Third Party Funding and its Effect on International Commercial Arbitration

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http://urn.fi/URN:NBN:fi:hulib-202001131046
Title: Third Party Funding and its Effect on International Commercial Arbitration
Author: Luotio, Aurora
Contributor: University of Helsinki, Faculty of Law
Publisher: Helsingin yliopisto
Date: 2019
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-202001131046
http://hdl.handle.net/10138/309976
Thesis level: master's thesis
Discipline: Prosessi- ja insolvenssioikeus
Procedural and insolvency law
Process- och insolvensrätt
Abstract: This study researches the effect of third party funding in international commercial arbitration. Third party funding is a new financing method in international arbitration which was originally used in litigations, especially in the US. Third party funding was initially used by financially distressed parties who otherwise were not able to arbitrate. Nowadays, the ways to utilize TPF are versatile. Alongside the traditional way, TPF can be used for risk management, balancing the books, and as a corporate finance method. The use of third party funding can influence parties’ rights in international arbitration. The best feature of third party funding is said to be its capability to improve access to justice. This study researches the correctness of this argument. Access to justice is one of the human rights, which the high costs of arbitration can limit. Third party funding can give an opportunity to arbitrate for those companies that would not be able to proceed to arbitration without external funding. However, the use of third party funding can create conflicts of interest. Funders and arbitrators can have connections between them that raise doubts on the independence and impartiality of the arbitrator. Independent and impartial arbitral tribunal is one of the requirements of due process and distrust against the arbitration tribunals can reduce the integrity of international arbitration. Also, doubt on the independence and impartiality of an arbitrator can have severe consequences as it can lead to an arbitrator or arbitral award being challenged. Arbitrators have a duty to disclose possible conflicts of interest. However, arbitrators might be unaware of the presence of a third party funder if the funded party does not disclose it. In most seats, parties do not have this kind of responsibility for disclosure. Early disclosure has been suggested to solve the conflict of interest situations. The arguments on behalf of and against disclosure requirements are researched as part of this study. Hong Kong is the first country that has added mandatory disclosure requirements to its legislation. The question remains whether this is the way that other countries should follow as well. The alternatives are to update the UNCITRAL Model Law which will slowly change some of the national laws, carry out the required changes in the rules of arbitration institutes or create a soft law instrument for third party funding related issues. Portfolio funding as third party funding method is also researched in this study. In portfolio funding, funder’s return does not depend on single arbitration but instead on how all the different cases are succeeding in the portfolio. It offers funders a way to balance the risk more effectively. It can offer significant benefits also to the funded party as usually the requirements set for funded cases are lower in a portfolio than when funding is offered individually. As traditional third party funding is usually offered mainly to claimants, portfolio funding makes funding possible also for respondents, and therefore, improves their access to justice. Lastly, this thesis is researching the arrival of third party funding to the Finnish markets. The situation of Northern countries and especially Finland is unusual compared to other European countries. Finnish legislation does not prevent third party funding, and therefore, the most probable reason for the absence of third party funding is that there has not been enough demand for it as Finnish companies are very unfamiliar with third party funding. However, Finland has potential, and funders should take notice of that.


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