Should a party consider third-party funding?

Third-party funding offers some clear advantages, particularly where a party needs financial assistance to mount its case, spread its risk or reduce capital outlay; however, given the private nature of both international commercial arbitration and investor-state dispute settlement, third-party funding has raised a number of ethical and procedural issues. In addition, a jurisdiction may well have certain requirements; for instance, s 4 of the Singapore Civil Law (which lays the foundation for third-party funding) has set out the following “qualifications” for third party funders:

4.—(1) For the purposes of the definition of “qualifying Third‑Party Funder” in section 5B(10) of the Act, the qualifications and other requirements that a qualifying Third‑Party Funder must satisfy and continue to satisfy are the following:

(a) the Third‑Party Funder carries on the principal business, in Singapore or elsewhere, of the funding of the costs of dispute resolution proceedings to which the Third‑Party Funder is not a party;

(b) the Third‑Party Funder has a paid‑up share capital of not less than $5 million or the equivalent amount in foreign currency or not less than $5 million or the equivalent amount in foreign currency in managed assets.

Equally, states are also mindful of their other international obligations; in particular, anti-money laundering/combatting financial terrorism and sanctions obligations. Parties must also conduct their own due diligence when approaching a third-party funder and, depending upon the source of the funding, this may include enhanced due diligence.

A party will need to bear in mind that third-party funding may lead to initial costs in drawing up the proposal, some loss in autonomy and the final amount that will realistically be recovered by the party after paying the third party.