Third party funding (TPF) has become an established feature of the arbitral landscape. It is now not uncommon for parties to consider TPF when commencing or responding to an arbitration, choosing their counsel, or even when negotiating an arbitration agreement.
This raises the question whether such arrangements should be disclosed, and if so, the scope of such disclosure. There are certainly good reasons to require disclosure – for example to ascertain whether any relationship between the funder and the arbitrator raises concerns of potential conflicts. However, critics have expressed concern that disclosure may be misused by parties for strategic reasons, including in driving up the costs through unmeritorious arbitrator challenges and applications for security for costs. Others also point out that a similar disclosure obligation is not imposed with regard to other means used by the parties to control financial risks, such as insurance or success/contingency fees.
Rules on mandatory disclosure of TPF have generally not been expressly included in the national laws of most jurisdictions and the rules of arbitral institutions. In practice, the issue of disclosure of TPF has generally been left to the parties and the tribunal, with disclosure either made voluntarily by the funded parties, or directed by the tribunal following an ad hoc application by the other party. There has been little guidance as to whether, and to what extent, such disclosure would be warranted, save for a few publicly available decisions.
Recently, however, Singapore and Hong Kong have taken the first steps to set down formal rules on disclosure of TPF through their national laws. Further, the arbitral institutions of the region, the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), have also introduced or proposed new rules to regulate disclosure of TPF. These small, but definite steps may well indicate a general trend in favour of formal rules on mandatory disclosure of TPF, and will no doubt set the scene for further developments in this regard.
The Hong Kong Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 amends the Hong Kong Arbitration Ordinance, such that a funded party is obliged to disclose the existence of the TPF arrangement and the name of the third party funder to each other party to the arbitration and the arbitration body (the arbitral tribunal, the court, the emergency arbitrator or the mediator, as the case may be). The disclosure should be made at the outset of the arbitration or, in the event that the funding agreement is made after the commencement of the arbitration, within 15 days thereafter.
Singapore law also requires disclosure of TPF. The amendments to the Legal Profession (Professional Conduct) Rules 2015 (Conduct Rules) impose a duty on legal practitioners (rather than the parties) to disclose the existence of a TPF arrangement and the identity and address of the third party funder to the court or tribunal and to every other party, either at the date of the commencement of the proceedings or as soon as practicable after the funding contract is entered into.
While Singapore and Hong Kong have both adopted a mandatory disclosure rule, it is interesting to observe the different approaches in which the two jurisdictions have implemented that rule. It remains to be seen whether Singapore’s approach in placing the obligation to disclose on counsel, rather than the parties, will be more effective, although under the current regime, it would appear that funding arrangements of parties who are not represented by the lawyers subject to the Conduct Rules would not be disclosable, even if the funding arrangements relate to Singapore seated arbitrations.
In addition, SIAC has expressly provided for the tribunal’s power to order disclosure of TPF in its Investment Arbitration Rules, and HKIAC has also proposed relevant amendments to its rules to deal with the issue.
Earlier this year, SIAC became the first major arbitration institution to address the issue of TPF in its rules. Rule 24(l) of the SIAC Investment Arbitration Rules expressly gives the tribunal the power to order disclosure of the existence of the third party funding arrangement and/or the identity of the third party funder, and, where appropriate, details of the third party funder’s interest in the outcome of the proceedings, and/or whether the third party funder has agreed to be liable for adverse costs.
Rule 24(1) notably makes express reference to the details of the funder’s interest and the funder’s liability for adverse costs within the scope of disclosure the tribunal may order. This goes further than the position under the Singapore’s legislation, although subject to the requirement that such disclosure be directed only “where appropriate“. It appears likely that tribunals will require good grounds (for example, a prospective application for security for costs) before directing such additional details to be disclosed.
HKIAC has also recently published its proposed amendments to its 2013 rules for public consultation, and TPF was singled out as one of the major areas for amendment. The proposed new Article 44 provides that, if a funding agreement is made, the funded party shall give written notice to all other parties, the arbitral tribunal and HKIAC of:
- The fact that a funding agreement has been made.
- The name of the third party funder.
The disclosure should be made in the Notice of Arbitration or Answer to the Notice of Arbitration, as the case may be, or where the funding arrangement is entered into after the commencement of the arbitration, within 15 days thereafter.
The proposed obligations mirror those under the amended Arbitration Ordinance and, if implemented, would make HKIAC the first major arbitral institution to impose a mandatory disclosure obligation on the parties with regard to TPF.
It should also be noted that some recent investment treaties and proposed treaty provisions also aim to regulate disclosure of TPF. For example, the Comprehensive Economic and Trade Agreement (CETA) and the EU’s draft proposal for the Transatlantic Trade and Investment Partnership (TTIP), both require disclosure of the name and address of the funder to the other party and the tribunal, at the submission of a claim or “without delay” after the funding agreement is entered into or (in the case of not-for-profit funders) after the donation or grant is made.
It remains to be seen whether other jurisdictions and arbitral institutions will adopt formal rules on disclosure of TPF. In any event, the developments in Hong Kong and Singapore will no doubt prompt further debate on this important issue.
Notably, the provisions considered above take the position that only the existence and identity of the funder are to be disclosed as a default, but are silent on disclosure of other details of the funding arrangement, or simply provide that the tribunal may order such disclosure “where appropriate” (in the case of the SIAC Investment Arbitration Rules). Hence, disclosure of other details of the funding arrangement is still largely left to the case-by-case assessment of the parties and the tribunal. This position appears to strike a reasonable balance between conflicting interests: the starting position is that a funding agreement is a private matter between the funded party and the funder and sufficient reasons should exist to justify disclosure. While assessing the potential for conflicts of interest is a universal concern relevant in all cases, whether disclosure of other details is justified would depend on the circumstances.
It is therefore likely to remain the case that tribunals would only order disclosure of the terms regarding the funder’s liability for adverse costs for good reasons, for example where a potential application for security for costs is on the horizon. Separately, following the English court decision of Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd (which held that an English-seated/International Chamber of Commerce (ICC) tribunal did not exceed its powers in including the costs of TPF within a costs award), some commentators have argued that the terms regarding the amount payable to the funder should be disclosed to enable the counterparty to ascertain its potential exposure in the event of an adverse costs award. While it may be premature to decide whether disclosure of such details should be the “norm” on the basis of the Essar decision alone given the unique circumstances of the case, the question is sure to be revisited in the future. It is worth noting in this regard that, as part of the public consultation on the revision of its rules, HKIAC has specifically sought views on whether the tribunal should be allowed to award costs of TPF as costs of arbitration.