Third party funding in international arbitration –

Third Party Funding in International Arbitration –

how to protect the integrity of the proceeding?

Dr. Anton G. Maurer, LL.M.

CMS Hasche Sigle

Stuttgart, Germany

[email protected]

Tel: +49 172 7333696

mailto:[email protected]

Preserve the INTEGRITY and LEGITIMACY of the

international arbitration proceeding

Ensure IMPARTIALITY and INDEPENDANCE of the

arbitrator

Protect the FINALITY of an award against challenges

TPF and Conflict of Interest Dr. Anton G. Maurer, LL.M. 15.09.2015 2

Main Principles

A. Claimant has Third Party Funding (TPF); in a different

arbitration, one of the arbitrators represents a claimant

with TPF from the same company;

B. Claimant has TPF; a partner from the same office of one

of the arbitrators represents a claimant with TPF from the

same company;


Situations (1)

C. Claimant has TPF; a partner of one of the arbitrators

from the same law firm but another domestic office

represents a claimant with TPF from the same company;

D. Claimant has TPF; a partner of one of the arbitrators

from the same law firm but a foreign office represents a

claimant with TPF from the same company;


Situations (2)

E. Claimant has TPF; in a different arbitration proceeding,

one of the arbitrators is respondent's counsel against a

claimant with TPF from the same company;

F. Claimant has TPF; a partner of the arbitrator regularly

advises the third party funder.

G. Arbitrator was two or more times appointed by different

claimants who are financed with TPF from the same

company.


Situations (3)

Non-recourse financing

30 – 50 % of awarded amount, but at least 3-4 times of

amount funded

Reporting obligations, often consent required for

stipulated items

Termination right for TPF


Basic Characteristics of Third Party Funding

When is an arbitrator's impartiality or independence

questionable?

What has an arbitrator/ a claimant to disclose?

Which of the situations may cause "justifiable doubts"

regarding the impartiality or independence of an

arbitrator?


Issue:

1. Lex arbitri

2. Applicable arbitration rules

3. Law, where award shall be enforced

4. IBA Guidelines on Conflicts of Interest in International

Arbitration (2014)


Which standards apply?

Section 14 (1) Arbitration Act 2005 of Malaysia:

"A person who is approached in connection with that

person's possible appointment as an arbitrator shall

disclose any circumstances likely to give rise to

justifiable doubts as to that person's impartiality or

independence."

similar: UNCITRAL Model Law (Art. 12 (1)), Art. 7 ICDR

International Arbitration Rules

Applied objectively (reasonable third person test)


Standards vary (1)

Art. 11.2 ICC Rules 2012:

"… Prospective arbitrator … shall disclose … any facts

and circumstances which might be of such a nature as to

call into question the arbitrator's independence in the

eyes of the parties …"

Art. 5.4 (i) LCIA Rules 2014:

"… circumstances … which are likely to give rise in the

mind of any party to any justifiable doubts …"

Art. 14 (2) SCC Arbitration Rules 2010, and Rule 10.4 SIAC

Rules 2013:

"…which may give rise to justifiable doubts …"


Standards vary (2)

Part I (General Standards):

(2) (c): "Doubts are justifiable if a reasonable third person …

would reach the conclusion that there is a likelihood

that the arbitrator may be influenced by factors other

than the merits of the case …"

(3) (a): "If facts or circumstances exist that may in the eyes of

the parties give rise to doubts …arbitrator shall

disclose …"


IBA Guidelines on Conflict of Interest in

International Arbitration 2014

Part I (General Standards)

(6) (a) "The arbitrator is in principle considered to bear the

identity of his or her law firm …"

Explanation:

The growing size of law firms should be taken into account.

Need to balance the interest of a party to nominate an

arbitrator of its choice and the importance of maintaining

confidence in impartiality and independance.





6) (b) "… any … person having a controlling influence on

the legal entity, or a direct economic interest in … the

award … may be considered to bear the identity of

such party."

Explanation:

Each situation should be assessed individually. Third party

funders may have a direct economic interest in the award ,

and as such may be considered to be the equivalent of the

party.





(7) (a) A party shall inform an arbitrator … of any relationship,

direct or indirect, between the arbitrator and the party …

or between the arbitrator and any person with a direct

economic interest. The party shall do so on its own

initiative at the earliest opportunity.

Explanation:

The parties' duty of disclosure has been extended … to any

entities having a direct economic interest in the award … such as…

providing funding for the arbitration (TPF). The parties have a duty

to disclose available information … that might affect the

arbitrators impartiality and independence.





(7) (d) An arbitrator is under a duty to make reasonable

enquiries to identify any conflict of interest. … Failure

to disclose is not excused by lack of knowledge, if the

arbitrator does not perform such reasonable enquiries.




Guidance as to which situations constitute conflict of interests:

4 categories:

Non-Waivable Red List (objective conflict of interest)

Waivable Red List (serious conflict, but can be cured by

express unanimous consent of all parties)

Orange List (may, in the eyes of the parties, give rise to

doubts; arbitrator has a duty to disclose)

Green List




Non-Waivable Red List:

1.4 … arbitrator or his law firm regularly advise third

party funder, and derives significant income

therefrom.


Conflict of Interest

Part II: Practical Application of Standards

Waivable Red List:

2.3.1 Arbitrator currently represents or advises one of the

parties.

2.3.6 Arbitrator's law firm currently has a significant

commercial relationship with one of the parties.

2.3.7 Arbitrator regularly advises one of the parties but

neither he or she or the law firm derives a significant

financial income therefrom.




Orange List:

3.1.1 Arbitrator has, within the past three years, served as

counsel for one of the parties … in an unrelated matter,

but have no ongoing relationship.

3.1.2 Arbitrator has, within the past three years, served as

counsel against one of the parties … in an unrelated

matter




Orange List:

3.1.3 Arbitrator has, within the past three years, been

appointed as arbitrator on two or more occasions by

one of the parties

3.2.1 Arbitrator's law firm is currently rendering services to

one of the parties … without creating a significant

commercal relationship and without the involvement of

the arbitrator.




Conclusion:

All 7 cases may fall either under the

Non-Waivable Red List (F), or

Waivable Red List (A, B, C, D, F), or

Orange List (A, B, C, D, E, G).

Proper Solution: Obligation to disclose TPF


TPF and Conflict of Interest

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