Ms. Enisa Halili LL.M.          THIRD-PARTY FUNDING AND 
                                                                
                             Associate with Freshfields                  THE 2021 ICC RULES 
                                     Bruckhaus Deringer,                                   
                                                   Frankurt  
         In recent years, third-party funding has               claim is unsuccessful, the risk of an 
         gained increasing popularity in international          unfavourable outcome for parties with 
         arbitration. This blog post seeks to define            funding is mitigated. It is also suitable for 
         third-party funding, provides an overview of           companies that wish to reduce their legal 
         some advantages and potential practical                costs or take these costs off their balance 
         concerns. It then proceeds to address                  sheets. Third-party funders undertake a 
         recent trends in institutional rules and in            careful independent and objective case 
         particular discuss the transparency and                assessment before committing to a case, 
         disclosure requirements for third-party                which can assist the funded party gain a 
         funding in the 2021 ICC Arbitration Rules              better understanding of the strengths and 
         (the “2021 ICC Rules”).                                weaknesses of its case. 
                                                                 
         Definition of third-party funding                      Potential conflicts in relation to third party 
                                                                funding 
         Third-party funding can be defined as an                
         arrangement whereby a non-party entity                 While the mechanism of third-party funding 
         provides financial support to a party in a             can greatly facilitate dispute resolution 
         dispute. The arrangement can cover part or             proceedings, it also raises practical 
         all of the costs of the proceedings.                   concerns such as the likelihood of conflicts 
         Generally, funding will be provided in                 of interest created by the repeated 
         exchange for remuneration, which is either             appointment of an arbitrator by the same 
         contingent on the outcome of the case or in            funder. Factors that contribute to potential 
         return for a premium. Third-party funders              conflicts include, for instance, the increasing 
         are usually hedge funds, private equity                number of cases funded by third parties, the 
         firms, and specialised third-party funding             limited number of companies in the funding 
         companies.                                             industry, as well as the close relationship 
                                                                between funders and certain law firms. 
         Advantages of third-party funding                      Another concern is the effect third-party 
                                                                funding may also have on party autonomy, 
         Third-party funding has become attractive              particularly in the context of a potential 
         as it enables parties to pursue their claims           settlement, which may be subject to the 
         although they lack the financial means to do           funder’s approval.  
         so. But third-party funding is not only for             
         cash-strapped companies. Given that third-             Recent trends in institutional rules and soft 
         party funders will not be reimbursed if the            law 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
        Third-party funding has become the subject             Note”) have similarly hinted at a disclosure 
        of soft law and multiple institutional rules in        requirement. In the context of arbitrator 
        recent years. The main issue being disclosure          independence and impartiality, the 2016 ICC 
        of the presence of a funding agreement. The            Guidance Note stated that arbitrators should 
        2014 IBA Guidelines on Conflicts of Interest           consider “relationships with any entity 
        in International Arbitration, for example,             having a direct economic interest in the 
        require disclosure of any third-party funders.         dispute or an obligation to indemnify a party 
        In 2018, a joint task force between ICCA and           for the award” when making disclosures. 
        Queen Mary University of London published               
        a report that identified the issues that arise         The new ICC Rules, applicable to arbitrations 
        in relation to third-party funding in                  registered on or after 1 January 2021, now 
        international arbitration and how those                impose a duty on parties to disclose the 
        issues should be addressed.                            existence and identity of any third-party 
        Recent institutional rules have also reflected         funders. The article reads as follows: 
        the development of third-party funding.                 
        Arbitral institutions including HKIAC, SIAC,           Article 11(7)     
        SCC, the Milan Chamber of Arbitration, and              
        ICSID (in the Proposals for Amendment to               “In order to assist prospective arbitrators 
        the ICSID Rules) have either updated their             and arbitrators in complying with their duties 
        rules or issued separate guidance notes to             under Articles 11(2) and 11(3), each party 
        address this matter.                                   must promptly inform the Secretariat, the 
                                                               arbitral tribunal and the other parties, of the 
        Third-party funding in the 2021 ICC Rules              existence and identity of any non-party 
                                                               which has entered into an arrangement for 
        Prior to the adoption of the 2021 ICC Rules,           the funding of claims or defences and under 
        the ICC had already addressed the                      which it has an economic interest in the 
        disclosure of third-party funding in several           outcome of the arbitration.” 
        documents.                                              
        In the 2015 report on Decisions on Costs in            Although the disclosure of third-party 
        International Arbitration, the ICC did not             funders is mandatory, its scope extends only 
        contemplate a compulsory approach to the               to “the existence and identity” of any third-
        disclosure of third-party funding. Instead,            party funders and does not require the 
        arbitral tribunals had the discretion to               disclosure of more detailed information, such 
        discuss with parties whether the identity of           as the provisions of the funding agreements. 
        third-party funders should be disclosed. In            It is noteworthy that the ICC adopts a rather 
        the same vein, an arbitral tribunal could also         broad definition of third-party funding, 
        order disclosure of funding information if it          referring to it as “an arrangement for the 
        believed that the third-party funding exists.          funding of claims or defences and under 
                                                               which [a non-party] has an economic 
        Several versions of the ICC Note to the                interest in the outcome of the arbitration” 
        Parties and Arbitral Tribunals on the                  without specifying any contingency 
        Conduct of Arbitration (the “ICC Guidance              requirement or conditions of the 
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                   
                                                                
        arrangement. However, the 2021 ICC                   By contrast, a more limited disclosure can 
        Guidance Note does not shed much light on            preserve a party’s case strategy, avoid 
        what could qualify as an “economic interest”         frivolous challenges to arbitrators, and 
        beyond the situation where a non-party is            streamline arbitral proceedings. This 
        entitled to “all or part of the proceeds of the      balanced approach, adopted by the ICC and 
        award”. Further, subject to a decision from          reflected in Article 11(7)’s requirement that 
        the arbitral tribunal stating otherwise, the         only “the existence and identity” of the third-
        Guidance Note clarifies that the following           party funder be disclosed, is also in line with 
        circumstances would not normally fall within         the best practices recommended by the 
        the scope of disclosure under Article 11(7):         ICCA-Queen Mary Task Force on Third-Party 
        “(i) inter-company funding within a group of         Funding in International Arbitration (2018).  
        companies, (ii) fee arrangements between a           Third, the disclosure of third-party funding 
        party and its counsel, or (iii) an indirect          may, however, also affect the ease with 
        interest, such as that of a bank having              which arbitrations are administered. 
        granted a loan to the party in the ordinary          According to the 2017 Note to Parties and 
        course of its ongoing activities rather than         Arbitral Tribunals on ICC Compliance, parties 
        specifically for the funding of the                  could already be requested by the ICC to 
        arbitration”.                                        submit information concerning related 
                                                             entities (i.e. “entities or individuals affiliated 
        Implications of Article 11(7) of the 2021 ICC        to a party in the matter”) to ensure 
        Rules                                                compliance with international sanctions 
                                                             regimes and implement any necessary 
        The 2021 ICC Rules seek to strike a balance          administrative measures. The compulsory 
        between transparency and the                         disclosure of third-party funders now means 
        confidentiality and efficiency of the arbitral       that to the extent that a funder may be listed 
        proceedings.                                         under an international sanctions regime, any 
        First, Article 11(7) imposes the disclosure of       applicable ICC compliance procedures 
        any third-party funding to the Secretariat,          would have to be implemented and 
        the arbitral tribunal and the other parties.         complied with. 
        Prompt disclosures by the parties will permit        Finally, from the arbitral tribunal’s 
        arbitrators to make timely assessments of,           perspective, the mandatory disclosure of 
        and decisions on, potential conflicts of             third-party funders may alleviate money 
        interest. In the later stages of an arbitration,     laundering concerns by clarifying the source 
        the disclosures will also shield arbitrators         of the funds involved in the arbitration, as 
        from challenges.                                     well as entities or persons ultimately 
                                                             benefitting from the arbitral award. 
        Second, the obligation to disclose third-             
        party funding could raise confidentiality and        Looking to the future 
        efficiency concerns. For instance, an overly          
        broad disclosure obligation pertaining to the        Cross-border disputes are expected to 
        terms of the funding agreement could allude          increase, whilst companies are faced with 
        to the strategic considerations of the case.         increasing financial restraints to pursue their 
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              Conduct of Arbitration (2016), ICC, https://
        claims. Thus, the adoption of the disclosure 
        rule by the ICC is of relevance as it sets up         www.iccspain.org/wp-content/uploads/
        a regulatory framework for the operation of           2015/04/Note-to-Parties-and-Arbitral-Tribunals-
        third-party funding mechanisms. The                   on-the-Conduct-of-Arbitration-22-sept-2016.pdf  
        mandatory disclosure of the existence and             Note to the Parties and Arbitral Tribunals on the 
        identity of the third-party funder is a step          Conduct of Arbitration (2021), ICC, https://
                                                              iccwbo.org/publication/note-parties-arbitral-
        towards greater transparency helping to               tribunals-conduct-arbitration/  
        maintain a balance between transparency,              Note to Parties and Arbitral Tribunals on ICC 
        confidentiality and efficiency.                       Compliance (2017), ICC, https://iccwbo.org/
                                                              content/uploads/sites/3/2017/11/note-to-parties-
        Disclaimer: The views and opinions                    and-arbitral-tribunals-on-icc-compliance-
        expressed in this article are solely personal         english.pdf  
        statements of the author and any errors are           Report of the ICCA-Queen Mary Task Force on 
        the author’s own. They do not necessarily             Third-Party Funding in International Arbitration 
        reflect the stance of ICC Albania. The                (2018), ICCA-Queen Mary Task Force, https://
        content of the article is the original work of        cdn.arbitration-icca.org/s3fs-public/document/
                                                              media_document/Third-Party-Funding-
        the author. The author takes the                      Report%20.pdf  
        responsibility for any infringements of               How Can Third-Party Funding Help Businesses 
        authorship.                                           during the Pandemic? Noiana Marigo, Natalia 
                                                              Zibibbo,  
        --------------------------                            https://riskandcompliance.freshfields.com/post/
        Abbreviations:                                        102ge90/how-can-third-party-funding-help-
                                                              businesses-during-the-pandemic  
        ICCA - International Council of Commercial            Third-Party Funding Finds its Place in the New 
        Arbitration                                           ICC Rules, Jonathan Barnett, Lucas Macedo, 
        HKIAC - Honk Kong International Arbitration           Jacob Henze, 
        Center                                                http://arbitrationblog.kluwerarbitration.com/
        SIAC- Singapore International Arbitration Centre      2021/01/05/third-party-funding-finds-its-place-
        SCC- Arbitration Institute of the Stockholm           in-the-new-icc-rules/  
        Chamber of Commerce                                   The Challenges of Sanctions for Arbitral 
        ICSID- International Centre for Settlement of         Participants, Christopher Hunt, Colin Trehearne, 
        Investment Disputes                                   Eriko Kadota,  
                                                              http://arbitrationblog.kluwerarbitration.com/
        References:                                           2015/10/05/the-challenge-of-sanctions-for-
                                                              arbitral-participants/  
        The term "soft law" refers to quasi-legal             The Secretariat’s Guide to ICC Arbitration, Jason 
        instruments which do not have any legally             Fry, Simon Greenberg, Francesca Mazza, ICC 
        binding force, or whose binding force is              Publication 729 (Paris, 2012). 
        somewhat weaker than the binding force of             Third-Party Funding in International Arbitration, 
        traditional law.                                      Hussein Haeri, Clàudia Baró Huelmo and Giacomo 
        2021 Arbitration Rules, ICC, https://iccwbo.org/      Gasparotti, https://www.lexology.com/library/
        dispute-resolution-services/arbitration/rules-of-     detail.aspxg=f0bf76ab-9607-4de0-92ee-70f9001
        arbitration/                                          277f5 
        Note to the Parties and Arbitral Tribunals on the