Third-party Funding In International Investment Arbitration

Third-party funding refers to the provision of funds to cover the cost of the case by someone who has no direct interest in the case.If the case wins,the funder will receive a certain percentage of compensation as remuneration;if the case fails,the funder will not receive any remuneration and cannot recover what they have paid for the party.TPF has been used in international arbitration other than litigation,and has recently entered into the field of international investment arbitration.According to the limited empirical data,the application of TPF in international investment arbitration cases is becoming increasingly frequent.The significant advantage of third-party funding is that it provides access to justice for parties who are not able to file an arbitration case subject to financial difficulties or their own business strategies.At the same time,third-party funding may lead to an increase in the number of speculative cases.This will have negative impact on the regulatory power of the host countries;privately operated third-party funding may pose potential harm to procedural justice,trigger conflicts of interest,and even exacerbate the legitimate crisis of international investment arbitration mechanisms.Studying the issues related to third-party funding in international investment arbitration is of great significance to balance the relationship between the parties' need for external funding and procedural fairness,alleviate the legitimate crisis of international investment arbitration and maintain the sustainable and healthy development of third-party funding markets.TPF is generally considered to be funder's investment in international investment arbitration cases.The investment property of TPF determines the funder's ultimate goal to be maximizing profit and exerting a certain degree of indirect control on the case and the parties in many ways,especially in the pre-evaluation procedure of the case.This is the main cause of concerns raised by TPF.Although TPF may influence the perception of arbitration tribunal and the other party towards the case as well as some procedural issues,there is no sufficient reason to totally abandon the use of TPF in international investment arbitration.Considering the need of parties of international investment arbitration cases for external funding,the better choice is to properly regulate TPF.Current regulation of TPF in international and domestic community have confirmed thisapproach.The ongoing reform of ISDS mechanism give response to the concerns raised by TPF,accordingly,discussions on TPF-related issues should also be carried out under the background of the systematic reform of ISDS mechanism.With regard to TPF and the jurisdiction of arbitral tribunal,jurisdictions driving from international investment agreements in international investment arbitration cases are different from that in commercial arbitration cases.From the surface level,the party transfers part of the potential compensation to the funder by signing TPF contract.Under this circumstance,the impact of TPF on arbitration procedure only lies in the final distribution of the case compensation.TPF funder has not become the real party instead of the original one,so it is not sufficient to affect the jurisdiction of the arbitral tribunal.At the deep level,funders may gain a certain degree of control over dispute resolution by signing TPF contract.In this regard,generally it doesn't affect the jurisdiction of the arbitral tribunal as well,unless the funder has full control over the case,which constitutes the abuse of procedure.Considering the character of investment arbitration mechanism that it is related to social public interest,the need to avoid potential conflicts of interest and to consider TPF in cost-related issues,the mandatory information disclosure of TPF should be set up.Generally,disclosure of the existence of TPF and the identity of funders is sufficient for regulation.If necessary,the arbitral tribunal may require further disclosure of the specific terms of the funding agreement.In addition,the subjects and objects of disclosure obligation,the time to disclose and the responsibilities when breaching the disclosure obligation should also be clarified.As for the conflict of interest of arbitrators that may be caused by TPF,the existing regulations still lack enough certainty and binding force.Therefore,in addition to clarifying the parties' mandatory disclosure obligation of TPF,it's also necessary to include TPF when arbitrators review conflict of interest circumstances.With regard to TPF and cost allocation and security for cost,there is no uniform principle of allocation of cost.Currently,the investment arbitral tribunals merely consider TPF in the allocation of cost,and they also maintain cautious attitude towards rendering security for cost with the existence of TPF.However,some arbitration rules have included TPFas the relative factor to consider when deciding cost-related issues.Although this doesn't mean an automatic mechanism to influence cost-related decisions,the arbitral tribunal should focus on the intervention of the TPF funders in the proceeding and the potential negative effects.Therefore,the reasonable distribution of cost can urge parties to perform the procedural obligations in good faith.At the same time,the standards for rendering security for cost when TPF funding international investment arbitration cases should also be appropriately lowered,thereby avoiding the potential non-performance risk that may arise from TPF.With regard to TPF and the legitimacy crisis of international investment arbitration mechanisms,the high cost and long duration of arbitration proceeding,the inconsistency of arbitral awards,the parties' unbalanced position,the lack of arbitrator's independence and impartiality give rise to the legitimacy crisis of international investment arbitration mechanisms,which also stimulate the development of TPF in the field of investment arbitration.In turn,the development of TPF has exacerbated the legitimacy crisis faced by the international investment arbitration mechanism to some degree.In this regard,the negative effect of TPF should be settled within the systematic reform of international investment arbitration mechanism.This includes reducing the cost of international investment arbitration procedures to restrain the need for TPF;enhancing the predictability of arbitral awards to reduce speculative TPF and strengthening arbitrators' moral constraints to avoid conflicts of interest.Regarding the development and regulation of TPF in China,although TPF started late in China,the growth of China's two-way investment and the improvement of arbitration mechanism broaden the space for the development of TPF,while TPF still faces varied uncertainty risks in China.Some Chinese arbitration institution has taken the lead in clarifying the regulation of TPF through the revision of arbitration rules.Relevant legislation in China should also follow up in a timely manner.Regarding China's overall regulatory attitude towards TPF,it's better to adopt the moderate regulation which is commonly accepted around the world.Specific measures include improving Chinese Arbitration Law and clear the moderate supervision of TPF rather than entire prohibition,improving ISDS mechanism in BITs that china signed with other countries to achieve the regulation of TPF and stipulating the code of conduct for TPF funders.