Financing a Claim or Defence

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How to minimise costs in investor–state dispute settlement

Investor–state disputes are not cheap. Recent studies on investor–state dispute settlement (ISDS) cost trends reveal that the mean party costs incurred in ISDS proceedings for respondent state entities are approximately US$4.7 million. For investors, the mean costs exceed US$6.4 million. Trends show that investor costs have reduced slightly from 2017, but that they are still undoubtedly high in comparison to other areas of dispute resolution.[2]

Treaty planning

The first step for minimising costs in the resolution of an investor–state dispute is to ensure that the necessary protections are in place and effective before a dispute arises. This will help minimise satellite disputes over whether the investor qualifies for protection, which, in turn, could delay the resolution of the merits of the dispute.

Thus, a foreign investor wishing to rely on investment treaty protection should structure its investment in a way that ensures that it is covered by one or more bilateral or multilateral investment treaties (including, most importantly, in respect of nationality) and cannot be excluded by ‘denial of benefit’ provisions. It is too late to seek to restructure an investment after a dispute has arisen.

Potential investors should also consider whether their position can be improved by identifying a suitable most-favoured nation clause, which they can rely on to import more favourable conditions offered by the host state to investors of another nationality.

Contract planning

In addition (or, if no bilateral investment treaty (BIT) is available, alternatively), an investor could potentially bargain for protections directly from the host state. For those seeking to rely on an investment contract that incorporates a right to bring a claim against a state or state-owned entity, it is never too early to think about minimising the costs of a potential dispute. At the drafting stage, the investor should get advice from disputes as well as transactional lawyers and do everything possible to pre-empt the most frequently employed defences by respondent states, seeking to agree drafting that will minimise potential jurisdictional challenges (e.g., well-drafted waivers of sovereign immunity) or merits defences (e.g., clear drafting of warranties, ‘grandfathering’ arrangements, requirements with regards to investments, permits and approvals processes, audit processes, clear allocation of responsibility under the contract between state entities, clarity as to which state entity is being contracted with).

Furthermore, the investor should consider enforcement issues before signing an investment contract. This means not only ensuring that the appropriate drafting is included to provide for waivers of sovereign immunity for enforcement as well as suit, but also consideration should be given to the location of accessible substantial state commercial assets.

The pre-proceedings stage

Once a dispute is in prospect, the investor should first consider whether what will inevitably be a lengthy and costly process, particularly once enforcement is taken into account, can be avoided by an amicable settlement, whether procured through direct negotiation or a more structured format, such as mediation.[3] Where mediation is used, however, it should be a relatively short and simple process, rather than a ‘mini litigation’ because, if unsuccessful, it will merely add an additional layer of costs.

Before taking any irrevocable steps, the investor must ensure that any ‘fork in the road’ provisions have been considered, and that it has complied with all relevant requirements before launching the arbitration – costs will be wasted if, for example, there is a challenge on the basis that mandatory cooling-off periods have not been complied with.

Both investors and states can also help themselves by ensuring that they have created a suitable ‘paper trail’ as the investment progresses and before any dispute arises. An investor would be wise to keep good records of both the cost and the expected return on its investment at all stages, which will help quantify the loss in any future dispute and minimise the cost of quantum expert reports, which can be expensive. The investor should ascertain what inputs to the financial models an expert would likely require before the dispute starts. Backups for data should be kept in case of lock-outs by the state (physical or electronic).

It goes without saying that all correspondence and meeting notes should be retained and organised, employees encouraged to take notes of all meetings and conversations with state representatives, and provision made in employee contracts for outgoing employees to provide ongoing assistance as witnesses if so required. It will also be easier to obtain potentially helpful documentation from the state before a dispute arises rather than after. Similar considerations apply to states, which should document any breaches by the investor of its investment obligations, any environmental damage caused and any audit violations. Given that a change of government may mean that many of those involved in structuring and administering the investment are no longer in post, effective record-keeping is particularly important, and state organs should bear in mind that these records are of no assistance if they cannot be located.

Parties should make all possible enquiries about the potential arbitrators – challenges are costly and, even if successful, will result in delay and additional costs. States may want to ensure that arbitrators do not have links to third-party funders involved in the case, as further addressed below, and investors may wish to check whether arbitrators have expressed strong published views on particular aspects of ISDS disputes that arise most frequently.

Before embarking on a potential dispute, both states and investors will be well advised to bear in mind, and keep under review, various considerations affecting the costs involved in a potential dispute, some of which are set out below.

Duration of proceedings

While investor–state disputes may sometimes be resolved in 12 months to two years (including through negotiations), the average length of proceedings is five and a half years,[4] excluding the time involved in pursuing enforcement of an award. A protracted dispute may therefore place significant strain on both states and investors alike. This has led to a massive rise in the popularity of third-party funding as a means for parties (usually the investor) successfully to undertake arbitration and enforcement proceedings without having to forego the right strategies due to the limitations imposed by a tight budget. As further discussed below, funding naturally comes at a price. However, it has been increasingly used not only by impecunious investors but also by parties wishing to take the cost of the dispute off their books. Indeed, anecdotal evidence suggests that the covid-19 pandemic has led to a surge in interest in and demand for third-party funding. The UK litigation funding market alone was thought to be worth £2 billion as at September 2021.[5]

Investor–state arbitration proceedings are typically much lengthier than commercial arbitrations, and cost minimisation considerations should also include measures aimed at reducing the duration of the proceedings. Recent studies show that the length of proceedings in which the investor ultimately prevails averages 1,677 days (4.6 years), while cases in which states succeed run for an average of 1,530 days (4.2 years).[6] These figures reflect the likely impact of respondent states’ objections to jurisdiction in bifurcated proceedings.

Jurisdictional challenges

The method of resolving jurisdictional challenges is a choice that parties and tribunals are required to make in the early stages of an arbitration proceeding, and one that has significant implications for the overall costs of the dispute. A respondent state may petition the tribunal to determine jurisdiction as a preliminary issue for clear strategic reasons – if the challenge were successful, the investor will need to bring its claim in a different forum, often the courts of the respondent state, which is a clear disincentive for the investor to pursue the dispute and may lead it to abandon its claims.

There may be potential cost benefits for an investor in agreeing to address jurisdiction as a preliminary issue as a means of potentially avoiding pursuing fruitless arbitration proceedings. Indeed, some third-party funders may insist on jurisdiction being determined as a preliminary issue as a condition of funding so as to limit their exposure. Moreover, if jurisdiction is determined in favour of the investor, the chances of an early settlement may increase. On the other hand, the bifurcation of proceedings can also increase costs.

Between 2017 and 2020, only 25 per cent of jurisdiction challenges in investor–state disputes succeeded.[7] This may reflect attempts by respondent states to discourage investors by mounting unmeritorious jurisdiction challenges to stretch out proceedings.

By requiring investors to provide proof of an arbitration agreement at the request-filing stage, the rules of most arbitration institutions already seek to prevent disputes that have an obvious lack of jurisdictional merit from proceeding. Certain arbitral institutions, such as the International Centre for Settlement of Investment Disputes (ICSID), have stringent screening processes, under which the registration of a request for arbitration of a claim where jurisdiction is plainly lacking will be refused.


There is evidence that, overall, bifurcation[8] substantially increases the costs of arbitration. In a recently published study, investors indicated that bifurcated proceedings led to mean party costs some 85 per cent higher than non-bifurcated proceedings. Respondent states indicated that they faced an estimated 79 per cent higher costs.[9] These higher costs, coupled with the low percentage chance of a successful jurisdiction challenge, should, therefore, be considered by parties when deciding whether to request bifurcation.

Bifurcation (or trifurcation) strategies can include separating the merits and quantum phases of the arbitration, which may allow the investor to source funding on favourable terms after succeeding on the merits but before a potentially costly quantum stage and may result in a settlement. That said, breaking up the proceedings this way can lead to an additional hearing and could result in higher, rather than lower, overall costs.

Composition of the tribunal

Nominating and appointing the right arbitrators is also an important step and consideration for parties, which may have a considerable impact on overall costs. Arbitrator fees are estimated to account for about 16 per cent of the overall costs of an ISDS arbitration.[10] Inevitably, the lack of availability of tribunal members will have an impact on the length and, therefore, cost of the arbitration proceedings.

While most arbitral institutions specify in their rules that the award is to be finalised within a stipulated time limit, extensions to the deadline are commonly granted in practice. Under the ICSID Rules, for instance, while the award must be signed within 120 days of the end of proceedings, tribunals frequently avail themselves of a further 60 days.[11] Therefore, along with the many other considerations in nominating an arbitrator, both the investor and the state should make detailed inquiries into the availability of nominated arbitrators or may seek to agree limitations on the number of appointments that the arbitrators may accept. Methods suggested have included requesting that arbitrators provide a calendar of their availability for the next 12 to 18 months or longer, or asking for an arbitrator candidate’s records of the length of time between the final hearing and the issue of an award in their past cases.[12]

Consolidation of multiple claims

Where an investor is bringing more than one claim against a state entity, and provided that these claims are sufficiently related, attempts could be made to consolidate multiple claims into a single arbitration.[13] The ICSID Rules (and additional facility rules) do not expressly provide for consolidation, although some have argued that tribunals are already empowered under Article 44 of the ICSID Convention and Rule 19 of the ICSID Rules to order consolidation.[14] However, proposals for an amendment to the ICSID Rules to include consolidation were recently (June 2021) put forward.[15] Proposed Arbitration Rule 46, if adopted, would allow for voluntary consolidation, subject to the parties’ consent.


Document disclosure is invariably an expensive stage of investor–state arbitrations. Both investor and state parties should tailor disclosure requests carefully to what is crucial to the case. If the dispute is very document-heavy, numerous ways of reducing costs exist, including, but not limited to: (1) having juniors carry out a first-level review; (2) outsourcing document review to contract lawyers; and (3) employing the latest technology to ensure the most efficient review process.

Case management 'tools'

Parties may also use other case management techniques, such as limiting the number of experts appointed in the proceedings to core issues. In ISDS proceedings in particular, the cost of expert evidence can be high.

Generally, the higher the amount in dispute, the higher the costs. A recent study showed that successful claimant investors claimed a mean amount of US$1.5 billion in damages, but the mean amount of awarded damages averaged US$438 million.[16] Investors being more realistic as to the quantum of claimed damages could help reduce costs and promote concise and efficient dispute resolution.

Clarifying/rectifying the award

Once the award is rendered, the parties should consider it very carefully, as even minor errors or lack of clarity can result in lengthy and costly challenges at the enforcement stage or in annulment proceedings. Both the ICSID Convention and the ICSID Rules provide that tribunals may decide any questions that they have omitted to decide in the award and rectify any clerical, arithmetical or similar errors that the requesting party seeks to have rectified.[17] Both the ICSID Convention and the ICSID Rules provide that any requests for clarification or correction must be made within 45 days of the date on which the award was rendered. Likewise, the United Nations Commission on International Trade Law (UNCITRAL) Rules 2010 provide that a party may,[18] within 30 days of receipt of the award, ‘request the arbitral tribunal to correct in the award any error in computation, any clerical or typographical error, or any error or omission of a similar nature’. Should the tribunal consider a request justified, the UNCITRAL Rules provide that the tribunal ‘shall make the correction within 45 days of receipt of the request’. Having these matters clarified early by a tribunal can help avoid potentially expensive and time-consuming annulment proceedings, which have only increased in recent years.[19]

Third-party funding for investors

Third-party funding is essentially the provision of direct or indirect funding or other support to a party to a dispute by a legal person that is not a party to the dispute, usually in return for remuneration dependent on the outcome of the proceedings. Such funding can be achieved via a variety of mechanisms and provided directly or indirectly to an affiliate of the disputing party. The ‘non-recourse’ aspect of third-party funding is attractive to claimants: if the claimant does not recover, it has no obligation to repay the funding. It is open to impecunious claimants and those well resourced that seek to spread their risk.

As noted by UNCITRAL in its 2019 working group paper on possible reform of ISDS funding,[20] remuneration to the funder can take many forms. Common practices include a multiple of the funding, a percentage of the proceeds, a fixed sum or a combination of the above. Third-party funding usually covers all or part of the cost of the proceedings, such as legal fees, as well as fees of experts, arbitrators and arbitral institutions, and the costs associated with subsequent enforcement actions or appeals. Third-party funding may be structured around a single claim or a portfolio of claims.

What is involved in obtaining third-party funding?

An initial discussion with the claimant or its proposed legal team, or both, to assess suitability will usually be the first step in the funding process. However, the scope of this initial discussion will be necessarily limited as it is not protected by confidentiality and does not attract privilege. Assuming the initial meeting is successful, a confidentiality agreement/non-disclosure agreement (NDA) (typically on the funder’s standard terms) will be entered into to protect future communications. Thereafter, substantive confidential and sensitive information and discussions about the claim and potential funding arrangements may take place. Once the funder is in possession of substantive details about the potential claim, it will carry out due diligence to gain understanding of the claim, often including an independent opinion from a neutral law firm or senior lawyer or Queen’s Counsel. If all this is favourable, negotiations over the structure of the financing will start.

The precise scope of due diligence will differ between funders but will likely include the following elements:[21]

  • a funder will investigate the claimant and its financial position or resources to understand its litigation appetite and impetus for seeking funding;
  • a funder will conduct its own assessment of the merits of a potential claim and evidence, as well as potential defences and counterclaims;
  • the relevant experience and reputation of the claimant’s proposed legal team will be considered, alongside the firm’s engagement terms with the claimant;
  • the proposed legal budget will also be carefully studied and may be capped; and
  • the expected amount of recovery will be relevant because it must be large enough to both provide a return commensurate to the investment risk and cover the funder’s internal costs – funders will have various tools to evaluate an acceptable ratio between a realistic recovery and the capital investment.

Funders are increasingly likely to investigate the backgrounds of claimants, as their reputations and solvency, as well as the value and merits of the claim, may affect the decision of whether or not to fund or on what terms, as well as investigating the assets of the respondent that are likely to be accessible, and will estimate the likely costs of enforcement.

These details will likely be sought by the funder as soon as the NDA has been entered into, which, if the negotiation is successful, will then be recast into a term sheet setting out the key terms of the funding proposal.

Funders will usually push for a short exclusivity period (which could potentially be waived if there is sufficient competition for the right to fund a claim) following the execution of the term sheet to allow the funder to seek further information from the claimant and its legal team to conduct more in-depth due diligence, accompanied by meetings and calls to address any ‘gaps’ in the funder’s understanding. If in-depth due diligence concludes to the funder’s satisfaction, the process will conclude with the funder preparing a detailed funding agreement for the claimant to consider and agree. However, investors may wish to seek to negotiate for the exclusivity period to be waived, either if there is or they expect competition among funders or because, if funders are approached consecutively, the investor may be quizzed about whether or not a claim has already been rejected by one or more funders.

The process is rigorous and demanding, and anecdotal evidence suggests that fewer than 10 per cent of initial approaches to funders result in funding being offered. However, claimants and their counsel can do much to anticipate the needs of funders and package the case materials from the outset in a way that pre-empts their concerns, demonstrates the strength of the case and the capabilities of the legal team, and thereby maximises the chances of obtaining funding. One can also seek to create a ‘market’ for a claim by speaking to multiple funders simultaneously, including through opening a data room for inspection by funders and inviting bids as to what commercial terms they propose or considering the use of a claim broker.

How flexible a funder is prepared to be in creating ‘made-to-measure’ funding arrangements for a claimant will often depend on whether the funder is self-financed or has institutional capital backers that may have preferred structures for the funder to follow.

Potential restrictions imposed by third-party funders

As set out below, investors should also be aware of potential restrictions that a funder may impose as a condition of funding the case, including control of choice of counsel and influence on strategy. Further, subject to any provisions in the funding agreement, the funder may participate in the settlement process: at a minimum, the agreement will provide for the funder to be kept updated about the discussions; in other cases, the agreement may restrict settlement to within a pre-negotiated range. Investors should seek to agree from the outset which responsibilities and control lie with the funder and which lie with the investor. Third-party funding agreements should clearly set out who retains what degree of control over the conduct of the proceedings, and of settlement negotiations, what degree of control the claimant and the funder have over the decision to settle, and what information the funder has relied on in reaching its decision to fund.[22]

The level of involvement in the dispute itself will depend on the funding regime in a given jurisdiction (as well as the terms of the funding agreement). However, for a large number of investors, the benefits outweigh the disadvantages.

Third-party funding regimes vary between different jurisdictions

While third-party funding was an uncommon concept only a couple of decades ago, it is one that is now almost universally accepted and that has been incorporated both into the rules of leading arbitral institutions and arbitration-friendly jurisdictions and is now commonplace in ISDS proceedings. It is estimated that over half of all ISDS disputes now involve the participation of third-party funders in some way. A recent innovation that can make third-party funding particularly attractive to claimants is the potential in some cases to obtain advances on the expected recovery from the funder.

Third-party funding began in the context of domestic litigation and arbitration before being used in international commercial and investment arbitration. Some jurisdictions (e.g., Australia, the UK and the US) have established a legal dispute funding framework. Singapore and Hong Kong went further by introducing legislation expressly permitting third-party funding in international arbitration.[23] However, third-party funding in international litigation and arbitration is unregulated in many jurisdictions and there is not, at the time of writing, an effective international set of rules on funding. Debate is now ongoing about whether and to what extent third-party funding should be permitted or regulated. Different jurisdictions take differing attitudes towards the concept of third-party funding.[24]

Third-party funding is widely used and accepted by arbitral tribunals

Although many jurisdictions previously prevented claims from being brought where the claimant does not have full beneficial ownership of the claim, the rising cost of dispute resolution led to these rules being largely swept away in domestic litigation and has not prevented externally funded claimants from pursuing their claims. The ICSID tribunal in CSOB v. Slovak Republic held that ‘absence of beneficial ownership by a claimant in a claim or the transfer of the economic risk in the outcome of a dispute should not and has not been deemed to affect the standing of a claimant in an ICSID proceeding, regardless whether or not the beneficial owner is a State Party or a private party’.[25]

In the later case of Giovanni Alemanni and others v. Argentina,[26] the tribunal held that ‘[i]ndividual views may differ as to whether third-party funding is or is not desirable or beneficial, either at the national or at the international level, but the practice is by now so well established both within many national jurisdictions and within international investment arbitration that it offers no grounds in itself for objection to the admissibility of a request to arbitrate’.

Calls for regulation of third-party funding

The benefits of third-party funding to investors are obvious, and may be a factor in the recent explosion in the number of ISDS claims advanced.[27] However, there are now signs of a backlash, with well-known examples of states withdrawing from ICSID because of the number of cases being brought against them and, increasingly, pushing for restrictions, or at least increased regulation, of the third-party funding of claims. This process is driven not only by the concerns of states, but also of institutions around the disclosure of links by arbitrators to third-party funders, resulting in potential challenges to arbitrators or awards rendered by them.[28] As law firms increasingly also set up third-party funding groups or joint ventures with funders, conflicts concerns will likely spread to them.

Regulation of third-party funding may be implemented through various means, such as through inclusion in investment treaties, in arbitration rules, in domestic legislation or in a multilateral treaty on ISDS reform.

The current UNCITRAL draft on the regulation of third-party funding provides for a range of options, including outright prohibitions on third-party funding (including through amending BITs to extend denial of benefits clauses to third-party funded parties), and restrictions on third-party funding to cases where it is necessary for the claimant to bring its claim and that the claim is brought in ‘good faith’ (but it is generally accepted that defining or proving ‘necessity’ or ‘good faith’ would be difficult, and raises the issue of what happens if the funding is obtained in the middle of the case or if funding arrangements are amended).

Another potential approach is to restrict permission for third-party funding to cases where the expected return to the funder does not exceed a ‘reasonable’ amount or where the number of cases funded by a funder against a particular state does not exceed a reasonable number, all of which pose further problems of approach and consistency of outcomes. Any such regulations would, of course, also require provisions dealing with disclosure of the relevant information regardless of whether security for costs is being sought and raises questions of the consequences – could a tribunal order a party to terminate the funding, terminate the proceedings themselves or only factor in the allocation of costs? Other proposals centre on greater transparency of third-party funding arrangements and provisions for the automatic grant of security for costs against a third-party-funded claimant.

Third-party funding and security for costs applications

Arbitral tribunals have the power to order security for costs, either pursuant to arbitration laws or rules explicitly providing for such power, or general provisions on interim measures. When an arbitral tribunal is faced with a security for costs application, it usually balances the claimant’s interest in having access to arbitral justice and the respondent’s interest in recovering its costs if it wins.

Respondent states argue that a claimant that requires third-party funding is by definition unlikely to be able to pay the costs awarded against it if it is unsuccessful. However, the funding landscape is complex, and it is not uncommon for third-party funding to be sought by solvent parties. There has been an established trend in investor–state arbitration that tribunals will not regard a party obtaining third-party funding to be a sufficient reason in itself to grant a security for costs order, hence the pressure from respondent states for security to become mandatory.[29] For example, in RSM Production Corporation v. Grenada,[30] Grenada’s application for security for costs was rejected by the tribunal, which held that the existence of a funder was not evidence of an impecunious claimant. States also point out that non-parties cannot be held liable for costs awards. As considered below, costs insurance has become increasingly relevant to security for costs and to reduce a claimant’s costs exposure.

Whether disclosure should be limited to the existence and identity of the funder or whether it should also extend to the terms of the funding agreement remains a controversial question. There is a trend that requires disclosure of the existence of funding and the identity of funders. Domestic legislation on third-party funding in some jurisdictions mandates such disclosure and some recent BITs now contain an obligation to disclose the name and address of the third-party funder. Arbitration rules that address the matter also provide for the disclosure of such information, with varying formulations, either authorising the arbitral tribunal to order disclosure of the existence and identity of the third-party funder or putting an obligation on the parties receiving funding to provide information on the existence and nature of the arrangement.[31]

Notably, the Working Paper on the Proposed Amendments prepared by the ICSID Secretariat on the reform of the ICSID Rules provides as follows:[32]

Proposed AR 51 on security for costs is a new Rule and does not address the effect of [third-party funding]. Instead, proposed AR 51 requires the Tribunal to consider the responding party’s ability to comply with an adverse costs decision and whether a security order is appropriate in light of all the circumstances. As a result, the mere fact of [third-party funding], without relevant evidence of an inability to comply with an adverse costs decision, will continue to be insufficient to obtain an order for security for costs under proposed AR 51. On the other hand, the existence of [third-party funding] coupled with other relevant circumstances may form part of the relevant factual circumstances considered by a Tribunal in ordering security for costs. This will be a fact-based determination in each case.

As mentioned above, the current UNCITRAL draft on the regulation of third-party funding proposes a number of potential measures.[33] These include an option for the automatic grant of security for costs in the event of third-party funding subject to certain carve-outs. The draft also provides for preventing the funded party from recovering the return paid to the funder or any other expenses relating to the funding.

Investors need to keep a close eye on future developments in the regulation of third-party funding in general and in the context of disclosure, security for costs and the recovery of costs in particular.

Third-party funding for states

Although uncommon at this time, respondent states may also be able to seek third-party funding, particularly where counterclaims are available as an applicable recourse. The availability of a potential counterclaim may be dependent on the wording of the BIT and whether the claim has a sufficient connection with the state’s obligations under the relevant BIT.[34]

Third-party funding of a respondent state is technically permissible, but may take the form of an entirely different model to that of investor funding. For example, the funder may pay the costs of defending a claim in return for a share of the amount by which the state’s liability in the original claim has been reduced or a share in the relevant investment or its proceeds over time if the investor’s claim to it is rejected.[35]

Where the dispute centres on one investor being replaced by a new investor, it may be possible for the state to persuade the new investor to provide an indemnity for the costs of defending a claim of expropriation or to meet the costs of relevant insurance as part of the new contractual arrangements (although the state may equally face pressure from the new investor for an indemnity going in the other direction).

Other financial tools

An investor may consider political risk insurance. Emerging insurance policies aimed at investors offer protection against relevant risks such as political violence, breach of contract, expropriation without full compensation and other failures of obligations by the host government. The suitability of insurance will depend on the nature of the investment, laws of the relevant countries, the type of industry and other considerations. A downside of political risk insurance as opposed to treaty protection is that insurance policies typically have a time limitation of 15 to 20 years, while treaty protection may be available so long as the relevant BIT remains in force (and often for many years thereafter for pre-existing investments under a ‘survival clause’).[36]

In addition, the rising number of high-cost and high-value ISDS cases has increased the demand for costs insurance, either as part of third-party funding or as an alternative, perhaps in conjunction with contingency fee agreements, to reduce potential total exposure of the claimant.

The use of contingency fee arrangements has increased over the past 20 years. Even jurisdictions that do not permit contingency fee arrangements in most types of litigation now tend to permit them in arbitration.[37] That said, many law firms will be unwilling to agree to bear the risk of investing up to a decade’s worth of legal work on a claim that may not succeed and would likely consider such arrangements only for very high-value claims with very strong merits and only take on a very small number of such cases at any time. Law firms may, however, be more willing to agree a mixed payment structure, where part of their fees are paid in any event, or a conditional fee arrangement where they defer a percentage of their fees until the end of the proceedings, receiving an ‘uplift’ if the party for whom they act succeeds. Third-party funders may also invest in a portfolio of cases handled by the same law firm, under which they pay the law firm around 30 per cent to 60 per cent of their fees over the course of proceedings, with the law firm in the event of success receiving the balance of their fees with an uplift of two to three times standard fees.[38]

Arbitration costs insurance allows a party to insure for legal fees, arbitrators’ fees, other relevant expenses and adverse cost orders.[39] Insurance can cost significantly less than third-party funding and may be a viable option for cases that would not be accepted by third-party funders. In some arrangements, costs insurance can come in the form of a premium that is fully contingent on the success of the insured party’s claim or defence, and there is no premium for when the insured party is unsuccessful.

Costs insurance may, however, impact a tribunal’s decision on costs. In Commerce Group Corp and San Sebastian Gold Mines, Inc v. Republic of El Salvador,[40] the tribunal determined that it would not order security for costs, in part because the claimant had an adverse costs insurance policy. Third-party funders may take out insurance to protect the party that they are funding from having to pay their opponents’ costs in the event that they are unsuccessful, or to provide security for their opponents’ costs if the tribunal so orders. The cost of such insurance will be built into the amount that the third-party funder will be entitled to recover should the funded party prevail.


[1] Deborah Ruff is a partner, Julia Kalinina Belcher and Charles Golsong are counsel, and Jenna Lim is an associate, at Pillsbury Winthrop Shaw Pittman LLP.

[2] Hodgson, M, Kryvoi, Y, Hrcka, D, '2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration', British Institute of International and Comparative Law (BIICL), June 2021. Costs are taken to include legal, witness and expert fees and expenses, as well as travel and other disbursements, but not the fees and expenses of the tribunal or any administrative costs paid to arbitration institutions.

[3] See, for example, the Mediation Rules of the International Chamber of Commerce (ICC),, and of the Stockholm Chamber of Commerce,

[4] Hodgson, M, Kryvoi, Y, Hrcka, D, ‘2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration’, BIICL, June 2021.

[5] ‘Litigation funding needs better oversight’, Financial Times, 9 September 2021,

[6] Hodgson, M, Kryvoi, Y, Hrcka, D, '2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration', BIICL, June 2021.

[7] ibid.

[8] That is, splitting an arbitration into two separate phases, such as merits and quantum or jurisdiction and merits.

[9] Hodgson, M, Kryvoi, Y, Hrcka, D, '2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration', BIICL, June 2021.

[10] Nottage, L and Ubilava, A, ‘Costs, Outcomes and Transparency in ISDS Arbitrations: Evidence for an Investment Treaty Parliamentary Inquiry’, The University of Sydney Law School Legal Studies Research Paper Series No. 18/46, August 2018.

[11] Rule 46, ICSID Arbitration.

[12] Reed, L and Marigo, N, 'Availability of Arbitrators: What About the Other Objective Data?', Kluwer Arbitration Blog, 11 May 2010.

[13] In a world first, Argentina, as the respondent to separate ICSID and United Nations Commission on International Trade Law (UNCITRAL) proceedings, agreed to consolidate these into a single set of hearings – a copy of the award is available here: The tribunal in its award ruled that the parties would bear their own costs of both the UNCITRAL and ICSID proceedings.

[14] Vanhonnaeker, L, ‘The Consolidation of Proceedings and Mass Claims in International Investment Law and Arbitration’, in Shareholders’ Claims for Reflective Loss in International Investment Law (Cambridge University Press, 2020).

[16] Hodgson, M, Kryvoi, Y, Hrcka, D, '2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration', BIICL, June 2021.

[17] Article 49(2), ICSID Convention; Rule 49, ICSID Arbitration Rules.

[18] Article 38, UNCITRAL Rules 2010.

[19] Hodgson, M, Kryvoi, Y, Hrcka, D, '2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration', BIICL, June 2021. ibid. The study found that over 75 per cent of ICSID annulment proceedings have been initiated since 2009, outpacing the growth in ICSID arbitration.

[22] In Suez, Sociedad General De Aguas De Barcelona, S.A. and Vivendi Universal S.A. v. Argentina Republic, ICSID Case No. ARB/03/19, the state challenged the appointment of the claimants’ arbitrator in the belief that her position as a board member of UBS violated the requirement of neutrality. See In another case RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, a challenge was brought against the appointment of an arbitrator not because of a potential conflict of interest, but rather because of the strong language he had employed in respect of claimants funded by third parties. See

[23] Singapore Civil Law Amendment Act and Civil Law (Third-Party) Regulations 2017. Notably, the Singapore Institute of Arbitrators has issued guidelines for third-party funding. In February 2019, in Hong Kong, the Arbitration Ordinance (Cap 609) was amended to recognise third-party funding in arbitration (both domestic and international).

[24] For example, England and Wales is generally positive to third-party funding in court proceedings (as well as arbitration) and considers it to be a tool of access to justice, see, for example, UK Trucks Claim Limited v. Fiat Chrysler Automobiles NV and Others and Road Haulage Association Limited v. Man SE and Others [2019] CAT 26. See also Essar Oilfields Services Limited v. Norscot Rig Management [2016] EWHC 2361 (Comm), in which the English High Court reviewed the decision of a London-seated ICC tribunal awarding Norscot, in addition to its legal costs, the cost of the funder’s ‘success fee’.

[25] ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, at §32,

[26] ICSID Case No. ARB/07/08, Decision on Jurisdiction and Admissibility, 17 November 2014, at §278,

[27] As at 1 January 2021 (per the UNCTAD IIA Issues Note ‘Investor-State Dispute Settlement Cases: Facts and Figures 2020’ published on 2 September 2021 (, the cumulative number of known ISDS cases stood at 1,104, with the majority of these having been initiated after 2010.

[28] See Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35, pp. 253–292. Situations that may give rise to conflicts of interest include where arbitrators act as advisers to funders, and where an arbitrator or an arbitrator’s law firm has a recurring relationship with a third-party funder, which is involved in arbitration before the arbitrator, and the arbitrator or the firm receives income from this relationship. The 2021 ICC Rules at Article 11(7) provide grounds by which a party may challenge an award where disclosure of a link between arbitrator and funder was not made: 'In order to assist prospective arbitrators and arbitrators in complying with their duties under Articles 11(2) and 11(3), each party must promptly inform the Secretariat, the arbitral tribunal and the other parties, of the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.' See

[29] See EuroGas Inc and Belmont Resources Inc v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3, 23 June 2015; South American Silver Limited v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2013–15, Procedural Order No. 10, 11 January 2016; Guaracachi & Rurelec v. Bolivia, UNCITRAL, PCA Case No. 2011–17, Procedural Order No. 14, 11 March 2013. Factors such as the claimant’s ‘bad’ conduct and failures to comply with the tribunal’s orders were relevant factors in the tribunal’s decision to order security in RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, in addition to the fact that the party had third-party funding.

[31] Arbitral tribunals have requested parties to disclose the existence and identity of a third-party funder (EuroGas Inc. and Belmont Resources Inc v. Slovak Republic, ICSID Case No. ARB/14/14; South American Silver v. Plurinational State of Bolivia, PCA Case No. 2013-15), as well as in certain cases the details of the financial arrangements (Muhammet Cap & Sehil Insaat Endustri ve Ticaret Ltd. Sti v. Turkmenistan, ICSID Case No. ARB/12/6).

[32] ‘Proposals for Amendment of the ICSID Rules – Working Paper’, Volume 3, ICSID Secretariat, 2 August 2018, available at:

[33] Comments to which were invited until September 2021.

[34] ‘Counterclaims In Investor-State Dispute Settlement (ISDS) Under International Investment Agreements (IIAS)’, Centre for Trade and Economic Integration, Trade and Investment Law Clinic Papers 2012.

[35] Von Goeler, J, Third-Party Funding in International Arbitration and its Impact on Procedure (Kluwer Law International, January 2016).

[36] Kowalski, T, 'Mitigating Political Risk: Treaty Protections Versus Political Risk Insurance', Jones Day Insights, September 2016.

[37] Stoyanov, M and Owczarek, O, ‘Third-Party Funding in International Arbitration: Is it Time for Some Soft Rules?’, BCDR International Arbitration Review, Volume 2, Issue 1 (2015): statutes now expressly permit certain contingency fee agreements in common law jurisdictions. French courts have also now accepted that the laws prohibiting French lawyers from entering pure contingency fee arrangements do not apply to international arbitration proceedings. See Marquais, O and Grec, A, ‘Do’s and Dont’s of Regulating Third-Party Litigation Funding: Singapore vs. France’, Asian International Arbitration Journal, Volume 16, Issue 1 (2020).

[38] Baumann, A and Singh, M, ‘New Forms of Third-Party Funding in International Arbitration: Investing in Case Portfolios and Financing Law Firms’, Indian Journal of Arbitration Law, Volume VII, Issue 2 (2018). Such funding agreements and other new portfolio and financing arrangements may become more common as third-party funders continue to gain popularity.

[39] McKenny, I C, 'Evolution of the Third-party Funder', in Barton Legum (ed.), The Investment Treaty Arbitration Review, Fifth edition (Law Business Research, 2020).

[40] ICSID Case No. ARB/09/17.

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