24th Annual IBA Arbitration Day, 2023 - Opening remarks and session 1: Third-party funding and investment arbitration

Emilio Bettoni
ARBLIT Radicati di Brozolo Sabatini Benedettelli Torsello, Milan

The event, attended by over 500 delegates, kicked off with the opening remarks of Valeria Galíndez, Co-Chair of IBA Arbitration Committee, who introduced the topic of the conference: 'International arbitration in a divided world: a challenge to the system’s legitimacy'.

Thereafter, the Portuguese Deputy Minister for Justice, Jorge Alves Costa, gave his welcome remarks, stressing that international arbitration is a crucial tool for many business operators as it provides a flexible, impartial, expert and confidential way of settling commercial disputes. Alves Costa also pointed out that, looking at the future, the arbitration community should commit to achieving high ethical standards and to reinforcing transparency and independence.

Prior to the first session of the Arbitration Day, the Vice-President of the IBA, Claudio Visco, took the floor to illustrate the short-term priorities of the Association and to underscore that Latin America, which was represented by several delegates at the conference, is becoming the fastest-growing region within the IBA.

The first session dealt with the impact of third-party funding (TPF) on investment arbitration. Nigel Blackaby KC, who moderated the discussion, began the debate stating that TPF is no longer a novelty in investment arbitration and that it can take a variety of forms, including financing by professional providers of legal finance, insurance (either before or after the event) and also financing from lawyers who work on a contingency fee basis. After pointing out that most of the arbitral rules nowadays require disclosure of existence of the funding and identity of the funder, Blackaby discussed the advantages of TPF (such as facilitating access to justice and promoting State accountability for internationally wrongful acts) as well as its disadvantages (including the risk of excessive interference by funders in the funded proceedings).

Following this introduction, each of the four speakers offered their view on the topic. Carmen Martínez López discussed the perspective of the parties and identified the following main concerns of an investor seeking funding: potential conflicts of interest, the need to disclose existence of the funding, the risk of losing control over the strategy of the case, and the risk of having to resist an application for security for costs. Martínez López added that it is quite rare for a funder to demand a high degree of control over the case strategy and that security for costs applications are only granted in exceptional circumstances.

Fernando Aguilar de Carvalho provided the perspective of arbitrators. He focused on the new rules that empower arbitral tribunals to order further disclosure of information regarding the funding and the funder, and the power to allocate costs between the parties. He added that the English courts have upheld decisions of arbitral tribunals allowing the recovery of TPF costs and contrasted this trend with the practice of not permitting the recovery of TPF-associated costs in investment arbitration.
 
Gonzalo Flores later exposed the perspective of the International Centre for Settlement of Investment Disputes (ICSID). Referring to the 2022 amendment of the ICSID Arbitration Rules, Flores explained that the new Rule 14 makes it mandatory for the parties to disclose the existence of TPF and the identity of the funder. He also added that, in parallel with the parties’ obligations, arbitrators are obligated to disclose ties with the funder. Flores added that, given the lack of a specific provision in the ICSID Rules on security for costs, a respondent who wishes to seek such security can do so using the general provisions on interim measures.

The first session ended with the illustration of the funders’ perspective by Nilufar Houssain. Houssain argued that TPF allows parties with meritorious claims to gain access to justice and compared the solution adopted by the new ICSID Rules with the broader approach taken by the Parliament of the European Union in its 'recommendations to the Commission on responsible private funding of litigation' of September 2022, which sets out the obligation of the funded party to disclose the funding agreement in its entirety.