Third-Party Financing of International Arbitration

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Let me begin with an assertion: although there persists much noise in some quarters about its use, third-party financing of international commercial arbitration is – to quote one of the world’s largest and most respected global law firms – ‘here to stay, and not just for small or cash-strapped claimants.’1

It therefore behoves lawyers, corporate executives and arbitrators to understand third-party financing of international arbitration much better than they currently do. It is indeed ‘here to stay’, and those who ignore it do so at their peril. Research affirms that the need for more innovation from their law firms is a leading challenge for clients; according to the global co-head of international arbitration for a leading international firm, ‘sophistication and knowledge of third-party funding is increasingly part of firms’ pitches in any contentious international case’.2

It is in that spirit that we offer the following, as a primer of sorts, on arbitration finance and the advantages it brings to both corporate clients and their lawyers. I also address the two areas of concern that are most frequently raised in regard to financing international arbitration: disclosure and security for costs.


As a preliminary matter, let’s be clear that financing of litigation and arbitration claims by third parties is neither new nor capable of being characterised in the rather black-and-white manner so often employed by press and academic writing. In reality, the practice is complex and multifaceted – and rapidly evolving.

At its core, arbitration finance is really just specialty corporate finance that is focused on arbitration claims as assets. Virtually every corporate activity, from buying photocopiers to constructing skyscrapers, has specialty corporate finance available to it, and businesses elect to make use of such finance in a variety of ways and for a variety of reasons. In some instances of arbitration finance, outside funding is necessary for a claim to proceed at all and for justice to be obtained, as in the case of an impecunious claimant or one facing liquidity or budgetary challenges. This is the most discussed form of arbitration finance because it is the simplest and easiest to understand, but it is increasingly the case that more complex arrangements are becoming the norm, with companies using external capital out of choice, not necessity: moving cost and risk off corporate balance sheets has, after all, far better outcomes for accounting issues, risk management and financial reporting. A particularly fast-growing area of arbitration finance is for clients or law firms to aggregate risk positions in a number of matters (including mixing claimant and respondent matters) in a single cross-collateralised financing arrangement, often called ‘portfolio financing’.

Moreover, there is a long history of outside arbitration financing being provided from a diversity of sources in accordance with a variety of financial models. Parties involved in international arbitration that cannot or prefer not to pay for legal fees and expenses out of pocket may turn to law firms willing to work on contingency or conditional fee arrangements; they may approach banks, private funds or other financial institutions to secure loans, debt or equity instruments; they may secure financing in the form of risk-avoidance instruments, BTE or ATE insurance from insurance companies; and for the last decade or so, they have also been able to work with specialist providers of litigation finance – the preferred term for third-party financing – like Burford Capital, the world’s largest publicly traded provider of finance for law, of which I am CEO.3

All of these sources of outside financing – contingent fee firms, banks, insurers and specialists – could be considered ‘third-party financing’, and that is precisely how the International Bar Association sees it. According to the IBA Guidelines, a ‘third-party funder’ is: ‘Any person or entity that is contributing funds or material support to the prosecution or defense of the case and that has a direct economic interest in the award to be rendered in the arbitration.’4 Some academic articles take a similar approach, such as one that extends the third-party financing umbrella to include contingency fee legal arrangements, insurance mech-anisms (both BTE and ATE) and financing not seeking a financial return (eg, sponsoring a claim for strategic or philanthropic reasons), using a definition inspired by the Code of Conduct for Litigation Funders:5

[...] the provision of non-recourse financing to cover all or part of the costs and disbursements necessary for pursuing a claim (such as legal fees, expert fees, arbitrator and administrative costs and, in some cases, even operating costs to support the existence of the claimant entity so that the claim may be pursued), in exchange for a financial interest in the proceeds collected based upon the enforcement of any award that recognizes the claim.6

The basic message from all of this is that third-party funding takes a vast number of forms and cannot be limited to a ‘professional funder’ like Burford, which simply pays the legal fees in a case.

Benefits to the dispute resolution system

Arbitration finance provides substantial benefits to the entire ­dispute resolution system. These benefits flow not just to the parties and firms that employ arbitration finance, but also to our procedural systems as a whole. Open and equal access to arbitration for parties who want to make use of it is a fundamental characteristic of any meaningful legal system. But access to justice is not always equally achievable for all parties, mainly because problems arise when there are bargaining imbalances.7

Arbitration finance has developed quickly because it allows corporations to unlock the often substantial value they have tied up in unresolved claims, and it allows them to proceed with arbitrations while retaining control of their exposure to loss. Litigation and arbitration are unduly expensive and frequently inefficient, and those deficiencies interfere with their ability to deliver justice.

Sometimes arbitration is a contest of equals. Consider a dispute between two companies arbitrating over a failed business venture. If the companies are of equal size and the dollars at stake are manageable for both parties alike, one would expect the dispute to be resolved based on its merits. Both parties will likely complain about the costs of the process, but they are equally well-suited to bear those burdens. However, if one of the parties is much smaller than the other, the dispute would present very different settlement dynamics. In that circumstance, even if the weaker of the two parties has a very strong case on the merits, it would have a difficult time turning down a low settlement offer that would free it of the burdens of ongoing dispute resolution. The ultimate resolution of the case would likely be influenced as much by the bargaining imbalances between the parties as by the underlying merits of the case. Without a credible threat of taking the case through arbitration (and enforcement proceedings), and lacking the resources needed to take full advantage of the process available to it, the weaker of the parties could not extract a settlement for the amount to which it is lawfully entitled.

Where bargaining imbalances threaten to skew settlements, the solution is more likely to be found in a market mechanism than in procedural reform. And indeed arbitration finance, with its ability to allow even the most financially constrained party to pursue a meritorious claim in an appropriate manner, addresses this very important access to justice and due process issue.

Arbitration finance as corporate finance

The professionalisation of arbitration finance is evident in its evolving application. In addition to levelling the playing field by providing parties with access to capital, without which they might not have the resources to pursue a fair recovery through the arbitral process, third-party financing is increasingly used not only out of necessity, when a client cannot pay, but out of choice. This is because financing legal fees and expenses and moving risk off corporate balance sheets are more efficient and far friendlier from an accounting perspective – factors that matter greatly to general counsel, CFOs and publicly traded companies in general. Indeed, it is fair to say that litigation finance is increasingly becoming simply another form of corporate finance, and research affirms that this is how private practice lawyers and in-house counsel in the US and the UK view it.8

In addition to the ‘prototypical’ arbitration funding example in which the financier funds a single case in exchange for a return on its results, third-party finance can take many forms. For example, it can be used to:

  • finance portfolios of cases, either with clients or law firms, to distribute risk across multiple actions and thus allow the financier to offer better pricing;
  • finance activities other than the underlying claim, with high-value claims used as collateral to facilitate the financing of business operations;
  • obtain an immediate, discounted payment on an uncollected award;
  • cover premiums on an insurance policy against the risk of an award not being enforced; and
  • serve as a financial tool for respondents as well as claimants, working with insurers to open up possibilities for defendants to seek protection against worse-than-expected outcomes.

Portfolio financing is a particularly robust example of the maturing of arbitration finance – and this portfolio approach increasingly dominates Burford’s own business.9 In portfolio models, financing is collateralised not by a single piece of arbitration but rather by a pool of such matters. Clients and firms use portfolio financing to pay for all or partial fees and expenses, for expenses only, or to monetise asset value. Capital may be used across matters where it is needed most. If, for example, it emerges that one matter warrants more spend than expected, the client or firm is free to use capital from a portfolio investment toward that case. A portfolio investment can also be used in ways that benefit the overall business by reducing risk, but also freeing up capital that can be used for pressing needs. Among the key benefits of portfolio financing are flexibility in the use of capital, as well as reduction in overall risk, which typically results in lower cost of capital. For firms, port-
folio financing can enable them to take on more contingency or conditional matters without increasing total exposure. For clients, portfolio financing is particularly advantageous for managing the impact of arbitration on balance sheets and risk profiles; this can be hugely powerful for publicly traded companies concerned with the negative accounting impact of litigation on earnings.

Parties may also work with third-party financiers to secure capital unrelated to a matter’s legal fees and expenses. For example, an arbitral claim may be used to secure a different kind of facility altogether. Although Burford’s work is almost always confidential, one instance in the public domain is our financing of UK-listed energy company Rurelec PLC.

Rurelec was pursuing an arbitration claim against Bolivia for the expropriation of one of its power plants. It did not need capital to pay its lawyers. Rather, it needed capital to continue to grow its business but it was burdened with very high interest rates owing to the decline in its creditworthiness after the expropriation. Neither its expropriated properties nor pending claim were recognised as assets, and as a result, it faced increased borrowing costs. Unlike a traditional lender, Burford could assess the value of Rurelec’s pending arbitration claim, permitting Rurelec to monetise the value of the claim and use that value to obtain a conventional, fully recourse loan from Burford at a lower interest rate than would otherwise have been available to Rurelec in the debt markets. Rurelec used the Burford facility to expand its business while it awaited the outcome of its arbitration.

In sum, the reigning reality of third-party financing of commercial arbitration and litigation is an increasing emphasis on the financing of portfolios and other complex vehicles in which pending arbitral matters may be collateralised in order to pay for legal fees and expenses – or that may be used for other business purposes entirely. It is also the case that clients and law firms find tremendous value in the ability to secure financing for international commercial arbitration. That is proven by, among other things, the tremendous growth of Burford’s business since its 2009 founding. There is great demand for our capital and the extent of that demand points to further growth for the industry as a whole.


Arbitration has party and financial disclosure obligations so that arbitrators can check for potential conflicts and thereby preserve the integrity of the award and minimise the risk of post-award challenge. Disclosure has a narrow and limited purpose, and tribunals must be vigilant not to let tactically oriented parties attempt to use disclosure improperly.

Disclosure obligations have been intensifying in recent years despite the paucity of successful challenges to awards based on immaterial lack of disclosure, and there is no history of successful challenges to awards based on the failure to disclose the presence of external interests in arbitration, such as third-party funding. Nonetheless, the IBA Guidelines have moved to suggest the disclosure of any non-party’s financial interest in an arbitration matter.

This stands in stark contrast to many national courts, where the issue of which financial interests must be disclosed is settled and clearly defined. For example, the Supreme Court of the United States and Federal Rules of Civil Procedure require the identification of a party’s parent corporations and any public shareholder owning more than 10 per cent of the party’s stock.10 Providers of financing to a party or a case – whether specialist financiers, banks or insurers – are not required to be disclosed.

Those in favour of greater (or even systematic) disclosure of third-party financing raise a multitude of arguments. These include: avoiding conflicts of interest, preserving ‘transparency’, complying with ‘procedural good faith’, refraining from ‘abuse of the arbitral process’ and ensuring the party remains in control of its claim. They warn that failure to disclose might imperil the very foundation of the arbitral award and lead to court denial of enforcement (because conflicts of interest can provide grounds to set aside or deny enforcement to an award). Others posit that disclosure is necessary to assess requests for security for costs.

These concerns reveal a misunderstanding of the mechanics of third-party financing. They are also overblown. Indeed, despite the recent proliferation of misguided articles advocating disclosure as a means of protecting against judicial denial of enforcement, a survey of relevant case law reveals the following: exactly zero instances of any court setting aside or refusing to enforce an arbitral award because of a lack of disclosure of third-party financing.11

The economics behind most litigation financing arrangements provide a key safeguard against conflicts of interest, bad faith and any other misconduct that could imperil the arbitration process and, ultimately, the enforceability of an arbitral award. Unlike the non-funded party or the arbitrators, funders and clients can only recover if they win and collect on the award. Consequently, the entities most likely to be aware of a conflict of interest are also those that are most interested in avoiding such issues and most motivated to disclose voluntarily should any issue arise.

Regarding the argument that disclosure might be necessary for the tribunal to adequately assess a request for security for costs, most courts faced with this argument have found that the existence of a funder, if relevant at all, is only one factor to be considered in its analysis and not a good one at that.12 One could argue that this complete absence of showcase examples is attributable to a numerical insufficiency, that is, there has not been enough time or sufficient cases reaching the courts. However, the proliferation of third-party financing is no longer a recent or timid phenomenon (if it were, would it even be worth the effort of all these discussions?). Rather, it seems more likely that the courts register no occurrences because the issue fails to materialise in the first place.

It is also clearly unacceptable for tribunals to order disclosure of any of the terms of a financing arrangement. There is abundant law holding that such terms provide the mental impressions of counsel in that they signal the assessment of the relative strength of the party’s case.

Adverse costs and security for costs

Providers of arbitration finance are entering into a contractual financing relationship with a claimant, just as a bank does when it lends a claimant money. No one would suggest that the bank should be liable for adverse costs if the claimant uses the bank’s money to pursue an arbitration claim; certainly no one suggests that a law firm acting on a contingent or risk fee should bear any adverse costs risk. The same result should be obtained for arbitration funders. The funder is not a party to the action and is not controlling it; the party is the proper obligor for any costs award, and if the party is unable to meet the award, that is a risk accepted by the respondent when agreeing to arbitration in the first place. There is no principled basis for attempting to award adverse costs against a third-party funder, who is not, in any event, party to the arbitration agreement in the first place.

With respect to security for costs, over the past years requests have become more frequent in arbitral case law.13 The concept is straightforward: security for costs is a type of collateral that the claimant (or counterclaimant) provides to assure the opposing party that an adverse costs award shall be met if made. While easy to say, the reality is that security for costs is more about tactics and less about fairness. It is the rare claimant whose financial position has deteriorated between the entry into the agreement containing the arbitration clause and the time of the arbitration, so respondents generally accept the risk of a weak arbitration opponent. Thus, seeking security for costs is the equivalent of seeking the dismissal of the claim and arbitrators should be sensitive to indulging such tactics.

Some now argue that the fact a party is using a third-party funder is a strong indication that the party is impecunious, which makes it likely that they will be unable to pay the adverse costs.14 Another tactical argument is that the party is using a third-party funder to perform an ‘arbitral hit-and-run’: the party has no assets to be attached for paying costs, while its funder is not a party to the arbitration and so need not worry over its assets answering for an adverse costs award.

This reflects an overly simplistic assumption that third-party financing is used only or primarily by parties that are insolvent or unable to pay – and hence the presence of a third-party funder is a clear sign of financial difficulties. As noted above, third-party financing is increasingly a tool of choice, not of necessity. Some of the world’s largest companies are regular users of outside financing; for example, Burford created a US$45 million portfolio for a FTSE 20 company. And again, the party perhaps most interested in avoiding bad faith litigation and pursuing only the most meritorious of claims is the funder, whose investment will only recover if the award both succeeds and remains enforceable.

Indeed, aside from the cause célèbre of RSM Production Corporation v Saint Lucia,15 an overwhelming majority of decisions do not award security for costs even when third-party funding is present.16 Yet the debate persists thanks to the absence of ‘hard’ law explaining what exceptional criteria must be present for security for costs to be necessary. The general consensus, however, is that security for costs is an extraordinary measure for exceptional circumstances; it is a high standard.17

Considerations for clients and firms when choosing a finance partner

The considerable appetite for arbitration finance has attracted a number of providers into the market. This is a positive development but it also requires lawyers and clients to understand the relative strengths of capital providers and to carefully carry out due diligence on their potential finance partners.

Two issues are paramount. First, in transactions when some capital is to be paid in the future, clients must be confident that capital will be available to them at the point when it is needed. This is fundamentally a question of structural diligence. Does the financier have its own capital? (Burford, as the largest publicly traded provider of arbitration finance, with a market capitalisation of US$1 billion, has its own, permanent capital.) If the capital must be called, are the capital sources firmly bound to provide it or are there any ‘outs’ in their investment arrangements? Are the capital sources institutional? Second, even when capital availability is not an issue – such as when all the capital is received up front – clients need to focus on the size and structure of their financial providers to assess their stability and incentives, and the materiality of the investment to them. This is important because if a transaction is material to the financier, there are inevitably contractual provisions in the arrangement that will, if it comes under pressure, permit the financier to act in a manner that may be inconsistent with the client’s interests.

As the legal industry looks to lessen the financial pressures on litigants and law firms, it increasingly appears that litigation and arbitration finance may provide some of the best and most efficient tools for the task. As the services of these financiers are better understood and appreciated by those in the legal practice and their clients, interest only continues to grow. Indeed, it seems inevitable that both Burford and the disputes financing industry as a whole will continue to innovate and evolve, providing valuable opportunities for those involved in arbitration.


1     Freshfields Bruckhaus Deringer, ‘International Arbitration: 10 Trends in 2016’, available at

2     Interview conducted by Burford Capital in conjunction with 2016 Litigation Finance Survey, available at

3     Burford is publicly traded on the London Stock Exchange and has passed the billion-dollar mark in litigation and arbitration finance.

4     IBA Guidelines on Conflict on Conflicts of Interest in International Arbitration (23 October 2014), Explanation to General Standard 6(b).

5     Code of Conduct for Litigation Funders, January 2014, article 2, available at

6     Goldsmith, Aren. ‘Third-party Funding in International Dispute Resolution’, 25 AUT International Law Practicum 147 (2012), p. 148.

7     See Molot, Jonathan T. ‘The Feasibility of Litigation Markets’, 89 Ind. L. J. 171 (2014) and Molot, Jonathan T. ‘Fee Shifting and the Free Market’, 66 Vand, L. Rev. 1807 (2013).

8     ‘2016 Litigation Finance Survey’, Burford Capital (2016), available at

9     According to its 2015 Annual Report, 87 per cent of Burford’s capital committed in 2015 financed portfolios and other complex vehicles, with the balance committed to single matters.

10   See Rule 29.6. of the Rules of the Supreme Court of the United States; and FRCP Rule 7.1.

11   Databases surveyed included Kluwer Online, Lexis Nexis and Westlaw.

12   This is affirmed by ICCA/QMUL’s Conclusions 1–3 for granting security for costs (Costs Subcommittee, ICCA-QMUL TPF Task Force Report on Security for Costs and Costs (2015), pp. 3–4).

13   See Berger, Bernhard. ‘Arbitration Practice: Security for Costs: Trends and Developments in Swiss Arbitral Case Law’, ASA Bulletin 28 – Issue 1 (2010); and Zuleta, Eduardo. ‘Security for Costs: Authority of the Tribunal and Third-Party Financing’, Kinnear, Meg N. et al. Building International Investment Law: The first 50 years of ICSID – Chapter 40 (2015), p. 576.

14   Kirtley, William. Wietrzykowski, Koralie. ‘Should an Arbitral Tribunal Order Security for Costs When an Impecunious Claimant is Relying Upon Third-Party Financing?’, Journal of International Arbitration 30 – Issue 1 (2013), p. 28; and Shannon, Victoria. ‘Judging Third-Party Financing’, UCLA Law Review 63 (2016), p. 439.

15   RSM Production Corporation v Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s request for security for costs (13 August 2014), section 75.

16   See, eg, Burimi SRL and Eagle Games SHA v Albania, ICSID Case No. ARB/11/18, Procedural Order No. 2 (3 May 2012), section 39; EuroGas Inc. and Belmont Resources Inc. v Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order no. 3 – Decision on the Parties’ request for provisional measures (23 June 2015), section 123; Guaracachi America, Inc and Rurelec PLC v Bolivia, PCA Case No. 2011-17, Procedural Order No. 14 (11 March 2013), section 7; and South American Silver Limited v Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (11 January 2016), sections 73-74. But see, X. S.A.R.L. (Lebanon) v Y. AG Germany, ICC, Procedural Order No. 3 (4 July 2008), section 21 (where the tribunal mentions in dicta its view that third-party funding without the funder being liable for adverse costs as a relevant factor to grant security for costs).

17   See EuroGas Inc and Belmont Resources Inc v Slovak Republic, supra note 16, section 121; Guaracachi America, Inc and Rurelec PLC v Bolivia, supra note 16; RSM Production Corporation v Saint Lucia, supra note 15; South American Silver Limited v Bolivia, supra note 16, section 59; and Transglobal Green Energy, LLC and Transglobal Green Panama, SA v Panama, ICSID Case No. ARB/13/28, Decision on Provisional Measures (21 January 2016), section 31.

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