Introduction
Third-Party Funding (TPF) means that, before or during arbitration, a third party unrelated to the disputing parties funds one party’s case costs and other expenses. If that party wins, the funder receives a certain proportion as remuneration. TPF is regarded as an investment in international commercial arbitration. It can alleviate the difficulty of participating when parties lack funds, but may also increase speculative claims, potentially harm procedural justice and even trigger a crisis of legitimacy in international commercial arbitration. Disclosure rules can mitigate, to some extent, harm to host-state interests, conflicts of interest and other issues arising from TPF. Countries assess it differently in theory and practice, and institutions also regulate it differently. A detailed analysis of its disclosure regime is therefore necessary, examining institutional arbitration rules alongside existing practical cases.
I. Disclosure of Third-Party Funding in Commercial Arbitration: Reasons for Its EmergenceThird-party funding is an investment activity, and the funder’s primary purpose in participating in arbitration is to obtain financial returns. Parties choose international arbitration to resolve cross-border trade disputes efficiently and conveniently. These different objectives may lead to tensions and conflicts during arbitration. For example, financial pressure may lead a party to accommodate the funder and compromise its own arbitration interests. Funding agreements are also characterized by secrecy, preventing arbitration institutions from promptly understanding and remedying a party’s predicament. The adverse effects of funding and its concealed nature therefore create an urgent need for a disclosure regime to protect funded parties’ interests.
First, third-party funding is highly likely to restrict party autonomy. Funders invest in commercial arbitration for profit and may intervene in the engagement of counsel or nomination of arbitrators to achieve financial objectives. Through the funded party, an outsider thus participates in arbitration, impairing party autonomy to some extent. As a contract based on autonomy, a funding agreement must be honored unless it violates public policy or laws and regulations; otherwise, breach results. Yet while negotiating its terms, a party facing financial shortages may authorize counsel to designate a funder and let the funder devise the arbitration strategy. Although their motivations differ, both seek a favorable award. If they disagree about mediation, however, the party’s interests can easily suffer. For example, a party may wish to mediate during arbitration, but mediation may reduce compensation and thus the funder’s return. The funder may therefore obstruct mediation or even sue for breach to force continued arbitration.
Second, funding may indirectly disrupt the proper conduct of arbitration. As discussed above, the concealed nature of funding agreements and inequality in setting their terms may allow funders to compel parties to arbitrate and thereby control proceedings. This not only affects funded parties’ autonomy but also directly affects the orderly operation of arbitration. Concealment makes the negative effects harder to eliminate. A reasonable regulatory framework is therefore urgently needed to prevent funders from controlling international arbitration.
Finally, financial dealings between arbitrators and funders may compromise fairness and impartiality and undermine the credibility of arbitration. Unlike judges, arbitrators have more complex and diverse professional identities. In China and elsewhere, lawyers are a major source of arbitrators1. Conflicts of interest include:
- The arbitrator is an adviser to the funder;
- The arbitrator or their law firm has an ongoing, or even symbiotic, relationship with the funder;
- Connections between major law firms and leading arbitrators in the profession;2
- A close family member of the arbitrator has a significant financial interest in the outcome of the case.3
II. Regional Rules on Third-Party Funding Disclosure in Commercial ArbitrationMany countries and arbitration institutions provide for third-party funding disclosure. This article reviews and summarizes the regimes in Singapore, Hong Kong, China, and mainland China.
(1) Singapore’s Disclosure Regime for Third-Party Funding of Arbitration
Singapore regulates third-party funding through the light-touch regulatory approach (“light touch approach”) favored by Australia, England and Wales, and has enacted the Civil Law (Third-Party Funding) Regulations 2017 and Legal Profession Rules. Part 5A of the Legal Profession Rules defines disclosure duties: legal practitioners must disclose to the arbitration institution or tribunal and the other parties to the proceedings the existence of a funding agreement, the funder’s identity and whether the funder has agreed with the party to bear arbitration costs. Timing depends on when the agreement was made. If before commencement, disclosure should be provided at the start of proceedings; if afterward, the relevant information must be disclosed promptly. Conflict-of-interest provisions also prohibit legal practitioners from directly or indirectly holding shares or other ownership interests in a funder, or receiving commissions, fees or a share of proceeds from it.4
In addition to legislation, the Singapore International Arbitration Centre’s 2017 Investment Arbitration Rules address third-party funding. As this article is limited to international commercial arbitration, those rules are not examined here.
(2) Hong Kong, China’s Third-Party Funding Disclosure Rules
Like Singapore, Hong Kong adopts a light-touch regulatory approach to third-party funding disclosure, reflected in both arbitration legislation and institutional rules.
The relevant legislation comprises the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 and the Code of Practice for Third Party Funding of Arbitration. The former recognizes funding’s legality, while the latter sets conduct rules and standards. Disclosure duties under the 2017 Ordinance are mainly in sections 98U (Disclosure of third party funding of arbitration) and 98V (Disclosure of end of third party funding of arbitration). Section 98U requires parties to provide written disclosure of the funding agreement’s conclusion and the funder’s name to every other party and the arbitration institution. Disclosure is due at commencement for agreements made on or before commencement, or within 15 days after concluding an agreement made after commencement. Section 98V requires the funded party to give every other party and the institution written notice of the agreement’s termination and its date within 15 days of termination.5
Section 2.10 of the Code of Practice addresses disclosure, stating that funders must disclose in accordance with sections 98U and 98V. Unless required by the funding agreement, a tribunal order or law, however, a funder need not disclose the agreement’s details.6
The principal institutional provision is Article 44 of the Hong Kong International Arbitration Centre Administered Arbitration Rules, effective in 2018 (HKIAC Rules). The HKIAC Rules recognize funded arbitration’s legality and expressly address funders’ and funded parties’ disclosure duties, confidentiality and cost allocation. First, funded parties must proactively disclose the existence of funding and the funder’s identity, promptly updating and communicating disclosures. Second, to ensure stable access to funding, funded parties may disclose case information to funders outside arbitration confidentiality restrictions, protecting funders’ basic right to information. Third, tribunals receive broad discretion to address complexities in cost allocation caused by funding.7
(3) Mainland China’s Rules on Third-Party Funding Disclosure Duties
Mainland legislation does not regulate disclosure of third-party funding. This section therefore summarizes the relevant rules of the China International Economic and Trade Arbitration Commission (CIETAC) and the Asia Pacific International Arbitration Chamber (APIAC).
Article 48 of CIETAC’s Arbitration Rules requires funded parties, without delay after signing a funding agreement, to submit to the Commission’s Arbitration Court information including the existence of the funding arrangement, its financial interests, and the third party’s name and address. The Arbitration Court forwards this to the relevant parties and tribunal. If necessary, the tribunal may require the funded party to disclose relevant information.8
Article 46 of APIAC’s Arbitration Rules requires parties receiving funding, after signing the agreement, to submit sufficient copies of funding information to the Secretariat. The Secretariat promptly serves the information on the other parties and the tribunal, if constituted. The information includes (a) the fact that a funding agreement has been concluded and (b) the funder’s name and contact details. Further disclosure may be required at another party’s request with tribunal approval, or when the tribunal considers it necessary.9
Both institutions place disclosure duties on the funded party and also grant the tribunal discretion to determine whether disclosure is required.
III. Third-Party Funding Disclosure in Practice
In practice, funding disclosure is often associated with arbitrator conflicts of interest and the principle of arbitration confidentiality. This section uses a case to illustrate the regime’s practical operation.
Case Background
Ruili Airlines, Yunnan Jingcheng Company and 董勒成 applied to the people’s court to set aside CIETAC’s arbitral award 〔2021〕CIETACBJ Award No.3192 (the Award). The third-party funding issues involved the following two main points of dispute.
(1) Interests Linking the Arbitrator and the Funder
The applicants argued that, during arbitration, Arbitrator A’s firm, Nixon Peabody CWL, had business dealings with the HSBC and JP Morgan groups, the ultimate controllers of HSBC Custody Nominees (Australia) Limited and JP Morgan Nominees Australia Limited, the two major shareholders of IMF Bentham Limited, which funded Guoyin Aircraft Leasing (Tianjin) Co., Ltd. (the Aircraft Leasing Company). As the funder was a for-profit enterprise whose investment returns depended on the potential financial value of the claims, the arbitration outcome directly affected its earnings. Arbitrator A’s employer therefore had a material financial relationship with the funder during proceedings, which should have been disclosed.
The respondent contended that Arbitrator A had no material interests requiring disclosure, no grounds for withdrawal that had been ignored, and that the tribunal was constituted in accordance with the rules. First, HSBC Custody Nominees(Australia) Limited and JP Morgan Nominees Australia Limited were merely securities nominee companies, not IMF’s “major shareholders.” Second, Arbitrator A’s Hong Kong firm, Nixon Peabody CWL, was a general partnership in the Hong Kong SAR formed in 2015 through the merger of CWL Partners and the Hong Kong office of Nixon Peabody LLP. Although using the Nixon Peabody trade name, it was “legally independent of Nixon Peabody LLP.” The allegations by Ruili Airlines, Yunnan Jingcheng Company and 董勒成 that Arbitrator A failed to disclose proactively and withdraw under the rules lacked both factual and legal basis and could not stand.
Finally, the Fourth Intermediate People’s Court held that relationships arising in social life and interactions do not establish a breach of disclosure or withdrawal rules where they fall short of the statutory threshold for affecting independent and impartial hearings and awards and the arbitrator could not be expected to know of them. The existing evidence did not establish that Arbitrator A had an interest in the funder, or that failure to withdraw as required by the Arbitration Law or rules might affect an impartial award. The arbitrator fulfilled disclosure duties under Articles 31 and 32 of the rules. Nor did the evidence establish facts or circumstances linking Arbitrator A to the funder that could give rise to reasonable doubts about impartiality and independence.
(2) Whether Third-Party Funding Itself Breaches the Principle of Arbitration Confidentiality
The applicants asserted that the funder’s participation gave it knowledge of substantive and procedural matters and that its public-company status might entail disclosure of the outcome. They argued that the Aircraft Leasing Company and tribunal breached confidentiality and the Award should be set aside.
The respondent contended that neither the Aircraft Leasing Company nor the tribunal violated confidentiality or the arbitration rules through the funder’s participation, and no statutory grounds existed to set aside the Award. The funding agreement contained confidentiality clauses meeting the requirements. The company had proactively informed the tribunal of funding so arbitrators and other relevant persons could conduct checks. It had no obligation to disclose the agreement, nor did the tribunal have an obligation to require the funder to disclose it or give a confidentiality undertaking.
The Fourth Intermediate People’s Court held that confidentiality principally means not publicly disclosing case information, protecting the parties’ trade secrets and public image. Rules against disclosure to “outsiders” do not prevent relevant persons from obtaining information. In practice, beyond those expressly identified in the rules, others may legitimately learn of a case, such as a corporate party’s decision-makers, shareholders with significant interests, in-house counsel and tribunal secretaries. Confidentiality aims to avoid public disclosure and keep knowledge of cases as limited as possible. Where the existing rules do not prohibit funding, a funding relationship does not itself breach confidentiality. Nor did the evidence establish public disclosure of substantive or procedural information in breach of the rules.
Civil parties’ choices to arbitrate and accept third-party funding should be assessed under party autonomy within the law. They are entitled both to obtain quality legal services to protect lawful interests and, when choosing arbitration, to contract for funding. Both choices fall within the lawful exercise of their rights. Where neither violates law nor affects an impartial award, lawful choices reflecting autonomy should be respected. The Aircraft Leasing Company proactively informed the tribunal of the funding. Although no relevant disclosure provisions yet existed, disclosure during arbitration helps protect the tribunal’s and parties’ right to information and their exercise of related rights. The funding violated neither current law nor arbitration rules and did not affect an impartial award, so it was not a statutory ground for setting aside the Award.
This shows that the Beijing Fourth Intermediate People’s Court takes a relatively open and supportive approach to third-party funding and regards it as a matter of civil party autonomy. In this case, the law did not prohibit funding, the party disclosed the funder’s existence and information, and the applicants lacked sufficient evidence of either interests linking the funder and arbitrator or disclosure of information to outsiders. The funding was therefore lawful and valid.
Conclusion
Third-party funding has evolved from illegality to legality, becoming an important feature of international commercial arbitration, increasingly recognized and widely used. It can effectively mitigate the disadvantage of high costs in some arbitrations and provide access to justice. Yet its concealed and profit-driven nature challenges fairness and reasonableness. Disclosure rules are therefore needed to constrain it, support its healthy development, protect parties’ interests and arbitration’s fairness and impartiality, and advance international arbitration to new heights.
Notes
[1] On Improving Disclosure Obligations in Third-Party-Funded Commercial Arbitration, 丁汉韬, Wuhan University International Law Review, 2016, No. 2.
[1] Research on the Disclosure Rule in Commercial Arbitration Funded by A Third Party ,DingHantao, WUHAN UNIVERSITY INTERNATIONAL LAW REVIEW,2016(2)
[2] REPORT OF THE ICCA-QUEENMARY TASK FORCE ON THIRD-PARTY FUNDING ININTERNATIONAL ARBITRATION,April 2018,THE ICCA REPORTS NO.4,p.82.
[3] IBA Guidelines on Conflicts of Interests in International Arbitration,article2.2.2.
[4] Legal Profession (Professional Conduct) Rules 2015
[5] Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, https://www.gld.gov.hk/egazette/pdf/20172125/cs1201721256.pdf
[5] The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, https://www.gld.gov.hk/egazette/pdf/20172125/cs1201721256.pdf
[6] Code of Practice for Third Party Funding of Arbitration, https://www.gld.gov.hk/egazette/pdf/20182249/cgn201822499048.pdf
[6] A Code of Practice for Third Party Funding of Arbitration, https://www.gld.gov.hk/egazette/pdf/20182249/cgn201822499048.pdf
[7] Hong Kong International Arbitration Centre Arbitration Rules https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/2018%20Rules%20book/2018%20AA%20Rules_Simplified_web%20%28saved%20in%202019%20May%29.pdf
[7] Hong Kong International Arbitration Centre Administered Arbitration Rules 2018 (2018 HKIAC Administered Arbitration Rules), https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/2018%20Rules%20book/2018%20AA%20Rules_Simplified_web%20%28saved%20in%202019%20May%29.pdf
[8] China International Economic and Trade Arbitration Commission Rules (2024 Edition), http://cietac.org.cn/index.php?m=Page&a=index&id=14
[8] CIETAC Arbitration Rules (2024 Edition), http://cietac.org.cn/index.php?m=Page&a=index&id=14
[9] Arbitration Rules of the Asia Pacific International Arbitration Chamber, https://apiac.sg/page/cn/regulation
[9] Arbitration Rules of the Asia Pacific International Arbitration Chamber,
