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Third-party Funding and Ethics - What are your thoughts?

Does third-party funding in connection with arbitrations present ethical problems?

Please provide your thoughts/comments below.

Comments (5)

Judge Gerald Harris:

The only exposure I have had as an arbitrator with third-party funding was a dispute between the funder and the recipient. There was an arbitration clause in their agreement and the proceeding was pretty straightforward. It is not clear to me what ethical issues the question contemplates unless the concern is about whether the party to the agreement which is the subject of the arbitration continues to be the real party in interest if the recovery ultimately will be paid to the person advancing the funds. At first blush I don't see that as an ethical issue.

Third-party funding raises "evident partiality" questions and, therefore, creates greater risk of vacatur. The disclosures required of arbitrators in the Code of Ethics for Arbitrators in Commercial Arbitration, in my interpretation of the Code, require the arbitration party with third-party funding to disclose the identity of the third-party funding source, including principals of the source. The disclosure of a third-party funding source, however, could create a strategic opportunity for the non-funding party that raises a fairness question for the arbitration party being third-party funded. One possible solution is for all parties to the arbitration to agree that no information about arbitration party funding in any form will be provided to the arbitrator and that the arbitrator is under no obligation to make disclosures related to third party funding. Another possible solution, although draconian, is to require that arbitrators have no personal, business, social, or financial interest in any entity that provides third-party funding to arbitration parties. Under any scenario, the disclosure obligation appears to be the major issue created by third-party funding of arbitration parties.

Jeremy Sussman:

I agree with both comments. The regular disclosures required of arbitrators should be enough to weed out possible conflicts of interest.

Jeremy Sussman

I will be moderating a program on "Third Party Funding: What You Need to Know" at the ABA Dispute Resolution Section annual conference in San Francisco, April 20, 2018. Panelists, representing funders, users, corporate interests and arbitrators, will discuss how the dynamics of this increasingly widespread billion dollar industry is impacting arbitration. We will include in the discussion the possible ethical and disclosure obligations it might impose. Hope you can come and participate in the discussion.

Sayward Mazur:

It may be of interest that the Singaporean Arbitration Association has just enacted a specific rule respecting third party funding. I have yet to study the rule or its implications. In general, I think there will be a swinging of the pendulum back and forth between an inherent distaste for funded disputes emanating out of common-law concepts of champerty and maintenance and more progressive recognition that often persons or entities simply cannot afford to achieve justice from within their own resources. In any case it seems that in most funded case there would need to at least be disclosure of the identity of the funder to avoid late-arising conflicts and potential disruption of proceedings.

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