As part of London International Disputes Week, Stewarts and Twenty Essex were delighted to bring together leading professionals from across the arbitration, funding and insurance space on Thursday, 18 May 2023, to discuss third party funding in investment treaty disputes, with an emphasis on the role of London in the field.

The debate participants were:

• Moderator: Philippa Charles, Arbitrator, Twenty Essex
• Panellist: Alejandro Garcia, Partner, Stewarts
• Panellist: Camilla Godman, Investment Manager, Omni Bridgeway
• Panellist: Hasan Tahsin Azizagaoglu, Analyst, Bench Walk Advisors

The panel discussed their views on:

• the process for securing third party funding
• the potential increase in regulation of third-party funding
• the features which make London a global hub for funded disputes, and
• future trends at the intersection of investment treaty disputes and third party funding.

Alejandro, Mark McMahon and Miriam Spencer review the conversation here.

Securing funding

The evening began with a discussion on the initial steps a law firm and a funder take when approached in relation to third-party funding.

Panellists on both sides agreed that a law firm should present a case to a funder in a clear, helpful and solution-focused way to enhance the possibility of securing funding. Before agreeing to provide funding, a funder will review all the key factors of the case, including quantum, the seat, the governing law, the merits and issues regarding enforcement and recoverability.

The panel agreed that in the same way a funder will perform due diligence on the potential claim and claimant(s), it would be advisable for lawyers to perform due diligence on the funder. This is important to ensure the funder has sufficient liquidity and the source of funds is reputable. According to Camilla Godman of Omni Bridgeway, a good place to start is by asking whether a funder is a member of the International Legal Finance Association (“ILFA”), as all ILFA members commit to upholding a code of best practice principles.

Hasan Tahsin Azizagaoglu of Bench Walk Advisors recommends that law firms build relationships with a variety of third-party funders. Not all funders are the same. Each funder has its own areas of expertise, whether by sector, region or type of case. Every funder will also offer different levels of involvement and reporting requirements. A funder will consider not only whether a claim is meritorious but also whether taking on a claim will risk it being overexposed to, for example, a particular sector or proposed award debtor. A case that is unsuitable for one funder may be desirable for another.

The call for greater regulation

As third-party funding has become a more established and recognised option in recent years, greater regulation has become an increasing priority for lawmakers. For example, in September 2022, the European Parliament voted in favour of adopting a report known as the ‘Voss Report’, which was published in June 2021 by its committee on legal affairs. This decision was received by some voices both in the legal and litigation funding sectors with some degree of circumspection.

According to the Voss Report, regulation is needed to cap the “astronomical and unjustified rewards of litigation funders”, and if properly regulated, third-party funding could be used as a tool to support access to justice. The panel commented that the view from some quarters is that regulation based on the Voss Report could, in principle, stifle the development of third-party funding within the EU.

To draw the evening to a close, Alejandro Garcia of Stewarts shared his view that London is already a global hub for third party funding, including in respect of investment treaty disputes. This is thanks to London’s significant pool of lawyers with funding knowledge, the diverse array of complex commercial and investment treaty cases in which UK law firms are involved, the access to insurance markets and the quality of English law. Against this backdrop, some may predict that the regulatory developments in the EU could further boost London’s current pre-eminent position in the third-party funding arena.