ICDR 2021: Third-Party Funding Disclosure in Commercial Arbitration

by Andrew Flake

As the market for alternative litigation financing or third-party funding (TPF) of commercial disputes has matured, more parties to commercial disputes are regularly seeking discovery of underlying funding documents. Depending upon the theory — whether a party has bias, who is the real party in interest, who is responsible for litigation or settlement decisions — courts deciding whether to order discovery have expressed mixed views.

The same has been true in the international commercial arbitration realm, except that there is more consensus around the notion that, for purposes of arbitrator disclosure and conflict of interest vetting, TPF is relevant. In recognition of that potential relevance, ICDR’s update to its commercial arbitration rules, effective this month for agreements incorporating them, adds specific authorization for TPF disclosure.

Under the new Article 14.7, the tribunal can order the disclosure of third-party funders and the nature, if any, of their interest in the litigation:

On the application of a party, or on its own initiative after consulting the parties,
the tribunal may require the parties to disclose:
a. Whether any non-party (such as a third-party funder or an insurer) has
undertaken to pay or to contribute to the cost of a party’s participation in
the arbitration, and if so, to identify the person or entity concerned and to
describe the nature of the undertaking.
b. Whether any non-party (such as a funder, insurer, parent company, or ultimate
beneficial owner) has an economic interest in the outcome of the arbitration,
and if so, to identify the person or entity concerned and to describe the
nature of the interest.

Significantly, this provision, which is entirely new, has been added to the end of Article 14 (article 13 under the 2014 Rules), which addresses the “impartiality and independence” of the arbitrator. While the rules leave it to the tribunal’s discretion as to why disclosure should be ordered, the core concerns seem to be driven by arbitrator disclosure.

While I don’t think the rule gives tribunals authority they did not previously possess, it clarifies that authority and generally, makes it more likely that the topic will arise and that some degree of disclosure will be at least discussed.

Practitioners should thus be aware the new provision when incorporating ICDR rules into agreements, and beyond that, if using TPF, consider the possibility of TPF document disclosure in commercial arbitration to a tribunal and opposing party. That extends to the agreement itself and to communication between and among the funder, party, and counsel; an interesting treatment of those issues comes from a 2014 dispute involving Caterpillar, Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 741 (N.D. Ill. 2014), and the ABA’s Commission on Ethics 2020 prepared a useful overview of professional responsibility issues associated with TPF agreements.

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