Comparative Legal and Regulatory Approaches to Third-Party Funding in International Arbitration

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Authors
Okubote, Abayomi
Keyword
Third-party funding , International Arbitration , Arbitration Finance , Model Law on Third-party funding , Conflicts of Interest in International Arbitration , Security for costs , Allocation of costs in arbitration , Champerty and Maintenance
Abstract
In recent years, third-party funding (TPF) has become one of the topical issues within the global arbitration community. TPF is an arrangement between a party and a funder wherein it is agreed that the funder will cover the party’s legal costs and expenses in exchange for allocating to the funder a percentage of any proceeds derived from the arbitral proceedings. Despite the ethical and procedural issues thrown up by TPF, its popularity keeps increasing. This upward trajectory has raised national and international concerns and has triggered debates on the need for regulation. The paucity of empirical data on the use of TPF in international arbitration and the varying approaches to regulation by key stakeholders multiply the complexity of designing appropriate regulations. At the heart of these debates, however, is a consensus that, while the risks to arbitrators’ independence and the integrity of proceedings posed by TPF are real, arbitral awards must be insulated from frivolous challenges that would add cost and delays and undermine confidence in the arbitral process. This thesis argues that with the availability of funding and the funder’s business expansion into several jurisdictions, the challenges created by TPF call for comparative law analysis – which by no means may only be looked at from an isolated national or local perspective. More so, country-by-country or institution-by-institution regulation of TPF in international arbitration is inadequate because that may encourage funders to engage in regulatory arbitrage. In providing ballast to this analysis, the thesis articulates new models and representations for assessing the theoretical underpinnings of TPF regulation, which are rooted in harmonization. To achieve harmonization, the thesis proposes a model law on TPF (under the auspices of the United Nations Commission on International Trade Law - UNCITRAL), which sets out the rules and standards for the regulation of the key stakeholders in the TPF relationship and serves as a legislative guide on TPF. The model law is intended to inform and assist TPF regulation worldwide by providing a reference tool for national authorities and legislative bodies when enacting TPF laws or assessing the effectiveness of their TPF regulations. Presently, international arbitration is less regulated than domestic litigation, so there is potential for the fast growth of TPF in international arbitration and its accompanying ethical issues, rendering the proposed model law imminent and important.
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