Adapting Disclosure Obligations to the Realities of Modern Third-Party Funding
Bernardo M. Cremades Sanz-Pastor
Third-party funding is becoming increasingly commonplace in international arbitration proceedings today. Although traditionally used to fund impecunious parties, modern third-party funding has shifted to financing parties who may have the necessary capital to pursue a dispute but wish to minimize cash flow disruptions. This prevalence of third-party funding in international arbitration is creating unique conflict of interest scenarios regarding an arbitrator's independence and impartiality. However, many arbitral institutions and rules are not adapted to appropriately regulate the use of third-party funding to preserve the integrity of proceedings. For the most part, arbitral rules do not require a party to disclose the existence of a third-party funding agreement or the identity of the funder. This creates the risk of undisclosed or unknown conflicts arising after an arbitrator is appointed and severely disrupting the proceedings. This article examines how to best mitigate such risks by incorporating a disclosure regime within the current arbitral framework. This article contends that the mandatory disclosure of the existence of a funding arrangement and the identity of the funder would safeguard the requirements of independence and impartiality while allowing modern third-party funding to coexist with international arbitration.