic in Norway in general – irrespective of the dispute being subject to arbitration or not.

Philippines Small Flag Philippines

There is currently no Philippine Supreme Court ruling on the validity of third party funding in arbitration. There is no specific law which allows or disallows third party funding. What is prohibited are champertous contracts where a third party, stranger to the litigation, undertakes to carry on the litigation at its own cost and risk in consideration of part of the proceeds of the litigation, if successful. [Nocom v Camerino (2009)].

Saudi Arabia Small Flag Saudi Arabia

We are not aware of any court in KSA considering third-party funding in connection with arbitration proceedings. Third party funding is not an option that is common in the Kingdom.

Taiwan Small Flag Taiwan

No. There are no laws on point regarding third party funding of arbitration proceedings, and none of the arbitration institutions in Taiwan have rules on this issue.

Switzerland Small Flag Switzerland

Despite the recent increase of third party funding, the issue remains unregulated under Swiss law. There are no rules or restrictions on third-party funders in Switzerland. While, the Swiss Federal Tribunal has expressly confirmed that third party funding is, as a rule, admissible, certain limitations on influencing the client-attorney relationship will need to be respected by third party funders. In particular, in order to avoid any conflict of interest, the third party funder should not unduly interfere with the client-attorney relationship.

Greece Small Flag Greece

No. The concept of third-party funding is unknown to Greek law. This does not mean however that this arrangement would be considered prohibited. On the contrary, the combination of traditional instruments of contract and procedural law could result in a functional equivalent.

Turkey Small Flag Turkey

Turkish law does not provide any specific regulations regarding third party funding. Hence, third-party funding is neither prohibited nor regulated under Turkish law, and it has been gaining more interest over the past few years. There are no publicly available court decisions pertaining to third party funding.

Updated: November 6, 2019