THE AUTHOR:
Kateryna Solodovnyk, Senior Associate at Ilyashev and Partners
Third-party funding (“TPF”) is a rapidly evolving industry in international arbitration. While initially conceived as an assisting mechanism for individuals unable to bear extensive costs related to resolving a dispute, TPF now stands as an effective tool for various companies and even States, who find it more convenient than financing capital-intensive disputes by themselves. However, like a double-edged sword, TPF cuts both ways – it sharpens access to arbitration, which usually involves considerable financial outlay, on one side, while introducing a range of new challenges on the other. The following sections examine some of the complexities in greater depth and consider potential paths towards addressing them. In this context, the article also explores how these global developments resonate within the Ukrainian legal and arbitral landscape.
Balancing the Scales: Managing the Conflicts of Interest and Confidentiality in Funded Arbitration
If not properly disclosed, inclusion of TPF could very easily become a weapon of abuse that parties might use when, for example, appointing an arbitrator that may either have a vested interest in or otherwise be partial to a third-party funder. Should that be the case, fairness and impartiality of the proceedings, as well as further enforceability of the arbitral award, are significantly undermined.
Given the above, full disclosure of the identity of any third-party funders engaged by a party to the case is essential to mitigate the risks of partiality, as it gives arbitrators necessary data to conduct an additional check for bias with respect to a third-party funder involved. In this context, Article 13a of the VIAC (Vienna International Arbitral Centre) Rules of Arbitration 2025 obliges a party to:
“Disclose the existence of any third-party funding and the identity of the third-party funder in its statement of claim or its answer to the statement of claim, or immediately upon concluding a third-party funding arrangement.”
Another benefit of a mandatory disclosure of the identity of a funder lies in preserving the enforceability of arbitral awards. More specifically, when a court determines that the arbitrator and the parties have taken proper steps to ensure that all potential conflicts of interest were disclosed to the arbitrator, it decreases the chances that a challenge will be successful.
According to the 2018 ICCA-Queen Mary Task Force Report on Third-Party Funding in International Arbitration, there is almost a universal agreement that disclosure of the identity of a funder is necessary for an arbitrator to undertake analysis of potential conflicts of interest. However, while not all arbitration rules directly address the need for disclosure, parties remain reluctant to reveal information about TPF, which endangers transparency of arbitration and raises grounds for challenge of arbitral awards in the future. A possible solution to this issue may be found in the development of hard law mechanisms, for instance, through the incorporation of disclosure obligations into arbitral procedural rules and general requirements within national legal systems.
The rise of TPF has added new complexities to existing concerns about confidentiality in international arbitration, as obtaining TPF requires disclosure to a funder of some sensitive and confidential information about the dispute and arbitration proceedings concerned, which goes into a strict contradiction with a privacy principle, which is one of the major benefits of arbitration compared to litigation, where the proceedings and documents are generally open to public.
At this point, international arbitration faces a dilemma – whether sharing documents received in arbitration with a funder, whose identity has been properly disclosed within the proceedings by a funded party, may amount to a breach of confidentiality. There is no universally binding answer to this issue, as arbitration rules typically lack specific provisions in this regard, as well as related to the overall confidentiality of the arbitration proceedings.
Confidentiality obligations of the participants of arbitration proceedings rarely stem directly from institutional arbitration rules. Quite progressive at this point, however, are the Arbitration Rules of the CAM Milan (Chamber of Arbitration of Milan) 2023, which oblige multiple actors, such as the Chamber of Arbitration, the parties, their counsel, the arbitral tribunal, and the expert witnesses to “keep the proceedings and the arbitral award confidential,” unless the use of the award is needed to protect one’s rights or required by law. The said Rules are, though, silent on whether this obligation extends to third-party funders, if any introduced during the proceedings.
Normally, sharing some portions of generalized information about the arbitration proceedings to a funder is not viewed as a breach of confidentiality. However, in the event the opponent or the tribunal itself have reasonable confidentiality concerns, the tribunal may be required to issue restrictions on the parties to the case on disclosure of documents and other materials to anyone outside arbitration process. This mechanism can efficiently mitigate risks of disclosure by a funded party of any sensitive information discussed or achieved during the proceedings to a third-party funder. For example, Article 22(3) of the ICC (International Chamber of Commerce) Rules of Arbitration 2021 empowers the arbitral tribunal to “make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information” shall that be a request of any party.
Beyond Legal Fees: Recoverability of Third-Party Funding Expenses
One of the issues yet to be settled is whether funder’s costs, either in their entirety (investments and a funder’s premium), or in part, shall be subject to reimbursement in arbitration in the event a funded party is successful.
In ordinary arbitration proceedings, recoverable costs would include all parties’ expenses related to the conduct of the arbitration, i.e., legal costs, arbitration fees, and other costs incurred for the arbitration. While the scope of the so-called ‘other costs’ is wide, practitioners argue whether it extends to a funder’s premium, as the latter appears in the form of expenses incurred as a result of the successful outcome of arbitration, rather than costs incurred for arbitration.
Mainly theoretical debates on the above were significantly fueled, when in 2015 a Sole Arbitrator in Essar Oilfields Services Ltd. v. Norscot Mgmt. Pvt. Ltd., [2016] EWHC 2361 (Comm), 15 September 2016, arbitration case ordered full recovery of funding costs of a successful party, including a funder’s success fee. The Tribunal explained that a combination of the ICC Arbitration Rules and the Arbitration Act 1996 provided for a wide discretion to award costs in the arbitration concerned and, in particular to decide whether funding costs fall under the set forth in the Arbitration Act 1996 legal regime of “other [recoverable] costs” related to arbitration. Later, the English High Court affirmed the said Tribunal’s interpretation, specifying that extension of a concept of “other costs” under the Arbitration Act 1996 to obtaining third-party legal funding was correct and, indeed, lay within the discretionary powers of the Tribunal.
The Norscot v. Essar arbitration case introduced yet unexplored approach to interpreting ‘funding costs’ in international arbitration and carved path to adding such costs into the pool of recoverable expenses at the stage of allocation of arbitration costs. Notably, similar approach was adopted in the arbitration case Katanga Contracting Services (KCS) S.A.S. v. Tenke Fungurume Mining (TFM) S.A., Final Award, 26 August 2021), where the unsuccessful respondent was awarded to recover the claimant’s funding costs, which included a contingency fee of 100% of the amount of the funding.
As of now, it is hard to predict whether the concept of recoverability of funders’ costs would become widely, if any at all, accepted in international arbitration, due to many visible obstacles. A major one consists in undermining the core notion of ‘consent’ in arbitration. As correctly noted by Dr Wolfgang Kuhn in Recovery of Third-Party Funding in International Arbitration, when awarding reimbursement of funding costs to the unsuccessful party, the tribunal, basically, transfers the risks of additional costs liability to a party, who has not given consent to be bound by a funding agreement, which directly provides for recovery of the funding. One can conclude that in such a way, the tribunal not only acts outside the party’s agreement to arbitrate, but also unreasonably shifts the contractual risks to a non-signatory party. Another controversy stems from the issue of whether a tribunal can hold discretion to define what is or is not ‘costs’, as it is the province of legal regulations and arbitral rules to award fees.
Generally, cases when recovery of funding costs may potentially be acceptable are those where the funding was invoked by a losing party’s unlawful conduct, forcing another party to apply for TPF. However, in that case, funding costs would amount to the party’s incurred losses, which shall be claimed as damages, rather than costs related to arbitration.
Based on the above, a question remains whether funding costs would fall under any category of recoverable costs in international arbitration, and this requires more explicit guidelines, which could be effectively introduced, among others, by national law.
Third-Party Funding in Ukraine: The Road Ahead
At present, TPF is not regulated in Ukraine. The absence of specific legislation effectively means that there are no formal limitations or prohibitions on funding claims in civil or commercial proceedings before Ukrainian courts, nor in arbitration proceedings seated in Ukraine.
Despite this regulatory openness, TPF remains largely unknown and unused in Ukrainian practice. Neither the domestic litigation market nor arbitral institutions seated in Ukraine have yet seen active use of TPF mechanisms.
However, Ukrainian claimants have increasingly turned to foreign funders, particularly in high-value disputes pursued before foreign courts and in international arbitrations seated outside Ukraine, including in jurisdictions such as the United Kingdom. These cases demonstrate that Ukrainian parties recognise the potential benefits of external financing, even if the market within Ukraine itself is still nascent.
If a party nevertheless seeks to use TPF in Ukraine, several ethical and procedural considerations arise. Under the Rules of Professional Attorneys Conduct, Ukrainian attorneys must act solely in the client’s interests and may not take instructions from third parties, including funders. Additionally, before sharing any confidential or privileged information with a potential funder, counsel must obtain the client’s explicit consent.
Looking beyond Ukraine, global trends in investment arbitration funding reveal both opportunities and constraints. The TPF market has approached its capacity limits, with funders becoming increasingly selective. In particular, claims against the Russian Federation are now viewed as high-risk investments, given Russia’s procedural tactics and the practical challenges of enforcing arbitral awards. Another factor shaping funders’ risk assessments is the sovereign immunity of respondent states – both jurisdictional and substantive – as recognised under the United Nations Convention on Jurisdictional Immunities of States and Their Property (2004).
Taken together, these factors suggest that while Ukraine currently lacks a domestic TPF market, the growing involvement of Ukrainian claimants in internationally funded proceedings may pave the way for future development and regulatory consideration of third-party funding within the country.
As TPF continues to reshape the landscape of international arbitration, Ukraine faces both the challenge and the opportunity of aligning its framework with global best practices. Establishing clear rules on disclosure, conflicts of interest, and procedural fairness will be key to ensuring that funding enhances rather than undermines access to justice.
ABOUT THE AUTHOR
Kateryna Solodovnyk is a Senior Associate in the International Arbitration Department at Ilyashev and Partners Law Firm (Kyiv, Ukraine). She specializes on the international commercial arbitration and handles high-stakes cases governed by the arbitration rules of leading institutions, including the ICC, CAS, ICAC and VIAC. Kateryna has a strong expertise in sports arbitration. In addition to her core practice, she serves as an Advisor to the Chairman of the Sports Arbitration Court at the National Olympic Committee of Ukraine. Her cross-disciplinary arbitration practice positions her to navigate cutting-edge challenges in international disputes, such as the legal and strategic implications of third-party funding.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
