Unlike many practicing lawyers, funders appear neither to seek nor secure arbitral appointments. This is not to say that funders have not gone on to arbitrate disputes: at least one funder left the field to become a full-time arbitrator (1), and it is not uncommon that arbitrators sit on the advisory boards of some litigation funders. To the authors’ knowledge, however, lawyers working with or for funders rarely, if ever, act simultaneously as arbitrators or are approached to do so despite several now having considerable dispute experience. This article seeks to explain this situation and considers whether it may change as the demand for multidisciplinary tribunals with greater professional diversity grows.
One clarification must be made at the outset. The funder envisaged here is the ‘lawyer-funder’, namely the funder who has a legal background and who will almost always have prior law firm experience, not (or less) the funder with a banking and finance background whose presence and role are important to litigation funding companies but whose potential to serve as arbitrator is less obvious.
Several reasons may explain why a lawyer-funder does not arbitrate disputes, but not all of these constitute a legal barrier.
First, it is probable that most lawyer-funders are not very interested in securing arbitral appointments. If correct, this would be unfortunate because lawyer-funders may well have atypical and rich contributions to make, through the breadth of the cases that they continuously review and manage and through the time they spend with commercial people and lawyers from various jurisdictions.
Second, the lawyer-funder is a relatively new and a minority player in international dispute resolution. Worldwide, the number of professional funding companies dedicated to disputes funding is small in comparison with the thousands of law firms, many of which employ a far higher number of lawyers than in funding companies. This demographic reality is bound to impact the tangible absence of individual funders in arbitral tribunals and perhaps their current attitude towards securing appointments.
However, the explanation as to why lawyer-funders do not arbitrate disputes might be more substantive, leading to the third reason, that is the widespread fear of a conflict of interest or appearance of a conflict. Might a conflict of interest not be created if a party, lawyer, arbitrator, or arbitral institution proposes the name of an individual lawyer-funder as a potential arbitrator?
One may easily envisage complications and the potential appearance of a conflict if, for example, the funder-arbitrator is hearing a dispute in which one of the parties is (or might become later) represented by a law firm which is receiving funding, in a separate matter, from the same litigation funding company. Yet, it is not obvious here why the funder-arbitrator would be favourably disposed towards the law firm with whom it has a commercial relationship in a completely different matter; the reverse could also be true, especially if – as wrongly assumed by some commentators – the relationship between the lawyers and the funder is (wrongly) thought to be ordinarily conflictual.
In most cases, the relationship between the funder and the lawyers is not conflictual and their interests are tightly aligned. The funding arrangement allows the dispute to take off or to advance and this, in turn, while guaranteeing the funded party’s access to legal representation, provides backing for the legal fees incurred. In addition, lawyer-funders can provide valuable initial case review and subsequent oversight as they follow-up on the disputes that they are funding.
Other problematic situations might arise if the law firm in the dispute generates (or may be expected to) significant business for the funding company, or if the funder-arbitrator in case A awaits a decision – as a funder – in case B in which one of the arbitrators works for a law firm acting in case A. These types of situations may well arise in practice, but they are not unique to funders, and they are unlikely to represent the reality in most cases. More generally, it must not be forgotten that the funding company is outcome-dependent and that the company will not entertain funding the dispute at hand if one of its members is acting as an arbitrator, much like a law firm would not allow one of its members to act as an arbitrator in an arbitration in which the firm acts for one of the parties.
A fourth reason why a lawyer-funder may not be chosen as a potential arbitrator is that the lack of courtroom or hearing experience will generally increase the longer he works as a funder. Reading the transcripts or watching the video transcripts may not necessarily be a proper substitute. This may create difficulties for the lawyer-funders, especially for chairperson or sole arbitrator positions. But would that still be the case if they were to act as co-arbitrators?
A final reason is that the role and function of the funders – however proactive they need to be – requires a certain level of discretion. However, this may be changing as funding becomes more prevalent, the funder’s role more publicized (2), and more uniform arbitration rules on disclosure make the practice more transparent. It is therefore possible that funders will increasingly cultivate relations with, or become known by, institutions, which in turn may increase the likelihood of appointments of lawyer-funders.
There is, in this industry, a natural heavy mix of law and finance, and the perspicacious statement by Pierre Lalive that a lawyer is perhaps ‘the least commercial of men [or women]’ (3) applies less, if at all, to the experienced lawyer-funder who will be especially attentive to time, quantum and enforcement considerations, and who may well be the closest to the chairperson in the need to objectively assess the merits of the case and to safeguard the parties’ interest in efficiency. When issues arise about whether an ad hoc funding arrangement subrogates the claimant’s rights, or whether security for costs could or should be balanced out by an order that in the event of success the claimant can recover its reasonable funding costs, experience and knowledge in the interests of the dispensation of justice are required.
These are all issues that some arbitrators today do not feel completely at ease with and as the field embraces a more multidisciplinary approach it would be difficult to argue that a lawyer-funder could not be of considerable assistance to a tribunal president seeking to navigate an equitable course, just like the tribunal might benefit from any technical assessment from a project manager-lawyer or bio-sciences-lawyer. As the litigation finance industry continues to develop towards greater specialisation and sophistication, a lawyer-funder may be best placed to understand whether a finance arrangement requires closer inspection or is merely being used to distract and delay proceedings.
There are means of dealing with potential conflicts of interest and the appointment of lawyer-funders as arbitrators or co-arbitrators, with their interdisciplinary training, their regular discussions with parties, lawyers, and experts, and their ability to look beyond the persuasiveness of good advocates, may be seen by some as enriching the decision-making process of arbitral tribunals.
This article was authored by Régis Bonnan, Investment Manager, Senior Counsel and Domenico Piers De Martino, a member at Profile Investment.
If you have any questions about this article, please do not hesitate to get in touch with Régis via email: firstname.lastname@example.org.
(1) Toby Fisher, Arbitral Women president goes solo in New York, Global Arbitration Review, 18 August 2021, available at https://globalarbitrationreview.com/article/arbitralwomen-president-goes-solo-in-new-york, last accessed on 20 February 2023.
(2) For instance, the Paris Bar Council has explicitly endorsed the use of third-party funding, noting that it “is favourable to the interest of litigants and attorneys of the Paris Bar, particularly in international arbitration”; see Paris Bar Council, Resolution dated 21 February 2017.
(3) Pierre Lalive, Sur une “commercialisation” de l’Arbitrage international, available online at http://www.lalive.ch/data/publications/pla_commercialisation_20arbitrage.pdf, last accessed on 20 February 2023. In pertinent part on p. 11: “Pourquoi parler d’une « commercialisation » de l’arbitrage, dans ce sens particulier, en s’adressant au comparatiste, au commercialiste, à l’arbitre international, à l’homme de culture qui se trouve être, à maints égards, le moins « commercial » des hommes ?” Free translation: ‘Why speak of a “commercialisation” of arbitration, in this particular meaning, by referring to the comparatist, the commercialist, to the international arbitrator, to the man of culture who happens to be, in many ways, the least “commercial” of men?