Research On Legal Regulation Of Third Party Funding In International Commercial Arbitration

Third-party funding is an important reality that has become increasingly unavoidable in international commercial arbitration in recent years.By providing the necessary expenses for arbitration,third-party funders can obtain a certain percentage of proceeds when the funded party wins.The third party funder provides the financially impoverished parties with an opportunity to access to justice through arbitration.For those financially competent,The third funder provides financing tools for the funded party to optimize the use of funds and manage risk.However,since the third party funder is not the party to the arbitration agreement and therefore is not bound by the arbitration agreement and the jurisdiction of the arbitral tribunal,in the absence of effective regulation,the third party funder may impose excessive control over the case and intervene in the lawyer-party relationship.Besides,Conflicts of Interests and undisclosed risks have an adverse effect on the arbitral proceedings or the arbitration itself.Therefore,this paper sorts out the regulatory attitudes and regulatory measures of major countries and regions where the third-party funding industriesdeveloprelatively well through the methods of normative analysis and comparative law research,and analyzes relevant experience to introducethird-party funding arbitration to China and present useful advice on how to regulate it.The first chapter of this paper first compares third-party funding arbitration with related concepts such as insurance,claim transfer,success-based legal fee arrangement,champerty and maintenance and loans to better identify the characteristics of third-party funding in arbitration;By sorting out the definitions of third-party funding in the existing literature and the definitions of third-party funding by countries,arbitration institutions,investment arbitration agreements and research reports,analyzing the connotations and extensions of different definitions by comparing terms and expressions,this paper defines the third-party funding discussed in this paper as: the third party who is the not the party to the arbitration finances the arbitration fee of the party to the dispute.If the funded party wins,the third party funder is entitled to obtain the specific proportion of the proceeds of the case or a multiple of the investment mount according to the contract.If the funded party loses,the funder has no right to require the funded party to return the investment.The third-party funding agreement is limited to the following characteristics:(1)the funder directly enters into an agreement with the original party of the case(ie,not with the client's lawyer);(2)the original party remains the party to the case;(3)The funder has not become the party to the case(ie,not the transfer of potential claims or liabilities);(4)the profit of the funder depends on the outcome of the arbitration,and the funder has no recourse to the funded party.If the case is lost,the funder has no right to request the funded party to return the investment.Finally,the operational mechanism of third-party funding is introduced,including how the funder conducts case evaluation and what provisions are important to the funding agreement,which is necessary to have a deeper understanding of third-party funding.Finally,the third section introduces the functions of third-party funding include helping the promotion of justice and promoting fair competition.There are two types of parties using third-party funding for arbitration.One is that is impoverished,which cannot rely on its own economic resources to initiate arbitration,and the other is that it has economic resources to initiate arbitration,but do not want to use their own funds and bearthe risk of losing the arbitration.Third-party funding helps impoverished parties to comply with arbitration agreements and can be a financial tool for some parties to optimize money management,thereby promoting access to justice;Third-party funding is also created a fair process competition environment for the funded,which eliminates the imbalance between the parties in terms of resources and risk tolerance,enabling the funded parties to compete fairly with each other,enhance bargaining power,and increase tolerance for arbitration risks.The second chapter introduces and analyzes the problems arising from third-party funding arbitration.The positive effects of third-party funding are also accompanied by potential risks.First,since the funder is not a party to the arbitration agreement and therefore is not bound by the rules normally applicable to arbitration or litigation,but the funder has incentives and motivation to maintain and maximize its investment,and therefore inevitably tend to impose control over the funding case.The control of the funder is imposed in two ways: one is to set the specific conditions as the premise of signing the funding agreement,and the other is to supervise the funded case,by stipulating the control right over the strategic decisions,the case budget and the termination right in the financing agreement.Over-control of the funder may adversely affect the arbitral proceedings: such as the challenge of the lawyer's professional conduct,the independent judgment of the attorney,the loss of the autonomy and decreased interests of the funded party,and the arbitral tribunal's inability to exert jurisdiction over the funder who makes over-control over the arbitration case.Secondly,since funders,arbitrators,and lawyers are frequent users of arbitration,and third-party funding is highly concentrated in international arbitration,conflicts of interest become complex and diverse,including the conflict of interest between the funder and the funded party due to the divergence of interests,resulting in injuring the interests of the funded party;and the potential conflict of interest between the arbitrator and the funder due to the lack of a third-party funding disclosure system,if Prompt disclosure not made,may lead to the disqualification of an arbitrator or the arbitral award revoked based on the lack of independence of the arbitrator,thereby impairing the acceptability and recognition of arbitration as a dispute settlement legal process.Third,third-party funding also has an impact on arbitration costs and cost security.The third party funder may adopt an arbitration strategy of hitting and running,so that the arbitration costs maynot be recovered when the other party wins the case or in the case the funded party wins the case,the funding costs may be recognized as the arbitration costs,and the respondent needs to bear the costs.In the event that third-party funding is not disclosed in a timely manner,the respondent is exposed to unforeseen cost risks.The existence of third-party funding also motivates the other party to file an application for cost security,but the ambiguity of the applicable standard for the cost security results in an unclear correlation between the third-party funding and the cost security.Whether the existence of the third-party funding itself is sufficient to constitute the reasonableness of cost security order or only serve as one of the discretionary factors of the cost security is controversial.The third chapter combines the regulatory attitudes and regulatory measures of third-party funding in several countries and regions with high development of third-party funding industries,including Australia,the United Kingdom,the United States,Singapore,and Hong Kong,exploring how these countries or regions respond to the control rights of the funders,conflicts of interest and disclosure,the relevance between cost security and third-party funding.For the issue of the control exerted by the funders,these countries or regions tend to recommend to use the funding agreement to clarify the level and situation of the funders' participation.The funders should manage the conflicts of interest and advocate that the funded parties should explicitly require the funders to maintain sufficient capital through the funding agreement.And the funded should avoid granting the right of unilaterally terminate the funding agreement to the funder;For the conflict of interest issues,some countries with third-party funding industry developing well tend to establish a third-party funding disclosure system to tackle this problem.There is a conflict of interest between the arbitrator or the funded party and the funder,but there are differences in the specific settings of the disclosure obligations of different countries;Before the conditions for establishing a statutory third-party funding disclosure system through legislation are mature,the leading arbitration institution can modify the arbitration rules,introduces the disclosure rules to handle the participation of third-party funders,and clarifies the disclosure subject,the timing of disclosure,the object and method of disclosure,the content and extent of disclosure to ensure that third-party funding is disclosed in a timely manner,and will not negatively affect the arbitration proceedings.At present,there is no arbitration law in any country that clearly address the impact of third-party funding on the cost shifting.However,there exists an arbitral institution'arbitration rules respond to the issue of cost discretion when there is a third-party funding,but the rules are rough;This paper holds that to address the impact of third-party funding on the cost and cost security,first of all,certain conditions must be met if the funding costs are identified as arbitration costs and are recoverable;secondly,the correlation between third-party funding and cost security must go through two tests.Firstly,the applicant need to provide the prima facie evidence to prove the necessity of the cost security,and then the burden of proof is transferred to the claimant,which should provide evidence of why no cost security should be required.Finally,since the funder is not the party to the arbitration agreement,the arbitral tribunal cannot exert jurisdiction over it.Therefore,the arbitral tribunal cannot directly order the third party funder to bear the arbitration costs.A more feasible way is to grant the arbitration the power to take the existence of third-party funding and the content of the agreement into account in the arbitral tribunal's cost discretion considerations,thereby achieving the purpose of indirectly regulating third-party funders.The fourth chapter discusses the necessity of regulating third-party funding arbitration in China and the regulatory methods and measures that should be adopted.The first section analyzes the necessity of regulating third-party funding for arbitration in China.At present,the main arbitration centers in the world have approved or adopted legislative actions to eliminate obstacles for third-party funding of arbitration,and adopted corresponding regulatory measures to promote the development of third-partyfunding industries.The acceptance of third-party funding of arbitration will help to enhance the competitiveness and attractiveness of arbitration institutions in China.In addition,China's dispute settlement fee financing market is huge,and the development of third-party funding helps to promote dispute resolution,promote access to justice,and help resolve social conflicts.If China adopt appropriate regulatory measures for third-party funding,it can not only meet the domestic dispute financing needs,but also help third-party funding play a positive role,and accumulate good industrial practices.The second section proposes the suggestions for China to regulate third-party funding for arbitration.Based on the extraterritorial supervision mode and experience,the following suggestions are proposed on how to supervise third-party funding arbitration in China: China's third-party funding industry may be regulated in stages.China can divide the regulation of third-party funding arbitration into two stages: In the first stage,the funder is not subject to statutory supervision and China can advocate the self-regulation of the funder.At this stage,the arbitration institution will modify its arbitration rules or issue guidelines and the funders will explore self-regulation to guide the development of third-party funding.By establishing a third-party funding disclosure system in the arbitration rules of the main arbitration institution,empowering the arbitral tribunal to take third-party funding into account in the cost and cost security considerations,and advocating the funding agreement clearly specify the level of intervention and cost responsibility of the funder,the continued sufficiency of capital of the funder to protect the interests of the weak funded parties.In the second stage,after the further development of the third-party funding industry and the maturity of the conditions,the Arbitration Law will be amended,and the third-party funding arbitration monograph will be set up to make systematic provisions for third-party funding arbitration,and the definition of third-party funding and disclosure rules and other issues that need to be resolved,such as whether it is necessary to amend the arbitration law to give the arbitral tribunal the power to require the funder to provide cost security and bear the adverse costs,etc.,so as to enhance the attractiveness and competitiveness of China's foreign-related arbitration institutions.