For the first time an International Investment Agreement (IIA) is about to include an express reference to third party funding. The draft Free-Trade Agreement (FTA) between the European Union (EU) and Vietnam is paving the way for regulating third party funding in treaties. This regulation effort occurs in a context of booming of third party funding and confirms its importance in international arbitration.
The draft EU-Vietnam FTA (made public on 1 February 2016) defines the third party funding as “any funding provided by a natural or juridical person who is not a party to the dispute but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings in return for a remuneration dependent on the outcome of the dispute or in the form of a donation or grant.” Therewith, for the first time, an IIA gives a definition of third party funding. This definition is similar to the one in the European Union’s proposal for Investment Protection and Resolution of Investment Disputes in the Transatlantic Trade and Investment Partnership (TTIP) (made public on 12 November 2015). However, the final agreed-upon draft with the United States has not yet been published.
Disclosure of Third Party Funding
The draft EU-Vietnam FTA imposes a disclosure requirement on the party benefiting from third party funding (Article 11(1), Section 3: Resolution of Investment Disputes). The disclosure concerns the existence as well as the nature of the funding arrangement. The name and address of the third party funder has to be disclosed as well. In terms of procedure, the notification shall be made at the time of submission of a claim. If the financing agreement is concluded or the donation or grant is made after the submission of a claim, the disclosure should be made without delay, as soon as the transaction is made.
Non-fulfillment of these two requirements may lead to two consequences. This contrasts with the EU’s proposal, currently discussed as part of the TTIP negotiations, where the consequences are not expressly spelled out.
First, the draft EU-Vietnam FTA specifies that if arbitral tribunal is required, to order security for cost, it would have to consider, whether third party funding is present. Article 11(3) does not give any additional guidance, how third party funding should influence the decision of the arbitral tribunal. Admittedly, this provision does not add much to the existing approach of arbitral tribunal. In recent case arbitral tribunals considered that the existence of the third party funder alone does not constitute per se exceptional circumstances warranting security for costs (EuroGas v. Slovak Republic ICSID ARB/14/14, South American Silver v. Bolivia PCA No.2013-15). However the existence of third party funding may be considered exceptional, when the beneficiary party is proven to be impecunious or is likely to become impecunious by the end of the arbitration, in which case the existence of a third party funding may be a reason for rejecting the security of costs.
Second, in case the beneficiary party does not disclose the third party funding or it does so with delay, the arbitral tribunal will have to take it into account, while allocating costs.
It seems that the success of third party funding created pressure on policy makers to regulate it, as witnessed in the currently draft IIA.
- Andrian Beregoi, Aceris Law SARL