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Challenges Faced Under Third Party Funding In Arbitration

This article deals with the challenges that arise due to third party funding in the conduct of international commercial arbitration. The use of a third party is much debated and it is yet hard to define this topic because of the least legal regulation in this concept. However, it comes up with a number of procedural and ethical issues. Some of these particular issues include but not limited to the 'funders' relationship with parties and counsels in managing the dispute, attorney ethics (attorney-client privilege), allocations of costs and security for costs, transparency, and disclosure of the funding arrangements, and finally arbitrators' conflicts of interest.

The Issues Emerging Under Tpf Are As Below:

The nature of international arbitration, and in particular the mechanism for the appointment of arbitrators, raises several issues surrounding the use of third party funding. (ashrst, 2020) It can cause various procedural and ethical issues. The issues which arise in TPF is the conflict that arises between the relationship of funders and the parties due to allocation and security of cost, management of disputes, and disclosures of information of the disputes. The interest of both the funders and parties is different, but funders can have a financial interest and can claim shares.

The problems faced under TPF are as below:

This method can be said as an expensive method as the successful claimant will have to pay a large number of his recoveries for damages to the funder as the remuneration for the funds provided by him for litigation.

Although funder is not given any power or influence in the arbitration proceedings, the funded party may lose some autonomy, especially in matters relating to settlement as the funder reserves the right to make decisions regarding settlement issues.

A huge amount of costs can be incurred when packaging the case for presentation to a funder. This type of investment will be in vain if the funding of the application becomes unsuccessful. On the other hand, if they manage to get the funding, the funder will not be responsible for any cost incurred on packaging the case. The packaging of the claim will include the providing of the key documents to the funder so that proper case analysis can be done by in house experts or counsel. Important information also includes information about the respondent's financial viability of the respondent, the location of any assets, and their attitude towards arbitration. (ashrst, 2020)

The funder can feel speculative while funding for a particular party in the arbitration process as the funders and parties are very much unsure about the result. It is very unpredictable at the same time. In addition to it, there are very few laws and regulations regarding TPF, which makes it difficult to regulate. (Chattopadhyay, Third-Party Funding in International Arbitration, 2019)

Lack Of Legislative Reforms:
Many countries are doubtful of the impact and consequences, and therefore no laws are implemented in favor of TPF, for instance, India. Recently, Singapore and Hong Kong have come up with the new laws on TPF. While most of the countries are not accepting this concept, the attitude of Asian countries is changing.

Conflicts Of Interest:
There is two conflicting situation that can arise in TPF. The first one of which is when the funders and arbitrators remain the same in two different disputes. There exist a chance of biased opinions by the arbitrators. The second issue of conflict that can arise is when there is a relationship between the funder and the arbitrator, and the decisions are deemed to be prejudiced. (ashrst, 2020)

Disclosure Of The Funding Agreement:
It becomes essential for the parties to disclose the facts relating to the funding arrangement etc. These days the demand for greater transparency is growing, and it sometimes becomes difficult to maintain the balance between disclosure and of the facts and to keep them in confidence.

There exits a number of more challenges in the implementation of Third Party Funding, But at the same time there is a need to find an effective way to maintain the balance between the challenges and the advantages brought due to its implementation and growth.

There are also various different situations that can arise when a party is funded by a third party such as there can be an issue regarding the seat of arbitration and the seat decided on the basis of the agreement based on the agreement made with the third party then it is said to be violative of a country's public policy but at the same time we also need to consider that TPF is gaining much importance and popularity at the international level and many parties, organizations and companies are adopting the same.

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