Abstract

Third-party funding is commonly justified on access-to-justice grounds, yet its not-for-profit form is often seen as the most authentic version of that rationale. Funders motivated by values or public causes, as in Philip Morris vs. Uruguay, can help States defend regulatory measures they could not otherwise afford to defend. This article argues that the absence of a profit motive does not remove the risks of conventional funding. It examines threats to client autonomy, pressure against settlement, confidentiality breaches and arbitrator conflicts of interest. Although ICSID Rule 14 now requires disclosure of donations and grants, disclosure alone cannot resolve these concerns. The article concludes that not-for-profit funding should be substantially restricted to protect the integrity of arbitral proceedings.

Article

Broadly speaking, third-party funding (“TPF”) is where a party to an arbitration, either claimant or respondent, seeks to meet the costs of undertaking the arbitration proceedings by using the funds of an unrelated third party.^[i] In its conventional commercial form, the third party funder stands to receive a pre-decided portion of the award if the funded claim is successful. Being a private form of adjudication, all costs of arbitration are borne by the parties. Parties are obligated to not just pay the usual expenses of conventional dispute resolution but also pay the arbitrators’ fee and other onerous expenditures from their own pockets. This creates a barrier of legal costs as well. It is the prospect of enabling a party to pursue or defend its case despite financial constraints that sustains the ‘access to justice’ narrative surrounding TPF.

Alongside this commercial model, third-party funding is being provided without profit-making being the foremost consideration, or sometimes without it being a consideration at all. In this form, the economic interest is substituted by interest in the values or issues related to the case. It is this element of interest that differentiates traditional TPF from Not-for-profit TPF. The lack of profit objective makes it almost as good as a donation and makes it the closest thing that arbitration has to legal aid. Since it is the values or issues that are important to the funder, they may be content with the prospect of a loss provided that they have a chance at encouraging a particular development of law or vying for a cause that they believe in.

It is, however, a point of clarification that it is still possible for Not-for-Profit TPF to have an economic benefit at the end of the proceedings if the claim/defence is successful, as long as monetary gains are not the primary objective. This feature segues beautifully into another feature that distinguishes it from traditional TPF; that the option of ‘not-for-profit’ TPF is also available to respondents who do not have any counter-claim to pursue. If the funder resonates with the position of the respondent, then they are free to offer assistance to them without expecting anything in return.

More importantly, though, measures adopted for public health or environmental protection may give rise to investor-State disputes. Where the funder’s objectives align with those measures, assistance may enable the State to defend them despite the costs of arbitration. Therefore, it seems that the concept of ‘not-for-profit’ TPF offers a much more truthful version of the ‘access to justice’ narrative.

In fact, this is what happened in Philip Morris v. Uruguay.^[ii] The State of Uruguay introduced measures against cigarette manufacturers’ misleading marketing strategy. It limited each cigarette brand to a single presentation and mandated that eighty per cent of the front and back of packaging should be covered in large public health warnings. Uruguay was sued by Marlboro manufacturers for violation of a Bilateral Investment Treaty between Switzerland and Uruguay. Bloomberg Philanthropies and the Campaign for Tobacco-Free Kids provided financial support and technical assistance to the Uruguayan government’s legal team. The tribunal dismissed the claims in July 2016.

While it is conceded that Not-for-profit TPF may truly possess the inherent features capable of promoting access to justice, it carries many of the flaws of traditional TPF when the questions of conflict of interest and confidentiality breaches arise. It carries with it the potential for loss of autonomy for the party, as the counsel may nevertheless seek and adhere to the instructions of the third-party funder.

One of the fundamental aspects of any litigation is client autonomy. When a client appoints a counsel for a legal matter, it is incumbent upon the counsel to seek out and consider all information from the client, devise possible plan(s) of action after considering the best interests of the client, inform the client of the modalities and specifications of each of those alternatives, and then seek the autonomous consent of the client and move ahead with the assignment.

It is only when the best interests of the ‘client’ are considered, and the consent that client provides is informed, uninfluenced from outsider interests, and autonomous, should the procedure be classified as just and fair. A funder’s willingness to support a public cause cannot dispense with that requirement. The party remains entitled to decide whether its interests are served by continuing the proceedings.

There are some risks that are elevated as well. For instance, TPF funders may desist from settlement as the resultant settlement may not be profitable to them even though the disputant party may be willing to bring an end to the disputation and carry on with their business. This drawback may be further exacerbated in not-for-profit TPFs. As the funders are looking to make a public awareness statement, and/or trying to get a favourable decision for precedential/influential value in other jurisdictions, and/or trying to meet their mission statement, they may be unwilling to settle for a middle way but would want to pursue the case till the award is passed.

An unconditional donation may leave the funded party entirely free to settle, and assistance may strengthen its bargaining position. The concern arises where continued support depends upon pursuing the funder’s objectives. The party’s interest in bringing its own dispute to an end may then be at odds with the funder’s interest in obtaining an award of wider significance. A grant conditional upon continuing the proceedings could place the party under pressure even where the agreement does not expressly confer a right to direct the litigation. The difficulty arises from dependence on continued assistance, and may persist even where the party supports the funder’s cause.

Apart from the possible inclination amongst counsels to report to the funder, there are ethical concerns of confidentiality. Even in an ideal scenario where the counsel wilfully disregards all attempts of control by the funder, it could be difficult for them to adhere to the principles of a client-attorney relationship, especially that of confidentiality. The difficulty persists when information is shared to assess a case’s suitability for a public cause. Confidentiality agreements and the applicable rules on privilege must therefore be considered before information is supplied, including where the prospective funder ultimately declines to assist.

As for the conflict of interest from the arbitral tribunal’s perspective, the absence of a profit motive does not exclude prior professional relationships with a funder. However, the personal convictions, value systems, and beliefs of the arbitrators may play a crucial role in the determination of conflict of interest cases. If the values of the arbitrator match those of the funder’s mission, then the arbitrator may possibly carry a bias; however, this will admittedly be a difficult discovery realistically. Care must nevertheless be taken to distinguish an arbitrator’s general views from prejudgment of the particular dispute.

The disclosure framework itself recognises that a gratuitous contribution may still be relevant. Rule 14 of the 2022 Arbitration Rules of the International Centre for Settlement of Investment Disputes (ICSID) expressly includes funds provided through a donation or grant within its notice requirement.^[iii] Disclosure is therefore not confined to arrangements in which the funder expects a share of the proceeds. ^[iv] This is a necessary safeguard, but identifying the funder does not, by itself, ensure that the party retains control over settlement or that information shared with the funder is adequately protected. Those questions survive disclosure.

Be that as it may, it is evident that the nobility of Not-for-profit TPF does not rescue it from suffering the same vices as those of commonly used versions of TPF when it comes to practical problems such as conflict of interest issues. Though it is an evolved version of TPF and, in theory, does promote access to justice in more ways than one, the practical fallacies cast a suspicious eye on it. In my view, it, too, should be greatly restricted to save the sanctity of arbitral procedure.

[i] Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (ICCA Reports No. 4, 2018).

[ii] Philip Morris Brands Sàrl v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (July 8, 2016).

[iii] ICSID Arbitration Rules r. 14 (2022); Comprehensive Economic and Trade Agreement Between Canada and the European Union arts. 8.1, 8.26, Oct. 30, 2016.

[iv] Gautam Mohanty, Visualizing the Role of International Rule of Law in “Not-for-Profit Funding” in Investment Arbitration, in Blurry Boundaries of Public and Private International Law pp. 1-16 (P. Sooksripaisarnkit & D. Prasad eds., 2022), https://doi.org/10.1007/978-981-16-8480-7_7.