INTERNATIONAL ARBITRATION 1/3LY
DISCLOSURE, CONFLICTS AND SECURITY FOR COSTS: THE THREE FACTORS CURRENTLY IN THE SPOT LIGHT SAPNA One of the topics which is discussed a lot at conferences is disclosure. It’s one of the things that worries those who are opposed to third-party funding. They seem to be worried about the risks of the non-disclosure of third-party funding. What are your views on the issue? A related topic is security for costs. What are your views to share on disclosure and the related issue of security for costs? RUTH Disclosure, conflicts and security for costs are certainly three important issues. With disclosure, there are two points. First, we don’t mind disclosure of our involvement and in, many circumstances actually encourage it from a strategic point of view. However, we don’t agree with the disclosure of the terms of the funding. We think that that is unnecessary. Funding is a commercial transaction that is being entered into between the funder and sophisticated commercial parties. Why should the Respondent be put in an advantageous position by knowing what resources are available to the funded party?
SIMON I certainly think so. Hong Kong usually approaches these issues fairly conservatively, particularly in the champertous context, so I can’t see there not being some controls around it. It is almost inevitable that disclosure of the identity of the funder will be mandatory so that they can be chased if there is an adverse outcome is almost inevitable. I think it’s going to be an essential part of the cautious approval of third-party funding. SAPNA Which other jurisdictions are you active in? RUTH In the Asia Pacific region, we are most active in Australia, where we have funded nine cases, and New Zealand. In the insolvency context, we have funded some cases in Hong Kong and we are quite far down the road in looking at funding cases in Singapore. We are also looking for possibilities to fund in other jurisdictions in the region where the idea of funding is currently less developed. SAPNA Did you begin with insolvency cases in Hong Kong? RUTH Yes we did, but we are now looking beyond this and are looking at what is available on a case by case basis within Asia more broadly. Many of the civil law jurisdictions don’t have any equivalent prohibition on funding.
Second, we want to avoid any conflicts of interest associated with our involvement because we do not want to jeopardise the enforceability of the award. We are very diligent about ensuring, to the extent we are able to, that no kind of conflict arises. In relation to security for costs and adverse costs, it’s a different kettle of fish. If you do make a security for costs order a guaranteed outcome when a funder is involved, it will make funding more expensive for claimants. The amount that we charge is partly based on how much we fund, so if security for costs are automatically awarded in funded cases then the cost of securing funding will increase. That’s unfair to claimants,- why should it be more difficult and/or more expensive for them to access funding? Security for costs should be assessed on the basis of usual principles, even where a funder is involved. A relatively neat solution to the issue is to clarify whether funders are accountable for the adverse costs at the end. If this is the case, then you remove the need for the provision of security. SAPNA In Hong Kong, I believe they are consulting now on the types of conditions that should be attached to this concept of arbitration funding. This includes disclosure, partly because of the fear that a third-party funder may get away without paying any costs if they are not disclosed even if they succeed! Simon, have you heard people talking in Hong Kong about it being perhaps something that should be part of the new regulations?
IN RELATION TO SECURITY FOR COSTS AND ADVERSE COSTS, IT’S A DIFFERENT KETTLE OF FISH.
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