• ICAR


- Anubhab Sarkar

Keywords – third party funding, ICSID, Working papers, security for costs, transparency, confidentiality


The practice of investment arbitration is a fairly expensive affair, more so for the investors in a treaty claim, due to high administrative costs and mammoth fees of arbitrators adjudicating over the dispute. As a solution to this, third party funding (‘TPF’) has developed and evolved as a concept in practice over the last decade.[1] TPF essentially means, sponsoring financial legal claims in international investment arbitrations by an entity who is not a party to the arbitration,[2] with the purpose of receiving returns in the form of damages won in the award from the arbitration proceedings. This brings about a win-win situation for both, the investor and the funder, which is subject to factors like:

a. quantum of the damages;

b. the estimated duration of the matter; and

c. the degree of risks that are involved.

The earliest examples of funding of litigations by third parties, in exchange for shares in proceeds, date back to medieval Europe. In the beginning, this practice was prohibited under the ‘doctrine of champerty’ with a view of protecting the fabric of justice from corrupt practices of aristocratic and royal officials. However, the concept of TPF can now be viewed as a commercially evolved version of what had once been prohibited under the doctrines of champerty and maintenance. As a result of the same, TPF has grown to find its place in contemporary commercial and investment arbitration.

The Investor-State Dispute Settlement (‘ISDS’) mechanisms around the world have witnessed various arrangements, that owing to the consistent evolution of ISDS jurisprudence, could fall under the ambit of TPF. However, the International Centre for Settlement of Investment Disputes (‘ICSID’), has till date not recognized the practice of external funding concretely within the ICSID Convention.

However, over the last few years, there has been a steady discourse in the investment treaty arbitration regime under ICSID, giving clarity regarding the concept TPF among several other issues, in the form of four working paper proposals. From the release of Working Paper 1 (‘WP1’) in August 2018 by ICSID, discussing proposals for rule amendments, to the Working Paper 4 (‘WP4’) which was released recently in February 2020, where a provision for TPF has now been introduced within ICSID based arbitrations. In light of the aformentioned trajectory, this article aims to analyse the gradual recognition of TPF by ICSID, the subsequent proposals for codification, and impacts associated with the global investment arbitration regime.

Traversing the ICSID regime

Neither the ICSID Convention, nor the associated rules and regulations empower any third party to contribute as a financer in an investment treaty dispute to the claimant or respondent. Keeping that in mind, amongst the various aspects of TPF that have been formally addressed within the working papers, we will be discussing the significant proposals in this article.

The first prominent issue is the potential conflict of interest between members of the arbitral tribunal and the funder due to an undisclosed identity of the funder. Besides, another significant topic for deliberation in this regime includes the intersection of TPF and cost applications made by the parties. Cost applications, in the simplest of terms, mean requests by one party to the dispute before the tribunal seeking directions against the opposite party to provide for the cost of the arbitration proceedings that would be incurred by the first party.

In the case of Commerce Group Corp. and San Sebastian Gold Mines, Inc. v. The Republic of El Salvador, the claimants pursued TPF to initiate annulment proceedings against El Salvador. This was after the tribunal declared that it did not have jurisdiction to address the dispute. Interestingly, the Republic of El Salvador, in the dispute at hand, claimed security for costs from the claimants on account of TPF and the tribunal denied their application. In spite of there being several factors responsible for the dismissal of this claim, including a history of El Salvador’s attempt to delay the proceedings, the tribunal opined that premature speculations of TPF could not result in a claim of security for costs.

However, more recently, in the case of RSM Production Corporation v. Saint Lucia, the tribunal had accepted a claim of security for costs made by the respondent state against the claimant investor. The tribunal, interestingly acknowledged the presence of uncertainty around TPF and found it to be a criterion to provide security for the associated costs. That said, what is interesting to note here is that the two of the arbitrators of the tribunal opined contrastingly on the issue, thereby raising further questions regarding TPF.

Dr. E. Nottingham, one of the arbitrators of the above-mentioned dispute, raised questions with regards to: (A) the existence of TPF as a practice, (B) whether it should be permitted, (C) the identity of the funder, (D) nature of the funding; and (E) the definition of the phrase itself. While there has been dialogue in attempting to answer these questions, crystallizing the same into a more conventionally valid and binding provision is a distant reality to date.

WP1 to Working Paper 3 (‘WP3’): The Journey

Since 2018, ICSID has been actively working on introducing amendments to its subset of rules. It released three Working Papers on Proposals for Amendments of the ICSID Rules in 2018 and 2019, where it had proposed certain provisions that were remotely related to TPF. In WP1, the proposed Rule 21 in addition to laying down a definition of the TPF, imposed an obligation upon the funded party “to disclose if it has third party funding and the name of the third-party funder”. It also required the funded party to be under a continuing obligation to disclose any changes made within the funding arrangement or termination of the arrangement.

This was followed by Working Paper 2 (‘WP2’), which had modified the explicit definition. Rule 21 of WP1 became Rule 13 of WP2. The rule was also renamed from “Disclosure of Third-Party Funding” to “Notice of Third-Party Funding”, thereby transforming the provision to a peripheral element of the TPF. This Rule required a funded party to “disclose the name of any non-party from which the party, its affiliate or its representative has received funds or equivalent support for the pursuit or defence of the proceeding”. Through this, ICSID made the definition of TPF more concise and clear than before.

Through WP3 ICSID Rule 14 (earlier Rule 13) was proposed to revise the earlier rules and introduce stringer disclosure requirements. First, this Paper brought further clarity to the definition of TPF by adding to the aspect of ‘funds’ by imposing an obligation upon the party receiving “funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the dispute”. Secondly, in WP3, ICSID acknowledged the benefits of TPF for small and medium enterprises. Thirdly, an attempt was made to strike a balance between the interest of the investors and the insecurities of the states. The evolution of the concept in the official documents of the ICSID led to speculations, suggestions from various states, recurring revisions, and eventually led to another proposal with a revised set of rules.

Working Paper 4

The ICSID released its WP4 in February of 2020. There are primarily two concerns that have been addressed in WP4; transparency/confidentiality tussle and costs. The latest rules contain crisp provisions that require parties to disclose detailed information about the non-parties that are providing funds directly or indirectly, including their names and addresses. Another addition proposed in WP4 is, the power of the tribunal to order disclosure of further information related to third-party funders if it deems necessary. Therefore, this reform of mandatory disclosure laid down under Rule 14 could be a stepping stone for the ICSID regime with respect to discussions around transparency versus confidentiality. In light of that, Rule 14 casts an obligation upon the parties to disclose: (A) the name and address of any third-party funder; (B) the funding received by any party either “directly or indirectly”; and (C) the third-party funding received for the “proceedings”.

Therefore, keeping in mind the above, the alternations can be substantiated as below:

a. Firstly, the inclusion of address and the source and channel of funding under the disclosure requirements in (A) & (B) above, is far-sighted and can prove to be a benchmark for transparency standards in TPF arrangements. In the longer run, this could also result in further codification of regulations around reliance on TPF in investment arbitrations.

b. Secondly, the replacement of ‘dispute’ with ‘proceedings’ indicates towards ICSID requiring information only about TPF for the proceedings related to the dispute under ICSID itself and does not extend to the entire dispute anymore. This means that if a fragment of the dispute is dealt with by an authority outside the ICSID jurisdiction, that fragment is absolved from the disclosure requirements stated above. Such a reform in the language can be considered both positive and negative, if viewed from different perspectives.

Furthermore, in addition to the above, under the proposed Rule 53 (4), the evidentiary value of TPF is stated to be decided on costs and security on costs. It is laid down as an important aspect that a tribunal must take into consideration decisions involving costs and security for costs. However, it should not serve to justify an order solely for the same. In other words, a tribunal should mandatorily take a TPF arrangement into account but not decide exclusively on the basis of such an arrangement.


The latest reforms, although introduced on the basis of suggestions received from states, could be more challenging than clarificatory. The new, stringer disclosure obligations might hamper the confidentiality privileges maintained by the principal investors.

While on one hand, it will ensure a reduced risk of conflicting interest within the members of the tribunal or the host state, it may also lead to a fall in TPF around the globe. This would occur owing to the increased obligations, extension of the discretionary powers of the tribunal to order disclosure of such arrangements, and the attached risk of publication of documents submitted.

Keeping the above in mind, to conclude, while it is important for us to acknowledge the evolution of the jurisprudence of TPF, it is also reasonable for us to concede the journey yet to be made.

Anubhab Sarkar is the Co-founder/Partner of Triumvir Law and a visiting lecturer of law across universities.

Preferred Form of Citation – Anubhab Sarkar, ‘Third-Party Funding in ICSID Arbitration: Crystals Not Clear (?)’ (ICAR, 1 September 2020) <>


[1] Bernardus Henricus Funnekotter and others v Republic of Zimbabwe ICSID Case No ARB/05/6, Award (22 April 2009); Gustav F W Hamester GmbH & Co KG v Republic of Ghana ICSID Case No ARB/07/24, Award (18 June 2010); Chevron Corporation (USA) and Texaco Petroleum Company (USA) v The Republic of Ecuador UNCITRAL PCA Case No 34877; Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt ICSID Case No ARB/05/15, Award (01 June 2009).

[2] Marco de Morpurgo, 'A Comparative Legal and Economic Approach to Third-Party Litigation Funding' (2011) 19 Cardozo J of Int’l & Comp L, p. 352 <> accessed 31 August 2020; Maya Steinitz, 'Whose Claim Is It Anyway? Third-Party Litigation Funding' (2011) 95 Minn L Rev, p. 1267 <> accessed 31 August 2020.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the of official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.


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