On Third Party Funding Under Capital Innovation

International arbitration proceedings are expensive.While the arbitration community keeps striving to provide the users of international arbitration with tools to save time and costs,these efforts for procedural reform have their natural limits.Parties must recognize that good arbitration costs a good deal of money.Some parties may be willing to pay these costs,but are unable to.Other parties are able to pay them,but may be unwilling to.Pursuing international arbitration can be risky,and a significant drain on cash flow.A way out of this dilemma is to obtain financing for the costs associated with pursuing international arbitration.Indeed,there is a wide array of financing options for parties involved in legal disputes: success based legal fee arrangements,legal expenses insurance,legal aid,sale and assignment of claims,loans provided by banks or other lenders,corporate finance instruments,and parent company financing,to name but a few that spring to mind.The provision of external capital by third parties to meet a litigant's financing needs is not a new invention.What has changed in the last couple of years,however,is that institutional specialized providers of capital for dispute resolution have entered the market – including,not least,the market for large-scale high value international arbitration disputes.The business activity of these funding companies,described in simplified terms,is centred on providing capital for a claimant's costs associated with pursuing it's case in return for a share of the proceeds if the case is won.If the case is lost,the funder loses itsinvestment.At the same time,it remains liable for expenses as per the terms of the funding agreement concluded between the funded party and the funder.This market-based solution allows the funded party to transfer the costs of pursuing the case to an entity which is better financial risk bearer.Third-party funding can indeed provide access to judicial justice for incapable parties and provide a risk sharing mechanism for clients seeking risk management.However,the participation of third-party funding also brings many difficulties to international arbitration,these difficulties are relevant to confidentiality,conflicts of interest,security for cost and so on.How do these problems arise,and what are the adverse effects,and how can they be resolved? This article will elaborate on and analyze the meanings,types,investment models,the innovation of third-party funding,and the survival incentives and obstacles of third-party funding and the historical development of third-party funding in main countries in the world.From the angle of international arbitration,I will clarify the key issues arising from third-party funding in arbitral proceedings,and propose solutions to deal with these problems,moreover,I will analyse the market of third-party funding in China.