Imagine if you will, two scenarios. In scenario one, a professional third-party funder has hired counsel or retained the services of their firm to provide a specialised opinion on a nuanced area of the law in respect of an investment opportunity that the funder is considering.
At some later date, it turns out that the same counsel or a member of their firm is also acting as an arbitrator in a case where one of the parties is funded by the same funder. In scenario two, a bank has hired or retained counsel or retained the services of their firm to provide a specialised opinion on a nuanced area of the law in respect of an investment opportunity that the bank is considering. As with scenario one, at some later date it turns out that the same counsel or a member of their firm is also acting as an arbitrator in a case where one of the parties has a sizeable loan from the same bank. Under General Standard 7(a) of the IBA Guidelines on Conflicts of Interest in International Arbitration, 2004, a party should disclose any fact that may be relevant to the valid constitution of the arbitral tribunal. In respect of this obligation, is there a difference between scenario one and scenario two?
Neither the bank nor the third party funder are “affiliate(s)” under the four lists mentioned in the IBA Guidelines. So far, sobeit. There appears little reason to treat one differently from the other. But there’s the rub. They are treated differently. The question continues to rise whether under scenario 1, third-party funding may create new conflicts of interest for lawyers and arbitrators that have to be disclosed and may lead to more challenges. The same does not seem to be true for scenario 2. Why?
The current trend seems to promote extensive disclosures for arbitrators who may be under an obligation to search proactively for conflicts. Should the arbitrators have reasons to suspect that a third party funder is funding one of the parties and that this might impair the independence of impartiality of the panel or one of its members, they will have a duty to raise it because the valid constitution of the tribunal could be at stake. But why is this only about third party funders? If the rule is to be applied strictly then it should apply to any third party, such as a bank as described in scenario 2 above.
At the same time and more generally, parties seem to be bound by an increasingly recognized duty of good faith. In that sense, parties may have the same positive obligation of diligence in their search for possible conflicts. If that’s the case, determining whether a party and/or arbitrator have a link to the same financial institution whether it be a third party funder or a bank may make the entire process ridiculous. The focus on the financial bond at the expense of the “control” of the claim runs the risk of providing another arrow in the quiver of respondents who may very well be motivated to derail proceedings. A party who may only have its claim as its asset may very well be subject to the same degree of oversight from a bank as it is from a third party funder and yet the distinction between control and financial bonds are made clear under scenario 2 and blurred in scenario 1. The bank is regulated, but that does not stop it from taking a great deal of interest on how the proceedings are run by the claimant. The distinction and concern between the two scenarios is an illusion based on acceptable social constructs within formal disputes.
This social construct that under pins the illusion of conflict with third party funders is exposed when you consider the notion that arbitrators may be prejudiced in favour of a claimant with third party funding, not because of the financial bonds discussed above but because of the fact that professional third party funders are now well known for rigorously stress testing a claim prior to funding it. Might respondents allege that the presence of third party funders backing the claimant is detrimental to the objectivity of the arbitrators because of their prefunding assessment? Highly unlikely for the same reason that arbitrators are uninfluenced when they know that claimant counsel work under a cfa. It is in fact no different than if a claimant retains the use of professional experts. Respondents do not attack lawyers on cfas or the use of independent experts because they are part of the accepted social fabric that binds the constituent members of the dispute. It is alas far easier to fabricate the illusion of undue influence and conflate financial bonds with control and influence because third party funders are still new to the social dynamics of dispute resolution, in relative terms. But as paid experts found their place in disputes and conditional fee arrangements became accepted conventions, in time it seems inevitable that the current questions of conflicts in relation to third party funders will fade into the social fabric of dispute resolution.
For more information on Vannin Capital, please contact: Meika Aysal, Marketing at Vannin Capital, T: +44 207 099 5180, E: firstname.lastname@example.org