Mayhew-Hite Report Policing the Wild West: Providing Predictability for Addressing Third Party Funding in International Arbitration
William Matthew Weigel*
I. Introduction: The Dynamic Landscape of International Dispute Resolution
Globalization has become the ubiquitous term for describing the state of social and economic affairs characterizing the first two decades of the 21st century. Defined as “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets,”[i] this trend has been hailed as raising all boats in rich as well as poor countries.[ii] The increasing interconnectivity of the international economy has had significant effects on commercial institutions and processes, changing and challenging the way companies compete and interact in an increasingly complex business environment.[iii] The difficulty of resolving complex international disputes under domestic legal frameworks has led companies to pursue pragmatic and efficient alternative approaches.[iv]
Globalization has not only led to an increase in international trade but also has created an international commercial community “that is more sizeable in terms of numbers and more significant in terms of its transactional capacity.”[v] The swift growth in cross-border commercial dealings has created a similarly swift increase in cross-border disputes.[vi] Recognizing the paradigm shift in their business models, multinational corporations have sought a parallel change in how disputes stemming from those commercial dealings are resolved.[vii]
Traditional litigation in national courts often provides significant benefits for a forum’s corporate citizens, including: familiarity, recognizable legal customs and rules, and a common language.[viii] However, these benefits may be considered detrimental by a party that does not call that nation home.[ix] In an effort to exert a greater degree of control and choice over how and where disputes will be resolved, corporations entering into contractual commercial relationships have increasingly agreed to resolve disagreements consensually, through arbitration.[x] Corporations’ unwillingness to submit to the whims of a court through traditional litigation is attributed with “the exponential expansion of the scope and frequency of arbitration proceedings in commercial dealings throughout the world.”[xi]
The shift to arbitration has provided a wide-range of benefits to corporations who find themselves pursuing or defending international claims, including: confidentiality, flexibility, neutrality, and choice of law.[xii] Each of these benefits offers claimants and respondents increased control over a given proceeding, as parties often negotiate choice of arbitrators, tribunal, applicable rules and law,[xiii] and other terms at the outset of the commercial relationship. The control and certainty provided by consensual arbitration has made it an essential tool in resolving complex cross-border disputes.[xiv] There is however, a threat to the predictability arbitration provides: the increased prevalence of third party funding.[xv]
Third party funding is present where an outside party financially stakes an arbitration action in pursuit of a return, in the event a claim or defense succeeds.[xvi] The absence of professional regulations around third party funding[xvii] has raised significant concerns about its presence and effect on the arbitral process.[xviii] In response, calls for increased regulation of third-party-funded claims are gaining momentum.[xix] Specifically, proposals compelling the disclosure of third party agreements have garnered wide-spread appeal,[xx] though other subject areas remain open to debate.[xxi] One of those debated areas encompasses the relationship between third party funding and costs in arbitration: specifically, how the presence of such funding effects allocation of costs and security for costs.[xxii]
In an effort to propose comprehensive guidelines for the regulation of third party funding, the International Council for Commercial Arbitration and Queen Mary University of London have convened a task force to address the challenges such funding presents.[xxiii] The Task Force’s Subcommittee on Security for Costs and Costs has issued a Draft Report analyzing how tribunals have dealt with the issue of costs in third-party-funded actions and proposes a set of guidelines[xxiv] that may be employed by tribunals to reaffirm the certainty corporations seek when agreeing to arbitration.
This Article will focus specifically on the work of the Subcommittee, examining the rules and decisions of other tribunals and comparing those practices with the Subcommittee’s recommendations.
Section II provides background regarding the reasons parties seek outside funding and outlines the lack of comprehensive standards regulating third party funding of arbitration actions.
Section III, contains an in-depth discussion of the Draft Report to ascertain precisely what the Subcommittee counsels regarding how third party funding should affect allocation of costs (Subsection A) and security for costs (Subsection B). Examining arbitral decisions, this section will provide the rationale for wide-spread adoption of the Subcommittee’s suggestions.
The Draft Report provides a viable and flexible framework for taming the “Wild West”[xxv] that is third party funding and returning a degree of assurance and control to parties resolving cross-border claims through arbitration. The guarantees of equal treatment and standardized consideration of third party funding that the Subcommittee provides are of paramount importance in a world becoming more complex by the day, hour, minute, and millisecond.
II. The Wild West: The Purpose Behind Third Party Funding and The Current Regulatory Environment
Corporations engaged in international commerce resort to arbitration, in part, for the control, choice, and certainty the process provides when compared with litigation.[xxvi] Commercial dealings governed by a consensual agreement to arbitrate disputes allows parties to better predict how a given action will proceed. Third party funding poses a threat to that predictability due to the wide-range of actors engaged in the funding process,[xxvii] the disparate treatment tribunals and national courts have given outside funding, and the dearth of comprehensive regulation regarding the funding industry.[xxviii]
Funders come in many forms, including banks, hedge funds, insurance companies, or other entities or individuals with the means and financial acumen to back investment in the claim.[xxix] In a typical funding agreement, the funder contracts with the claimant to receive a contingent payment in the event of the claim’s success,[xxx] in exchange for assuming responsibility over the cost of the proceeding.[xxxi] The funder is not typically compensated by the funded party in the event the claim fails.[xxxii]
There are a broad range of accelerants which have fueled the rise of the third party funding from a relatively new phenomenon to a multi-billion-dollar industry.[xxxiii] First, the presence of third party funders improves access to justice.[xxxiv] Arbitration is expensive[xxxv] and the availability of third party funding allows corporations with limited resources to bring or defend against claims they would be otherwise financially unable to pursue.[xxxvi] Additionally, corporations that are frequently subject to suit or arbitration can take advantage of the fixed payment system offered by third party funding in an effort to control and predict the cost of participating in an arbitration action.[xxxvii] Finally, the tumultuous nature of global financial markets has increased the attractiveness of claim funding for investors as they eschew the volatility of stocks and bonds for more predictable, though non-traditional, investments.[xxxviii] While these drivers highlight a few of the benefits of third party funding, the industry is not immune from criticism or without its detractors.
Currently, there is no comprehensive framework to regulate the impact third party funding may have on international commercial arbitration actions.[xxxix] Different tribunals and courts have treated the issue differently.[xl] This disparity in treatment has led to the characterization of third party funding as the “Wild West” [xli] as there is no clear process to guide a tribunal’s analysis of the dispute when faced with a funded action.
Some debate has concerned whether domestic rules governing outside funding should apply to international arbitration actions being adjudicated in those locales.[xlii] Hong Kong, for instance, has explicitly allowed third party funding in international arbitration actions while prohibiting it domestically.[xliii] Conversely, Singapore has imposed a blanket ban on outside funding in all dispute resolution forums.[xliv] In short, there is no ironclad standard detailing how arbitrators and tribunals should account for third party funding in actions over which they preside.[xlv]
It is precisely this lawless vacuum which has pushed parties, practitioners, tribunals, and even funders to call for increased regulation.[xlvi] The lack of applicable standards has led to a complex, confused, and limited body of decisions which may be examined for guidance, a process made more difficult by the confidential nature of arbitration.[xlvii]
As discussed, the only apparent area of consensus regarding third party funding and international arbitration centers on the required disclosure of the existence of outside funding agreements.[xlviii] This disclosure requirement raises separate issues, particularly relating to costs and liability once the presence of a funder has been made known.
This is the lawless frontier to which the Subcommittee hopes to bring some semblance of the rule of law. While the Report concerns only a sliver of the regulatory issues posed by third party funding,[xlix] the financial nature of funders’ involvement creates the greatest complexity in the realm of allocation of costs and security for costs.
III. Reaching Consensus: The Draft Report of the Subcommittee on Security for Costs and Costs
While each jurisdiction or individual tribunal has employed its own standards in dealing with third party funding,[l] the Subcommittee’s Report provides an excellent foundation on which to build strong and sensible strictures for an industry and process that largely has thus far avoided comprehensive regulation.[li] The Subcommittee makes it abundantly clear that the Draft Report is a recommendation rather than a decree,[lii] but there is little doubt that the report represents an excellent attempt at providing surety and certainty to corporations and tribunals regarding the issues raised by third party funding.
The Draft Report tackles the issues of allocation of costs and security for costs orders, areas in which third party funding has an outsized effect. Allocation of costs refers to the process by which the losing party bears the cost of the proceedings.[liii] Security for costs is a mechanism employed by a respondent to ensure that it will be reimbursed by a claimant for the costs it incurs in defending itself from an unsuccessful claim.[liv]
The Subcommittee posits that “[u]nless a tribunal establishes the likelihood that costs will be awarded, it cannot make a decision on a security for costs application.”[lv] Therefore, whether costs will be allocated is the threshold issue in determining whether to grant an order for security where third party funding is present.[lvi] Once a tribunal determines that costs are to be allocated based on the outcome of the case, it may then proceed to the security for costs question.[lvii] That analytical process is mirrored below.
A. Allocation of Costs: How Third Party Funding Affects Who May Recover, What They May Recover, and Who Pays for the Recovery
Tribunals are typically faced with two competing principles when considering allocation of costs: “pay your own way” and “costs follow the event.”[lviii] If the parties have previously agreed to pay their own expenses,[lix] the presence of a third party funder has little effect: the funder will pay the costs incurred by the party it has funded. However, if the parties to the arbitration are proceeding under an agreement stipulating that the loser pays the prevailing party’s legal costs,[lx] a more detailed analysis is required to determine whether a prevailing, funded party may recover its costs, which costs it may recover, and whether a funder has any liability to pay an adverse costs award on behalf of the funded party. Prior to conducting any analysis, a tribunal will have to ascertain whether it has the power to allocate costs based on the outcome of an action.
While courts and tribunals have addressed the issue of allocation of costs differently, many applicable arbitral rules and laws allow costs to be allocated based on the outcome of an action. Current law in the United Kingdom, for instance, contains detailed provisions on allocating costs in arbitration.[lxi] Section 61 of the English Arbitration Act of 1996, explicitly provides that a tribunal may make an award allocating the costs of an action.[lxii] Section 63 of that same Act mandates that any costs awarded be reasonable and that any doubt as to whether costs were incurred by a party must be resolved in favor of the paying party.[lxiii] Similar cost shifting rules in arbitration law are established in Hong Kong, Germany, Brazil. Spain, and Portugal.[lxiv] While “the arbitration laws of UNCITRAL[lxv] Model Law, France, Switzerland, and the United States, are silent on the issue of costs allocation, it is clear that tribunals sitting in [those] jurisdictions have the power to render awards on costs.”[lxvi] Finally, some rules merely provide the arbitrator with broad discretion to allocate costs.[lxvii]
Ultimately, it is representative of arbitral rules that costs may be evaluated against a party, depending on the outcome of the case, “to the extent that the arbitral tribunal determines that the amount of such costs is reasonable.”[lxviii] Where cost-shifting is not expressly provided for, arbitrators enjoy broad discretion to award costs to a prevailing party as they are presumptively entitled to recover.[lxix]
Where the applicable laws and rules allow for cost-shifting, four distinct issues are raised.[lxx] First and foremost, as a threshold issue, a tribunal must ascertain whether it will award costs to a prevailing party.[lxxi] Following a decision that costs will in fact be awarded, the tribunal must determine how they will be allocated.[lxxii] Next, if the tribunal intends to award costs to a prevailing party, it must determine which of those costs are recoverable.[lxxiii] Finally, where third party funding has been secured in the action, and the funded party does not prevail, the tribunal must determine if it can assess an adverse costs award directly against the third party funder. [lxxiv] In answering these questions, a prevailing, funded party should be able to recover its costs, though it should be limited to costs associated directly with the arbitration, and tribunals will generally lack the jurisdiction to enforce an order for adverse costs against a funder.[lxxv]
1. A Prevailing Funded Party Should Be Able to Recover the Portion of the Costs It Incurs Related to Its Participation in the Arbitration Despite Those Costs Being Paid by the Funder
In answering the question of whether a prevailing funded party should be eligible for recovery, the tribunal must first determine whether the party has incurred any costs for which should be reimbursed. This also raises the question of whether the presence of outside funding should have any bearing on a tribunal’s decision of whether to allocate costs in the first place. In the interests of fairness and to preserve access to justice, the Subcommittee has determined that a funded party should be considered to have incurred costs if it has an obligation to compensate a funder for costs advanced and that a tribunal should not be able to penalize a party receiving funding by refusing to allocate costs.[lxxvi]
As has been discussed, securing third party funding usually requires the funded party to compensate the funder if the claim succeeds.[lxxvii] While the nature of any obligation will depend on the structure of the specific funding agreement,[lxxviii] where such an obligation is present, it “should be sufficient for tribunals to accept that a funded party has incurred costs.”[lxxix] Thus, the crucial question a tribunal must answer when faced with allocating costs to a prevailing, funded party is whether there is an obligation to compensate the funder for the costs advanced in the proceeding.
The absence of a compensation condition between party and funder may render the funded party unable to recover its costs as it may signal that a party has not incurred any costs through its involvement in the action. For instance, in Quasar de Valores v. Russian Federation, the Stockholm Chamber of Commerce (SCC) tribunal denied the prevailing party, Quasar, recovery of its costs because it had no contractual requirement to reimburse the funder.[lxxx] The funder, an ex-majority shareholder of Quasar, had agreed to assume the cost of the action without any promise of repayment.[lxxxi] Therefore, Quasar had participated in the action free of cost and the SCC tribunal used this fact to determine that allocating costs in that action was improper because Quasar had not incurred any costs that required allocation.[lxxxii]
Considering that decision, the presence of an obligation to pay is a dispositive element in determining whether costs have been incurred by a funded party and whether allocation of those costs is proper. Strengthening this assertion is a decision by a tribunal of the International Chamber of Commerce (ICC) holding that a funded respondent could have recovered its costs had it succeeded in the proceeding.[lxxxiii] The arbitrator noted that the respondent had an obligation to repay the funder, an insurer, for attorney’s fees and expenses, a cost which was “not negated by the fact that someone else, through prior arrangement, paid them on their behalf.”[lxxxiv]
These decisions perfectly illustrate the analysis tribunals should employ when determining whether a funded party has incurred costs. If a party is contractually required to compensate a funder for the costs of the action, either in total or in part, a tribunal should consider those costs to be eligible for payment by the non-prevailing party.
The ICC decision above also provides guidance regarding whether the presence of third party funding should have any significant bearing on a tribunal’s determination that allocation is proper. The ICC tribunal’s view that a funded party has incurred costs regardless of whether those costs have been advanced by an outside party,[lxxxv] sets a standard adapted by the Subcommittee to mean that “[t]he fact that a party’s costs have been funded should generally not be regarded as a relevant factor in determining whether or not costs are to be allocated based on the outcome of the successful claim.”[lxxxvi] Adoption of the standards laid out in both Quasar and the ICC case ensures that funded parties are treated similarly to non-funded parties by tribunals faced with a cost allocation analysis.
On its face, allocating costs for a prevailing party that did not technically incur them could be characterized as a boon to funded parties. However, to do otherwise would tip the scales heavily in a non-funded party’s favor: removing any liability for costs purely because its opponent chose to seek financial aid in the action. Furthermore, weighing the presence of third party funding against a funded party ignores the obligations to the funder assumed by that party.
Refusing to shift costs because a party has secured outside funding creates a substantial disincentive to seek such funding and creates access to justice issues for parties with limited resources. If a prevailing party is capable of funding an action on its own, it is likely to be eligible to recover its costs from its opponent. But, if a party cannot advance an action on its own dime, it is effectively barred from pursuing what is an otherwise valid claim.
As detailed previously, corporations pursue outside funding in search of a wide-range of benefits, not the least of which are access to justice and predictability.[lxxxvii] In the interest of preserving access to justice and ensuring that parties are treated equally, tribunals should not weigh the presence of third party funding against a prevailing, funded party. So long as the funded party has a contractual obligation to compensate the funder in the case of success, a tribunal should find that the party has incurred costs stemming from the action and allow recovery.
Nevertheless, the right to recovery for a funded party should not be absolute. In keeping with the requirement discussed previously that only “reasonable”[lxxxviii] costs be recoverable, funded parties should only be able to recover the costs directly associated with the proceedings.
2. Funded Parties Should Be Limited in Recovery to Those Costs Directly Associated with the Arbitration Proceedings
While weighing the presence of a third party funder against a prevailing, funded party creates a disincentive to secure outside funding, broadly allowing funded parties to recover any and all costs raises concerns on the opposite side of the spectrum. As noted, when a party secures outside funding it typically assumes an obligation to the funder to reimburse the funder for costs advanced, as well as a return.[lxxxix] This return is a result of the agreement made between the funder and funded party and serves as the main financial incentive to the funder in staking the claim.[xc] The return, as well as other funding costs not directly associated with the proceedings should not be awarded to a prevailing party.[xci] Such a limitation draws a practical line between associated and ancillary costs and only allows funded parties to recover for the former, leaving them liable for the latter. Limiting recovery to costs directly associated with the proceedings ensures that funded parties cannot foist their financial burdens onto their opponents which guarantees fairness, equal treatment, and access to justice for all parties.
Arbitrator Orrego Vicuna’s dissent in the Siag v. Arab Republic of Egypt, an action before the International Centre for Settlement of Investment Disputes (ICSID), supports protections for non-prevailing parties.[xcii] In that case, the ICSID tribunal granted the prevailing party’s request to recover unsubstantiated hourly attorney’s fees despite the fact that the attorneys had been paid under a contingency fee.[xciii] Vicuna dissented, specifically noting that the recoverability of costs not directly associated with the action (or perhaps in this case, not evidenced to be associated) shifted a significant burden to the non-prevailing party.[xciv] Similarly, allowing a funder’s return and other ancillary costs to be recovered creates a massive incentive to secure outside funding.
If a party loses a claim against a funded party, it would be required to pay the funder’s return (or other costs) in addition to the expenses incurred by its opponent. Conversely, if the results are reversed and a non-funded party prevails over a funded party, the funded party may be required to pay adverse costs, but will likely not have to pay the funder, depending on the terms of their agreement.[xcv] Thus, if a funded party prevails, and recovery is not limited, it enjoys the possibility of having all of its costs compensated by the opponent, including the funder’s return. If the funded party loses, its obligation is unlikely to exceed what it would have faced had it not secured outside funding because it may have to pay adverse costs but will not have to reimburse the funder. Therefore, the potential to have all costs covered incentivizes parties to seek third party funding and discriminates against non-funded parties that may oppose them by increasing their liability.
Such a regulatory regime astronomically increases the costs of pursuing any individual claim and may force those opposing a funded party to decline pursuit of valid claims or defenses solely because they cannot afford to pay adverse costs and all other ancillary costs. Considering the burden such decisions would create, tribunals would be wise to follow the Subcommittee’s recommendation, and Vicuna’s dissent, limiting allocation of costs to those incurred directly from participation in the action.[xcvi]
Recapping to this point, tribunals should not discriminate against prevailing, funded parties by refusing to award costs based on the presence of a third party funder. Similarly, tribunals should not discriminate against non-prevailing parties, and financially bar otherwise valid claims, by allowing a funded party to recover a funder’s return or other ancillary costs. The only actor whose liability has yet to be discussed are the “phantoms”[xcvii]: the funders themselves.
3. Tribunals Will Generally Lack the Jurisdiction to Assess Liability Directly Against a Third Party Funder Due to the Consensual Nature of Commercial Arbitration
Whether a funder is liable for adverse costs is, at bottom, a jurisdictional question. The extent of a funder’s liability is usually governed by the funding agreement between the party and the funder.[xcviii] Even if the agreement stipulates that a funder is liable for adverse costs, tribunals will generally have difficulty enforcing costs awards directly against funders because they are not a contractual party to the proceedings or the original arbitration agreement.[xcix] While there are no reported instances of awards against a funder in international arbitration,[c] courts in the United States and United Kingdom have sustained direct orders against litigation funders based on a number of factors.[ci]
In Abu-Ghalez v. Chaul, a Florida appellate court upheld an order assessing costs directly against a funder because it had exerted such a degree of control over the case that it could be considered a party to it.[cii] In that case, the funder not only had responsibility over the costs of the litigation, but also made most of the final decisions pertaining to the case and representation.[ciii] The court’s rationale appeared to be that if the funder was going to assume the role of a party in everything but name, it would be treated as a party.
Similarly, in the U.K., courts have signaled the propriety of holding a funder directly liable based on the significance of the funder’s role in the case and the extent of the funder’s economic interest.[civ] In Excalibur Ventures v. Texas Keystone, the English High Court held that an award against the funder was proper as Excalibur could not have sustained the action without third party funding, and therefore the presence of that funding was the only reason the case had continued.[cv] This logic was mirrored in Arkin v. Borchard Lines, where the High Court again found an award against a funder proper because its presence was the sole reason for the existence of the proceedings.[cvi] In that case, the High Court limited the order to the extent of funding provided as a funder would be unlikely to fund a portion of a potential claim if it could lead to liability for a totality of the costs.[cvii] The focus of U.K. courts on the role of the funder also led the Privy Council to hold that where a funder promotes and finances litigation proceedings in the name of an insolvent company, solely for the funder’s own monetary benefit, a court has discretion to order adverse costs against a third party.[cviii]
While the holdings from these cases could be extrapolated to arbitration funding, the major difference between litigation and arbitration is the consensual nature of the proceedings.[cix] Furthermore, a plain reading of arbitral laws and rules appears to extend a tribunal’s authority to allocate costs only to the parties to a proceeding.[cx] Considering the limited role a funder usually plays in arbitration, the Subcommittee has argued that, “[w]hile funders may be involved in the proceedings, this cannot readily be interpreted as consent to arbitrate.”[cxi] The contractual nature of arbitration, and the fact that the funder tends to be separate from the party it funds, make it difficult to extend the provisions of the initial arbitration agreement to third party funders themselves.[cxii]
Courts and judges enjoy far greater power and latitude to assess and enforce cost allocation orders against third party funders than do arbitrators and tribunals.[cxiii] The jurisdictional bar to tribunals ordering costs exposes parties opposing a third party funder to the risk of being unable to recover costs from either an impecunious losing party or that party’s funder.[cxiv] However, there are specific circumstances that may lead to arbitral costs awards being deemed proper, including where the funder voluntarily submits to the tribunal’s authority or exerts a significant degree of control over a claim.[cxv] Voluntary submission would solve the issue of assessing costs against a non-party,[cxvi] though it is difficult to ascertain why a funder would expose itself to liability in exchange without incentive.[cxvii] On the other hand, a funder who fully controls an action may present a riper target for a costs award.[cxviii]
While the view of the international majority is that arbitral, and court, decisions only affect parties to the proceedings, many legal systems have developed exceptions to the “same parties” requirement.[cxix] This exception is that “the effect of judgments extends to the parties’ successors, assignees, administrators, trustees, other third parties that are in privity, have identical interests with the party to the original proceedings.”[cxx] By the nature of its funding agreement, a funder is in privity with a funded party and shares an identical interest: success in pursuing or defending the claim. Thus, if an outside funder supplants the funded party’s judgement in the proceedings, making decisions regarding the representation, it is a real party in interest and an award may be proper.[cxxi] However, adverse costs orders assessed directly against third party funders in an arbitration context remain the subject of theoretical conjecture, and not legal reality.[cxxii] Theoretically, tribunals will lack the jurisdiction to hold funders directly accountable.[cxxiii]
In summation, the Subcommittee recommends that tribunals abide by the following loose framework when analyzing allocation of costs issues raised in a funded arbitration action. If a funded party has a contractual obligation to a funder to compensate the costs advanced, it has incurred costs and is eligible to recover.[cxxiv] In order to protect the benefits the third party funding industry provides, including access to justice, tribunals should refrain from withholding a costs award on the basis that a party has secured outside funding.[cxxv] To ensure that potential liability in the event of a loss does not prevent the pursuit or defense of a valid claim, tribunals should not allow for the recovery of the funder’s return or other ancillary costs.[cxxvi] Finally, tribunals should recognize they will generally lack the jurisdictional clout to order costs directly against a third party funder,[cxxvii] absent the funder being a voluntary party to the arbitration or effectively supplanting the funded party’s control of the action.[cxxviii]
Widespread adoption of the Subcommittee’s guidelines safeguards parties’ presumption that they will be treated equally in the eyes of a tribunal, regardless of whether they have secured outside funding. This equal treatment is crucial to preserving the control and predictability of international arbitration and restores a measure of certainty for corporations engaged in cross-border commerce. Once a tribunal reaches a determination on the foregoing issues and the threshold question of whether to allocate costs, it may then proceed to its consideration of security for costs.[cxxix]
B. Security for Costs: How the Existence and Substance of Third Party Funding Agreements Affects Parties’ Ability to Recover Costs
In arbitration, security for costs refers to the responding party’s attempt to force liability for costs it incurs in defending itself against the complaining party by having all or a portion of those costs provided by the claimant at the outset of the action.[cxxx] Usually tribunals may only order security for costs in exceptional circumstances,[cxxxi] such as where the claimant is insolvent and unable to pay the other respondent’s costs,[cxxxii] or where the claimant has demonstrated bad faith in shirking costs awards issued by an arbitral tribunal.[cxxxiii] A tribunal faced with a security for costs request must tread a careful line, balancing the claimant’s interest in access to justice and the respondent’s right to recover its costs in the event it succeeds in defending the claim.[cxxxiv] There are no set rules or regulations on how tribunals should weigh such concerns.[cxxxv] Thus, if costs are to be allocated based on outcome, adoption of a standard regulatory structure around security for costs will provide surety and predictability to parties engaged in arbitration where third party funding is present.
There are three primary situations where a tribunal may have the power to order security for costs.[cxxxvi] In the first instance, security for costs may be ordered where the parties expressly confer the power to the tribunal, or agree to arbitrate under a legal regime that provides the arbitrator with that power, such as in the United Kingdom or Hong Kong.[cxxxvii] Where the applicable law or rules only contain a general provision for interim measures, at least one tribunal has found that security for costs should be included in that purview.[cxxxviii] The logic of such a general contention has been questioned, but the Subcommittee concedes that even where there is no general interim measures provision in the applicable law and rules, a tribunal’s authority in issuing security for costs orders “is anchored in its inherent power to preserve the integrity of the proceedings.”[cxxxix] Thus, this Article proceeds on the assumption that arbitrators and tribunals generally have the power to order security for costs.[cxl] Additionally, due to the rarity and exceptionality of the remedy,[cxli] arbitrators enjoy broad discretion in their reasoning and rationale for granting or denying such orders and have wide latitude to determine for themselves how third party funding should effect their analysis.[cxlii]
A respondent seeking security for costs in a funded action harbors concern that it will be unable to recover its costs from an impecunious claimant who has sought outside funding.[cxliii] Granting security requires a tribunal to examine the financial situation of the claimant to determine that it lacks the resources to reimburse the respondent for its costs.[cxliv] That third party funding has been secured may be relevant to that analysis, but should not be the dispositive factor in awarding a security for costs.[cxlv] Similarly, the substance of third party funding agreements should be considered by a tribunal when ascertaining the propriety of awarding security, but should not be the determining factor rationalizing that propriety.[cxlvi] The substance of these agreements becomes particularly important.[cxlvii] Finally, if the respondent succeeds on a security for costs order, but fails in defense of the claim, it may be considered liable to the funder for the costs incurred in posting security.[cxlviii]
1. The Existence of a Funding Agreement May Be Relevant to Determining Whether a Claimant is Impecunious but Should Not Be Considered Dispositive of an Inability to Pay an Adverse Costs Award
A tribunal begins an analysis of a security for costs order by ascertaining the financial situation of the party against which an order is sought.[cxlix] To order security for costs, a tribunal must find that the claimant’s current financial situation prevents it from being able to cover the respondent’s costs should the respondent succeed in defending the claim.[cl] Where third party funding has been secured, a tribunal should consider an agreement between the funder and the funded, along with general financial disclosures, to develop an understanding of a claimant’s solvency or insolvency.[cli] However, “the mere presence of a third party funder is not, in itself, sufficient reason to grant security for costs.”[clii]
Considering the widespread employment of third party funding,[cliii] allowing arbitrators to consider a third party funding agreement ensures that the tribunal has the ability to review all circumstances pertaining to a claimant’s financial situation. Limiting that consideration to a factor rather than a dispositive element, protects insolvent claimants, guaranteeing they are not barred from pursuing a claim due to an inability to post security.[cliv] This limitation also protects solvent claimants, particularly corporations, who may employ outside funding.[clv]
Solvent corporations that are regularly subject to arbitration may choose to employ a third party funder in an effort to control and predict the costs of the dispute.[clvi] Therefore, it would be improper for a tribunal to justify granting security for costs because a party has secured outside funding, as the respondent’s hope in obtaining security is to ensure it will be able to recover the costs it incurs in its defense.[clvii] A solvent corporation would presumably retain the necessary resources to compensate the respondent, if it succeeds in defending the claim.
While insolvency may indicate a lack of capability to pay the final costs of a respondent, and a resort to outside funding may indicate that insolvency, a finding that a claimant is insolvent does not automatically grant a respondent the protection of security for costs.[clviii] If a claimant’s impecuniousness was the dispositive test for granting security, a wealthy party who contracted with a relatively impoverished party could breach that contract with impunity, knowing the specter of paying security for costs would prevent the poorer party from pursuing any dispute.[clix]
Fortunately, this is not the case, security for costs are only appropriate in exceptional circumstances.[clx] Therefore, if a tribunal finds that a claimant is insolvent and that security for costs may be appropriate, it should turn to the substance of the funding agreement to determine what effect granting security would have on a claimant’s ability to pursue its claim or a respondent’s right to recovery.[clxi]
2. The Terms of a Third Party Funding Agreement Should be Considered in Determining Whether Exceptional Circumstances Exist Justifying a Security for Costs Order
The grant or denial of a security for costs order has a significant impact on a claimant’s ability to pursue its claim and a respondent’s right to reimbursement of its costs.[clxii] In this discussion, it is crucial to note the distinctions between commercial arbitration and investment arbitration, as each pose separate tests for granting security for costs.[clxiii]
The most widely employed test for awarding security for costs in a commercial arbitration action is “whether the financial situation of the claimant has materially and unforeseeably changed since the conclusion of the arbitration agreement.”[clxiv] The key considerations in this analysis are clearly the materiality and unforeseeable nature of any change in the claimant’s financial standing. Regarding foreseeability, a respondent which had actual or constructive knowledge that the funded claimant was likely unable to pay its costs when agreeing to arbitration should not be able to secure an order for security for costs.[clxv] The parties agreed to resolve their disputes through arbitration and a respondent assumes the risk of being unable to recover its costs if it had knowledge that the claimant would not be able to satisfy an adverse costs order.[clxvi] Furthermore, that a business partner’s pecuniary situation may change over time is inherent in commercial dealings as a normal and foreseeable risk,[clxvii] not a material and unforeseeable change.
This raises the question of whether the presence of a third party funding agreement between a funder and a claimant can be considered a material and unforeseeable change in the claimant’s financial status. If a tribunal were to find in the affirmative, solely because a party had secured funding, security could be ordered against any funded claimant. While this creates an access to justice issue for claimants who cannot fund their own actions, some bodies have used the terms of a funding agreement to find evidence of unexpected and substantial change justifying security or costs.
In X v. Y and Z, an ICC tribunal held that a litigation funding agreement could constitute a material and unforeseeable change, depending on the terms of the agreement.[clxviii] In finding such a change and ordering security for costs, the tribunal found that the claimant was impecunious (unable to pay adverse costs), that the funding agreement did not require the funder to cover adverse costs, and that the termination clause of the agreement allowed the funder to abandon the relationship at any time.[clxix] The broad termination rights and limited liability, in particular, posed a significant risk to the respondent of being unable to recover its costs and therefore, security was proper.[clxx] The tribunal’s focus on the circumstances surrounding the funding agreement, rather than impecuniousness of the claimant and the existence of the agreement itself, informs similar analyses by other tribunals: to sustain security for costs orders, exceptional circumstances must be present.[clxxi]
The ICC decision, and its prevailing stance that more is required to grant security for costs than a cash-strapped claimant seeking outside funding, focuses a commercial arbitration tribunal’s analysis on a funder’s actions or contractual ability to act. Where a funding agreement stipulates that a funder is not liable for adverse costs, or where the funder has broad discretion to abandon its investment, security for costs may be proper to protect the respondent. Some believe that third party funders will pay a security for costs order, regardless of what the funding agreement says, to protect the capital already invested in a claim.[clxxii] However, commercial tribunals should still look to the terms of agreements for evidence regarding how an order for security will affect the claim and balance the harms each party is exposed to.
The terms of a funding agreement govern the funder and funded party’s behavior in a commercial action and that behavior, or ability to act, may constitute a material and unforeseeable change, or exceptional circumstances for granting security. Similarly, investment tribunals look to the behavior of a claimant to find the exceptional circumstances necessary to sustain an order for security for costs.[clxxiii] These circumstances typically include abusive conduct or demonstrated bad faith on the part of a claimant.[clxxiv] Absent these circumstances, investment arbitration tribunals rarely grant security for costs applications and an ICSID tribunal granted security for costs for the first time in 2014.[clxxv]
That case, RSM Production Corp. v. St. Lucia, involved a funded claimant with a proven history of not complying with “cost orders and awards due to its inability or unwillingness,” to pay assessments against it.[clxxvi] The tribunal considered these actions to be made in bad faith and “compelling grounds for granting the Respondent’s [security for costs] request.”[clxxvii]
While not part of the order, an assenting opinion of one of the arbitrators, Gavan Griffith,[clxxviii] is particularly important to the consideration of third party funding in investment arbitration. Griffith argued that “once it appears that there is third party funding…the onus is cast on the claimant to disclose all relevant factors and to make a case why security for costs orders should not be made…”[clxxix] Because it was written in support of an order granting security for costs, Griffith’s statement is dangerous as it argues that the presence of third party funding alone is enough to support a rebuttable presumption that a tribunal will grant an order for security for costs. However, there was no evidence in the actual order suggesting that the other arbitrators agreed with Griffith’s focus on the presence of outside funding.[clxxx] In opposing Griffith’s contention, the Subcommittee forcefully argues that “mere recourse to third party funding by a claimant that has become impecunious cannot readily be characterized as carrying an element of abuse, and cannot if itself be taken as a reason for tribunals to award security for costs.”[clxxxi]
Just as tribunals should not consider the presence of third party funding as sole proof of a claimant’s impecuniousness, they should not consider that presence as stand-alone proof of abuse or bad faith. Contrary to Griffith’s reasoning, creating a rebuttable presumption that security for costs is proper wherever outside funding has been secured is not justified.[clxxxii] Subsequent decisions have reaffirmed the maxim that security for costs are only proper in exceptional circumstances.[clxxxiii]
In EuroGas, Inc. v. Slovak Republic, an ICSID tribunal refused to grant security for costs and directly distinguished its case from RSM Production Corp., by highlighting that the RSM claimant had a demonstrated track record of non-compliance with costs orders.[clxxxiv] Unlike the arbitrators in RSM, the ICSID tribunal in EuroGas, found no evidence of bad faith behavior on behalf of their claimant.[clxxxv] Therefore, absent such exceptional circumstances, security for costs were improper.[clxxxvi]
As it pertains to the questions of whether a funded party has incurred costs and whether the terms of a funding arrangement require security to be posted, third party funding is but one factor that tribunals may consider.[clxxxvii] If a tribunal finds that a funded party has incurred costs, and that exceptional circumstances[clxxxviii] are present, constituting a material and unforeseeable change in the claimant’s financial situation, or a display of bad faith, it may order security for costs against a funded claimant.[clxxxix]
3. Where Security for Costs Is Granted Against a Funded Party, But the Respondent Fails in Defending the Claim, the Respondent Is Liable to the Funded Party for the Costs of Posting Security
If a tribunal finds the exceptional circumstances necessary to grant a request for security for costs,[cxc] but the respondent fails in defending against the claim, it will be liable to the funded party for the cost associated with complying with the security for costs order.[cxci] The Subcommittee recommends that a tribunal should consider indicating to a respondent at the outset of arbitration that it may face liability for those costs should its defense fail.[cxcii] While the security for costs remedy entails a complex procedural process,[cxciii] a respondent’s potential liability for costs associated with posting security has relatively simple reasoning.
As discussed in relation to the allocation of costs issue, tribunals enjoy broad discretion in awarding recovery of costs to prevailing parties.[cxciv] The presence of third party funding, or the fact that another party has paid the claimant’s costs, does not usually negate a claimant’s obligation to reimburse a funder for expenses should its claim prevail.[cxcv] Therefore, a tribunal should consider a funder’s covering of costs in posting security analogous to any other expenses the funder advances on behalf of the funded party. Furthermore, the costs of posting security are directly related to a claimant’s participation in the arbitration. Those costs are not comparable to the funder’s return, or other ancillary costs and should therefore be deemed recoverable for a prevailing, funded party.[cxcvi] So long as a claimant has a contractual obligation to reimburse the funder for costs advanced, a tribunal should consider the costs associated with posting security to be recoverable.[cxcvii]
Given the prevalence of third party funding in all arbitration actions,[cxcviii] there should be nothing exceptional about a claimant’s decision to seek financial assistance. Whether the dispute arises in commercial or investment arbitration, the decisions of the tribunals and recommendations of the Subcommittee make it clear that security should be granted only in rare instances.[cxcix] Those rare instances exist where exceptional circumstances are present.[cc] Such circumstances include the grant of broad termination rights to a funder or limited liability for adverse costs, which may constitute an unforeseeable and material change in a claimant’s financial situation.[cci] Additionally, where a claimant or funder has acted in bad faith, flaunting the authority of a tribunal, exceptional circumstances likely exist.[ccii] Conversely, where a respondent employs security for costs for adversarial, strategic purposes, rather than valid concerns regarding a claimant’s ability to pay, the granting of a security order is improper.[cciii] If such a request is deemed appropriate, and granted, respondents are likely to be liable to a funded party for the costs it incurs in posting security based on the widely accepted principles of cost allocation.[cciv]
Due to the difficulty and complexity of determining where exceptional circumstances exist, what constitutes unforeseeable and material change, proving bad faith on behalf of a claimant, and ascertaining a respondent’s true purpose in requesting security for costs, the positions advanced by the Subcommittee will assist tribunals, practitioners, and parties in projecting a measure of certainty into third party funded proceedings where security for costs are requested.
IV. Conclusion: Establishing The Rule of Law in the Wild West
Tribunals grappling with the issues of cost allocation and security for costs in international arbitration actions involving third party funding should strive to provide certainty to the parties whose disputes they are tasked with resolving. While it is incumbent upon each tribunal to decide how best to police the “Wild West”[ccv] and regulate third party funding’s impact on costs issues in each respective proceeding, the Subcommittee’s Draft Report presents a loose framework that will re-introduce a measure of predictability into the international arbitral process.
The Subcommittee provides nine simple recommendations that tribunals may consider when faced with funded parties.[ccvi] First, funded parties should be considered to have incurred costs which will be recoverable by the nature of their obligation to reimburse a funder.[ccvii] The fact that a party has sought funding should not be weighed against that party, preventing it from recovery.[ccviii] Prevailing, funded parties should not be able to recover funder’s returns and ancillary costs.[ccix] Tribunals should generally refrain from assessing adverse costs directly against outside funders unless they exert full control over an action.[ccx] A funding agreement may be considered illustrative of a party’s financial health, but should not be the justification for granting security for costs.[ccxi] The procurement of external funding should not generally be evidence of an unforeseeable and material change in a claimant’s financial situation in a commercial arbitration action.[ccxii] Similarly, the presence of funding should not be considered an extreme circumstance warranting security for costs in investment arbitration.[ccxiii] However, the terms of an agreement, such as a funder’s termination rights and limited liability for adverse costs, may signal that security is justified.[ccxiv] Finally, a respondent may be liable to a funded claimant for the costs it incurs in posting security if the defense of the claim fails.[ccxv]
These elementary guidelines do nothing to jeopardize the flexibility and informality that incentivize parties to participate in arbitration.[ccxvi] Rather, the recommendations of the Subcommittee constitute a limited and digestible framework that can help corporations reassert control over their claims. Adoption of these guidelines will enhance the efficiency and fairness of international commercial arbitration and help bring a semblance of the rule of law to the lawless frontier of third party funding.
*Disclaimer: This article has been reviewed by the Mayhew-Hite Editor. Articles published in the Mayhew-Hite Report do not undergo the same rigorous accuracy check or editing process as articles published in the print edition of the Ohio State Journal on Dispute Resolution.
[i] Globalization, Merriam-Webster Online English Dictionary (2017), https://www.merriam-webster.com/dictionary/globalization?utm_campaign=sd&utm_medium=serp&utm_source=jsonld.
[ii] Mike Collins, The Pros and Cons of Globalization, Forbes Mag. (May 6, 2015, 3:06 PM), http://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-globalization/#26a7e5852170.
[iii] David J. McLean, Toward a New International Dispute Resolution Paradigm: Assessing the Congruent Evolution of Globalization and International Arbitration, 30 U. Pa. J. Int’l L. 1087, 1087 (2009).
[v] Id. at 1088.
[vii] Id. at 1087.
[viii] Id. at 1088-89.
[ix] McLean, supra note 3, at 1088.
[x] Id. at 1089.
[xi] Noah Rubins, In God We Trust, All Others Pay Cash: Security for Costs in International Arbitration, 11 Am. Rev. Int’l Arb. 307, 309 (2000).
[xii] Richard Marshall & Clare Arthurs, A Practical Alphabet, 166 New L.J. 7713, 7713 (2016).
[xiv] Rubins, supra note 11, at 309.
[xv] Victoria Shannon Sahani, Judging Third-Party Funding, 63 UCLA L. Rev. 388, 393 (2016) (internal citations omitted).
[xvi] Jennifer A. Trusz, Full Disclosure? Conflicts of Interest Arising from Third-Party Funding in International Commercial Arbitration, 101 Geo. L.J. 1649, 1653 (2013) (citing Michele DeStefano, Nonlawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone Soup?, 80 Fordham L. Rev. 2791, 2818 (2012)).
[xvii] See Maya Steinlitz, Whose Claim Is This Anyway? Third-Party Litigation Funding, 95 Minn L. Rev. 1268, 1277-78 (2011) (describing the rise of third party funding in a litigation context and its expansion to international arbitration).
[xviii] See Trusz, supra note 16, at 1650 (illustrating a specific instance where the disclosure of a third-party funding agreement, in an unrelated case, exposed multiple conflicts of interest between the pending action and the presiding arbitrator); see also Elizabeth Chan, Proposed Guidelines for the Disclosure of Third-Party Funding Arrangements in International Arbitration, 26 Am. Rev. Int’l Arb. 281, 281 (2015) (explaining the need to introduce transparency to the implementation of third party funding arrangements because “there is currently no mandatory regulation” and “[l]eft unregulated, the abusive use of third party [sic] funding arrangements may compromise the integrity of the arbitral process.”)
[xix] See Chan, supra note 19, at 281.
[xx] Catherine A. Rogers, Ethics in International Arbitration 202 (2014) (explaining that “[w]hatever else may be uncertain about third-party funding, it seems reasonably clear that a position advocating against any disclosure obligations regarding the presence of third-party funders…will not carry the day.”).
[xxii] International Council for Commercial Arbitration & Queen Mary University of London, Third Party Funding Task Force, Subcommittee on Security for Costs and Costs, Draft Report on Security for Costs and Costs 3 (2015) [hereinafter TPF Subcommittee].
[xxv] Susan Lorde Martin, The Litigation Financing Industry: The Wild West of Finance Should Be Tamed Not Outlawed, 10 Fordham J. Corp. & Fin. L. 55, 55 (2004) (internal citations omitted).
[xxvi] See generally Rubins, supra note 11, at 377.
[xxvii] Sahani, supra note 15, at 392
[xxviii] Chan, supra note 19, at 292; see also Sahani, supra note 15, at 396-97.
[xxix] Sahani, supra note 15, at 392.
[xxx] Id. at 392.
[xxxiii] Id. at 393-94, 395-96.
[xxxiv] Sahani, supra note 15, at 395 (citing David S. Abrams & Daniel L. Chen, A Market for Justice: A First Empirical Look at Third Party Litigation Funding, 15 U. Pa. J. Bus. L. 1075, 1076 n.3, 1077 n.6-7 (2013)).
[xxxv] See Frank Bannon & Nick Boyce, Special Report: The Rise of Third-Party Funding in International Arbitration, Financier Worldwide Mag. (Oct. 2016), https://www.financierworldwide.com/the-rise-of-third-party-funding-in-international-arbitration/#.WNVB9PnytPY (arguing that “[r]esolving complex disputes requiring detailed factual and technical evidence is unavoidably expensive.”).
[xxxvi] Chan, supra note 19, at 290-91.
[xxxvii] Sahani, supra note 15, at 395-96.
[xxxviii] Id. at 396.
[xxxix] Chan, supra note 19, at 292; see also Sahani, supra note 15, at 396-97 (“…there is little formal regulation of the industry at present, and the existing regulations are not comprehensive.”).
[xl] See Chan, supra note 19, at 292-93 (outlining how domestic and international regulators have attempted to rein in the “phantoms” that are third party funders).
[xli] Martin, supra note 25, at 55.
[xlii] Victoria A. Shannon, Harmonizing Third-Party Funding Regulation, 36 Cardozo L. Rev. 861, 865 (2015).
[xlv] Bannon & Boyce, supra note 35.
[xlvi] Sahani, supra note 15, at 397.
[xlvii] Marshall & Arthurs, supra note 12, at 7713.
[xlviii] Rogers, supra note 20, at 202.
[xlix] TPF Subcommittee, supra note 22, at 3.
[l] See Bannon & Boyce, supra note 35 (detailing various arbitral laws and rules).
[li] Steinlitz, supra note 17, at 277-78.
[lii] TPF Subcommittee, supra note 22, at 3-4 (it is important to note that the Subcommittee has no authority to establish rules for the industry and can only make recommendations regarding any proposed regulations or guidelines which may be adopted).
[liii] Jelena Bezarevic Pajic & Natasa Lalatovic Dordevic, Security for Costs in Investment Arbitration, Wolters Kluwer: Kluwer Arb. Blog (Aug. 9, 2016), http://kluwerarbitrationblog.com/2016/08/09/security-for-costs-in-investment-arbitration-who-should-bear-the-risk-of-an-impecunious-claimant/.
[liv] Rubins, supra note 11, at 310.
[lv] TPF Subcommittee, supra note 22, at 3.
[lviii] Pajic & Dordevic, supra note 53.
[lxi] Arbitration Act 1996, c. 61 (Eng.).
[lxiii] Id. at c. 63.
[lxiv] See TPF Subcommittee, supra note 22, at 6 (citing Hong Kong Arb. Ordinance, (2011), § 72(4); German Code of Civil Procedure, § 1057, para. 1); Spain Art. 37 of Law 60/2003; Portugal Art. 42 of Law 63/2011; and Brazil Art. 27 of Law 13.129 of 26 May 2015)..
[lxv] United Nations Commission on International Trade Law
[lxvi] TPF Subcommittee, supra note 22, at 5.
[lxvii] See International Centre for Settlement of Investment Disputes, Convention, Art. 61, § 2 (“the Tribunal shall…assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses…shall be paid.”).
[lxviii] TPF Subcommittee, supra note 22, at 6 (citing G.A. Res. 65/22, Art. 40(2)(e) (Dec. 6, 2010)).
[lxix] See id. at 7.
[lxx] Id. at 5.
[lxxiii] TPF Subcommittee, supra note 22, at 5.
[lxxv] Id. at 3.
[lxxvi] Id. at 9-10.
[lxxvii] Trusz, supra note 16, at 1653.
[lxxviii] TPF Subcommittee, supra note 22, at 9.
[lxxx] Quasar de Valores SICAV S.A. v. Russian Federation, Stockholm Chamber of Comm., Arb. No. 24/2007, Award, ¶ 223 (July 20, 2012).
[lxxxiii] Supplier v. First Distributor, Second Distributor, No. 7006, 4 Int’l Comm. Arb. 49, Final Award, (May 1993).
[lxxxvi] TPF Subcommittee, supra note 22, at 10.
[lxxxvii] See Sahani, supra note 15, at 395-96 (outlining the four main drivers for seeking third party funding).
[lxxxviii] TPF Subcommittee, supra note 22, at 6 (citing G.A. Res. 65/22, Art. 40(2)(e) (Dec. 6, 2010)).
[lxxxix]Trusz, supra note 16, at 1653.
[xc] Sahani, supra note 15, at 392.
[xci] TPF Subcommittee, supra note 22, at 10.
[xcii] Siag v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Dissenting Opinion of Francisco Orrego Vicuna, ¶ 6 (May 11, 2009).
[xciii] Siag v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, (Jun. 1, 2009).
[xciv] Siag, Dissenting Opinion of Francisco Orrego Vicuna, at ¶ 6.
[xcv] Sahani, supra note 15, at 392.
[xcvi] TPF Subcommittee, supra note 9, at 10.
[xcvii] Chan, supra note 19, at 293.
[xcviii] Dmytro Galagan & Patricia Zivkovic, If They Finance Your Claim, Will They Pay Me If I Win: Implications of Third Party Funding on Adverse Costs Awards in International Arbitration, 180 Eur. Sci. J. 173, 174 (2016).
[xcix] TPF Subcommittee, supra note 22, at 11.
[ci] See Excalibur Ventures, LLC v. Texas Keystone, Inc.,  EWHC (QB) 2010 (Eng.); Arkin v. Borchard Lines Ltd.,  EWCA (Civ) 655 (Eng.); Abu-Ghalez v. Chaul, 36 So. 3d 691, 694 (Fla. Dist. Ct. App. 2009).
[cii] Abu-Ghalez, 36 So. 3d at 694.
[ciii] Galagan & Zivkovic, supra note 99, at 174 (citing Chaul, 36 So. 3d, at 694)).
[civ] See Excalibur Ventures,  EWHC (QB) 2010 ,  (Eng.); Arkin,  EWCA (Civ) 655 ,  (Eng.).
[cv] Excalibur Ventures,  EWHC (QB) 2010  (Eng.).
[cvi] Arkin,  EWCA (Civ) 655 ,  (Eng.).
[cviii] Galagan & Zivkovic, supra note 99, at 174 (citing Dymocks Franchise Sys. v. Todd,  1 W.L.R. 2807  (appeal taken from Eng.)).
[cix] Id. at 175.
[cx] See id. at 175 (discussing UNCITRAL Arbitration Rules, the German Arbitration Act, and the English Arbitration Act, which all grant arbitrators the power to allocate costs between the “parties” to an action but are silent on the question of awarding adverse costs against non-parties).
[cxi] TPF Subcommittee, supra note 22, at 10.
[cxii] Galagan & Zivkovic, supra note 99, at 176.
[cxiii] Id. at 175.
[cxiv] Id. at 176.
[cxvi] See Allison Ross, The Dynamics of Third Party Funding IV, Glob. Arb. Rev., (Mar. 1, 2012), http://www.fulbrookmanagement.com/the-dynamics-of-third-party-funding-iv/ (discussing the United Kingdom’s adoption of the voluntary Code of Conduct for Litigation Funders, and how the Code applies to international arbitration).
[cxvii] Galagan & Zivkovic, supra note 99, at 176.
[cxx] Id. (citing Stavros L. Brekoulakis, Third Parties in International Commercial Arbitration, ¶¶ 9.12-9.14 (2010)).
[cxxi] Galagan & Zivkovic, supra note 99, at 176 (emphasis added).
[cxxii] See id.
[cxxiii] TPF Subcommittee, supra note 22, at 10-11.
[cxxiv] Id. at 9.
[cxxv] Id. at 10.
[cxxvii] Id. at 10-11.
[cxxviii] Galagan & Zivkovic, supra note 99, at 176.
[cxxix] TPF Subcommittee, supra note 22, at 3.
[cxxx] Rubins, supra note 11, at 310.
[cxxxi] Galagan & Zivkovic, supra note 99, at 178.
[cxxxii] Rubins, supra note 11, at 373-74.
[cxxxiii] Id. at 374-75.
[cxxxiv] Pajic & Dordevic, supra note 53.
[cxxxvi] TPF Subcommittee, supra note 22, at 12.
[cxxxviii] See RSM Prod. Corp. v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, ¶ 55 (Aug. 13, 2014) (arguing that, because third party funding was not prevalent when the ICSID Convention was drafted, it was intended to be included in the catch all ‘interim measures’ provision).
[cxxxix] TPF Subcommittee, supra note 22, at 13 (internal citations omitted)
[cxl] Id. at 13.
[cxli] Galagan & Zivkovic, supra note 99, at 178.
[cxliii] Id. at 177.
[cxliv] TPF Subcommittee, supra note 22, at 17.
[cxlvii] Galagan & Zivkovic, supra note 99, at 178.
[cxlviii] TPF Subcommittee, supra note 22, at 18.
[cxlix] Id. at 13.
[cl] Chartered Inst. of Arb., Applications for Security for Costs, Art. 3 (2015).
[cli] TPF Subcommittee, supra note 22, at 17.
[cliii] Sahani, supra note 15, at 393.
[cliv] Pajic & Dordevic, supra note 53.
[clv] Sahani, supra note 15, at 395-96.
[clvii] Galagan & Zivkovic, supra note 99, at 177.
[clviii] Id. at 178.
[clix] Rubins, supra note 11, at 373.
[clx] Galagan & Zivkovic, supra note 99, at 178.
[clxi] TPF Subcommittee, supra note 22, at 17.
[clxii] Pajic & Dordevic, supra note 53.
[clxiii] TPF Subcommittee, supra note 22, at 13-16.
[clxiv] Id. at 13 (internal citations omitted).
[clxv] See id. at 13.
[clxvi] See id. at 13 (“…tribunals should take into account that the parties have agreed at some point to submit disputes arising between them to arbitration…it may not suffice that the funded claimant is likely not to be able to pay a potential adverse costs award.”).
[clxvii] See id. at 14.
[clxviii] X v. Y and Z, ICC Case, Procedural Order, (Aug. 3, 2012), reproduced in Phillipe Pinsolle, Third Party Funding and Security for Costs, 2 Cahiers de L’Arbitrage, 399-416 (2013).
[clxxi] TPF Subcommittee, supra note 22, at 14 (citing RSM Prod. Corp., ICSID Case No. ARB/12/10, Decision on St. Lucia’s Request for Security for Costs, at ¶ 75).
[clxxii] Galagan & Zivkovic, supra note 99, at 179.
[clxxiii] TPF Subcommittee, supra note 22, at 14 (citing RSM Prod. Corp, ICSID Case No. ARB/12/10, Decision on St. Lucia’s Request for Security for Costs, at ¶ 75).
[clxxv] TPF Subcommittee, supra note 22 at 15 (emphasis added).
[clxxvi] RSM Prod. Corp., at ¶ 86.
[clxxviii] RSM Prod. Corp. v. Saint Lucia, ICSID Case No. ARB/12/10, Assenting Reasons of Gavan Griffith, ¶ 18 (Aug. 12, 2014).
[clxxx] TPF Subcommittee, supra note 22, at 15.
[clxxxi] Id. at 17.
[clxxxiii] Galagan & Zivkovic, supra note 99, at 178.
[clxxxiv] EuroGas, Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3 of 23, ¶¶ 119-23 (June 2015).
[clxxxvii] TPF Subcommittee, supra note 22, at 17.
[clxxxviii] Galagan & Zivkovic, supra note 99, at 178.
[clxxxix] TPF Subcommittee, supra note 22, at 17-18.
[cxc] Galagan & Zivkovic, supra note 99, at 178.
[cxci] TPF Subcommittee, supra note 22, at 18.
[cxciii] Rubins, supra note 11, at 377.
[cxciv] Patricia Zivkovic, Security for Costs in International Arbitration: What’s Missing from the Discussion?, Wolters Kluwer: Kluwer Arb. Blog (Nov. 9, 2016), http://kluwerarbitrationblog.com/2016/11/09/caution-security-costs-international-arbitration-third-party-funding-missing-link/
[cxcv] Trusz, supra note 16, at 1653.
[cxcvi] See TPF Subcommittee, supra note 22, at 10 (emphasizing that non-procedural costs should not be recoverable by a prevailing, funded party).
[cxcvii] See Quasar de Valores, Arb. No. 24/2007, Award, at ¶ 223.
[cxcviii] Shannon, supra note 42, at 862.
[cxcix] TPF Subcommittee, supra note 22, at 15.
[cc] Galagan & Zivkovic, supra note 99, at 178.
[cci] TPF Subcommittee, supra note 22, at 14 (citing RSM Prod. Corp., ICSID Case No. ARB/12/10, at ¶ 75).
[ccii] EuroGas, Inc, ICSID Case No. ARB/14/14, at ¶¶ 119-23.
[cciii] Rubins, supra note 11, at 374.
[cciv] TPF Subcommittee, supra note 22, at 18.
[ccv] Martin, supra note 25, at 55.
[ccvi] See TPF Subcommittee, supra note 22, at 3-4.
[ccvii] Id. at 3.
[ccx] See TPF Subcommittee, supra note 22, at 3.
[ccxii] Id. at 3-4.
[ccxiii] Id. at 4.
[ccxvi] Cf. Rubins, supra note 11, at 377.