As international arbitration continues to grow and become ever more expensive, law firms and their clients are realising the benefits that third party legal finance can provide as a risk management tool.
In this edition of our In-Conversation series, Managing Director, Alexandra Dosman speaks to Julie Bédard, Partner and Head of Skadden's International Arbitration Group for the Americas to get the view from a practitioner's perspective on the trends influencing the use of third party funding around the world.
Alexandra Dosman (AD): I am curious to learn more about the nature of your practice: Do you do mostly commercial or treaty-based work? In which types of industries?
Julie Bédard (JB): My work involves various types of commercial disputes, particularly in the post M&A setting. These consist mainly of disputes between sellers and buyers or among shareholders. My work also regularly involves various contract disputes in the construction and energy sectors. I regularly give advice to investors in making foreign investments around the world, which involves intimate knowledge of treaty networks and investor state jurisprudence. Aggrieved investors also knock on our door to seek our advice and pursue remedies against host states that may have unlawfully interfered with their investments.
JB: What kinds of cases does Vannin consider for funding? How much of your work concerns investor-state arbitration claims as opposed to commercial arbitration claims?
AD: We look at a broad range of commercial disputes. In New York, we have a team dedicated to litigation finance. The international arbitration team operates across offices, at present in Paris, London, New York, and DC. In terms of what makes an attractive case, we look at many of the same issues as do lawyers: Is there a jurisdictional hurdle? What is the likelihood of success on the merits? How solid is the damages claim? What is the enforcement risk? In addition, we compare how much the case is expected to cost (including counsel fees, expert fees, and costs of the arbitration) with the expected damages award. In all cases, we want to make sure that after an award is rendered, the client receives the majority of the damages - this leaves everyone who is a party to the funding agreement happy. As for investor-state versus commercial arbitration, we have a great mix. At the moment, the portfolio is fairly evenly split between the two.
AD: From the practitioner's perspective, how do you think third party funding is affecting the field of international arbitration?
JB: To state the obvious, third-party funding has provided the means for certain claimants to bring suits that they may not have otherwise commenced. This has given rise to legal questions that third-party funding is causing arbitration practitioners and arbitrators to debate, chief among which are the disclosure of the existence of funding, the legal status of the funder in the arbitration, related privilege questions, and issues pertaining to costs.
JB: What do you think about the issue of disclosure of the ?fact of funding? or the terms of the funding agreement? Should disclosure be mandatory?
AD: There seems to be a trend toward disclosure of the existence of funding and the name of the funder in investor-state disputes. The proposed amendments to the ICSID rules would, for example, make such disclosure mandatory. Vannin supports the current regime, in which the decision about whether or not to disclose rests with the client and any related issues fall within the discretion of the arbitral tribunal. That said, there does seem to be much more of an emphasis on disclosure of this type of financing arrangement as opposed to other manners of funding an arbitration, such as a loan, or insurance, or a targeted equity infusion. In addition, the disclosure of the funding agreement itself would seem to push too far into the private commercial dealings of one party, with little or nothing to add to the integrity of the arbitral proceedings.
AD: Within your areas of practice in Brazil and the rest of South America, how is third party funding viewed? Is it being used?
JB: Third-party funding seems to be taking off slowly in the region. Established thirdparty funding organizations have long had an interest in disputes in Latin America and local funders also have developed. Thirdparty funding is being used, and I would expect its use to grow steadily in the future.
JB: What regional trends are you seeing from the funder's perspective?
AD: Funding has a longer history in England, Australia, and Continental Europe than in the Americas. We are seeing strong growth across the Americas as parties and counsel become aware of the third party funding option. As shown in the 2018 ICCA/ Queen Mary survey, counsel who have used third party funding have a more positive view of it than those who have not. In the last five years, the practice has grown from a somewhat untrusted novelty to a routine consideration at the outset of cases or at the stage of award enforcement.
AD: We both grew up mostly in Canada. Where do you see U.S. - Canada relations heading? Brazil - Canada?
JB: Obviously the recent negotiations over NAFTA and the new US-Mexico-Canada Agreement are top of mind when we are thinking about US - Canada relations. We are living historical times with the challenge to the investor-state arbitration system. Chapter 11 of NAFTA and Chapter 14 in USMCA on investment protection are attracting much attention. Brazil-Canada relations are special because the Brazil - Canada Chamber of Commerce (Câmara de Comércio Brasil Canadá - CCBC) is a well-known arbitral institutions in Brazil. Canadian investors also have been reasonably prominent historically in the Brazilian market with the presence of Canadian mining companies (Belo Sun Mining, Yamana Gold) and Brookfield in the asset management sector. Recently, the Canadian Pension Fund has been making investments in Brazil, in the commodities and real estate sectors.
AD: You have done a lot of work for the IBA, including taking a lead role in the drafting of the IBA Guidelines on Party Representation in International Arbitration. How have you seen those guidelines being used?
JB: The IBA Guidelines on Party Representation have resulted from extensive consultation. They address the need for standards of conduct - when the parties see fit to use them. It is important to understand that these guidelines are a set of principles that the parties can elect to use (or not). They are meant to cover situations where differences in legal background and culture create an uneven playing field. It is a welcome development and some tribunals prompt the issue for discussion by the parties in the beginning of a case.