THE AUTHOR:
Francesca Mastragostino, Legal Analyst, Qanlex
The fourth day of Washington Arbitration Week ended on November 30, 2023, with the panel “Funding of international arbitration proceedings, enforcement of awards, and purchase of awards in a more technologically advanced world and in the midst of ISDS reform. How has arbitration financing evolved in the last five years with technological advances, ISDS reform negotiations, and codification of rules of arbitration on funding?”. The panel was moderated by William Marra (Certum Group), with panelists Jeffery Commission (Burford Capital), Celeste Owens (Gallagher), Kristen Young (White & Case), Sam Taylor (S-RM), and Lisa Snow (Snowbridge Global Advisory).
ISDS Reform Discussions on Litigation Funding
Jeffery Commission began by discussing UNCITRAL Working Group III‘s efforts to regulate litigation funding provisions in Arbitration Rules. Acknowledging its mainstream use, the Working Group heard criticisms by States, namely increased investor-state disputes, higher damages, and States facing unpaid costs awards. On the basis of these assumptions, the Group developed a series of proposals then submitted to funders for them to comment on. Expecting provisions akin to ICSID Rules, a permissive conflict-of-interest model emphasizing disclosure, the panelist anticipated a wait of a few more years for these developments.
Lisa Snow discussed the impact of disclosure on financial experts’ roles, highlighting funders’ expectations for early financial damage evaluations, emphasizing better outcomes when financial experts are engaged at the case outset. The discussion extended to transparency in relationships between funders, arbitrators, and counsels (see Transparency Convention and Code of Conduct). Kristen Young emphasized the claimant’s interest in disclosing funders to prevent post-award conflicts or challenges. Strengthening cases with evidence for security cost requests is deemed crucial, and it is affirmed that disclosing funding details enhances arbitrators’ understanding, promoting symmetry in the disclosure process and aiding decision-making.
Insurance Products and Cost-Benefit Strategies for Asset Relocation
Celeste Owens then addressed the issue of enforcing significant awards, discussing distinct insurance products in the US market. She highlighted two arbitration-related products, one relative to arbitration stages and the other during enforcement. Additionally, in recognition and enforcement proceedings, the broader contingency risk insurance market provides coverage, including protection against adverse judgments and judgment preservation. Disparities in costs and duration between the two groups may result from US market underwriters’ limited familiarity with litigation funding in international arbitration, leading to differing preferences for these products.
In the evolving landscape, Sam Taylor noted a surge in investigators over the last 5 years, driven by a cost-benefit analysis. Parties strategically relocate assets to jurisdictions with favorable conditions for avoiding attachment and enforcement. Continuous monitoring is crucial to track asset locations effectively: investigators play a vital role in gathering intelligence for the case and in identifying information beyond the discovery process and researching potential lines of inquiry.
Kristen Young highlighted the growing sophistication of the funding industry, where experienced arbitration practitioners are engaged for case evaluation. The due diligence process involves an in-depth analysis of case strength, damages assessment, jurisdictional challenges, and potential insurance involvement, a meticulous process aiming to ensure a robust case before funding. Jeffery Commission added that litigation funders now incorporate investigative professionals to assess both quantitative and qualitative aspects of cases, conducting thorough due diligence on government decisions, asset abrogation, and background checks on counsels and expert witnesses.
Trends in Litigation Funding
On risks, the Achmea decision has significantly impacted the funding landscape for intra-EU BITs matters, creating higher risks in terms of enforcement. Kristen Young and Jeffery Commission agreed on this matter, highlighting the cautious approach funders must now adopt, especially considering the time it takes to collect. Funding for pending intra-EU BIT claims was deemed nearly impossible, with higher chances for distressed pricing in intra-EU BITs awards.
In contrast, extra-EU BITs claims are more lucrative with lower risks.
Jeffery Commission further elaborated on ongoing trends in litigation funding, noting a rising practice of claimants publicly announcing their intent to secure funding. Another trend is the success rate of funding, supported by sample data (see also Report of the ICCA-Queen Mary Task Force On Third-Party Funding In International Arbitration), indicating that funded cases are achieving success over time. Additionally, there is a growing trend in secondary market transactions, with investors acquiring and selling participation interests in legal awards and claims.
The Impact of Technology: A Cautious Approach
The panel then discussed the impact of technology on funders work and its potential influence on
funding. Sam Taylor and Lisa Snow both highlight the mismatch between expectations and reality, especially regarding the speed of technology in legal work. While there are advanced tools for information gathering and analysis, they emphasize the importance of time, analysis, and careful consideration in conducting thorough work. AI was viewed cautiously, with use limited to certain cases and in close consultation with counsels. However, they noted its potential in handling repetitive tasks and efficiently analyzing large datasets.
While Kristen Young expressed optimism about the evolving landscape of tools and databases in treaty arbitration, foreseeing efficiency and transparency, Jeffery Commission pointed out the varied impact of AI, noting its significant role in US federal courts litigation but limited applicability in commercial arbitration due to data accessibility constraints.
Conclusion
The panel delved into key aspects of litigation funding, covering the influence of disclosure on financial experts and stakeholder relationships, challenges in enforcing substantial awards, and the industry’s growing sophistication. The cautious stance on technology, especially AI, was particularly emphasized, underscoring the importance of transparency and careful consideration in navigating the field’s complexities.
ABOUT THE AUTHOR:
Francesca Mastragostino is a Legal Analyst at Qanlex, a US-based litigation fund. Currently pursuing admission to the Luxembourg Bar, she holds a double Master’s degree in European and International Business Law from the University of Turin and Université Savoie Mont Blanc. Her professional expertise encompasses the intricate domain of litigation funding, and her academic background reflects a focus on European and international legal matters.
