Identifying the funder: Contrasting approaches in litigation and arbitration


Guest post by Phil Gardner, associate, and Steph Lloyd, trainee solicitor, at London firm Peters & Peters

Phil Gardner

Dispute funding has exploded in recent years. Indeed, it seems that new funds are launched weekly with apparently unlimited capital to invest in cases of substance where pure legal merits are far from the only aspect of the investment decision.

The practice remains controversial, however, with an increasing effort by some to ‘unmask’ funders, allegedly in the interests of greater transparency.

Such practices give rise to some concern that the more unscrupulous defendant, respondent or non-funded party will use the transparency to exert pressure and stop the tap of legal funding flowing rather than succeeding on merits.

This controversy is increasingly playing out in distinct approaches between major litigation centres, such as the English courts and arbitral institutions.

Changes to the ICC rules

On 5 January 2021, new rules for the International Chamber of Commerce (ICC) came into effect. They introduced a requirement in article 11(7) to disclose to all parties, the arbitral tribunal and the secretariat of the existence and identity of any third-party funder.

Articles 11(2) and 11(3) place duties of impartiality and independence on the arbitrator. Requiring the disclosure of the identity of a third-party funder in order to assist an arbitrator to comply with their duty to be both independent and impartial is an onerous requirement on parties, who frequently choose the forum of arbitration due to the privacy and confidentiality that it affords and the more limited (than common law courts) disclosure requirements.

It is all the more surprising in circumstances where one might anticipate that parties to ICC arbitrations would likely already consider between legal representative and client the probity of suggesting an arbitrator who was connected to a third-party funder.

The approach of the English courts

The ICC approach is in clear contrast to the position of the courts here. There is no requirement under the CPR to notify the other parties of any third-party litigation funding.

This is not to say that it is impossible for opponents to seek a court order for the disclosure of the identity of a funder, but in contrast to ICC arbitration, this information is not pro-actively required to be disclosed.

The courts recognise that there are circumstances where the interests of justice will require that such information is disclosed.

In Global Energy Horizons Corporation v Gray [2019] EWHC 3295, after the claimant failed to comply with a costs order, the judge allowed the application for an extension of time to pay the costs but refused to place any restrictions on the defendant’s use of the information about the identity of the funders that had to be disclosed.

The rationale for this was to allow the defendant to write to the funders to let them know that there might be further calls on them to cover the defendant’s costs.

In addition to satisfying outstanding costs orders, the courts have also previously ordered the disclosure of the identity of a funder where an application for security for costs is being considered. CPR 25.14 allows the defendant to seek an order for security for costs against someone other than the claimant, expressly including a funder (CPR 25.14(2)(b)).

In Wall v The Royal Bank of Scotland plc [2016] EWHC 2460 (Comm), the court held that it had power under CPR 25.14(2) to order a claimant to disclose both the name and address of any third party who was funding the litigation in return for a share of the proceeds.

Where there is good reason to believe that a claimant has a funder falling within CPR 25.14(2)(b), and a serious basis for thinking that security might be granted, the court may therefore order disclosure of the funder’s identity to facilitate the security for costs application.

Aside from when there is a direct order requiring a party to provide details of the funder, there is no obligation by the court for a party to do so voluntarily. However, some parties may choose to disclose this information in correspondence when security applications are mooted, or as a means of enticing their opponent to consider mediation or negotiation.

The court’s approach is flexible and accepts that there are legitimate reasons why such information would have to be disclosed but does not seek to apply a ‘one size fits all’ approach.

Conclusion

This change to the ICC rules is highly significant, not least because the ICC remains a bellwether for the other institutional arbitral forums (some of which are already considering action such as UNCITRAL). It is reasonable to assume that this ‘cards on the table’ approach will spread throughout international arbitration.

While there can be good reasons why the identity of a funder should be known to opponents, such an uncompromising position risks having a chilling effect on the funding of international arbitration.

This is particularly so when it comes to disputes where the non-funded party has the ability to exert pressure on a funder, such as those that involve jurisdictions where respect for the rule of law is fragile.

The ICC’s disclosure requirements and the attenuating likelihood that this will spread as the standard position in international arbitration means that parties that have concerns as to the confidentiality of funding arrangements may find the courts of England and Wales a more attractive place to pursue their claims than international arbitration.

As always, law firms will vote with their feet, and the steady growth of the disputes offering of US law firms in London is one testament to the opportunity that the English litigation market now has. Funders and litigants reliant on litigation funding should take note.




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