The Regulation Of Third-Party Funding With Security For Costs In ISDS Proceedings

Third-Party Funding is an investment which means a third party who has no legal interest about dispute,provides all or part of arbitration costs for the funded party according to the funding agreement;when the funded party wins,based on the amount supported by the award,the third party takes a share of that according to the forgoing consensual proportion.Since the objects of Investor-State Dispute Settlement proceedings are usually enormous and the costs of proceedings are very high,third-party funding is widely applicable in ISDS proceedings.But every coin has two sides,while third-party funding provides access to justice for parties,it also has impacts on ISDS proceedings.One of the most obvious consequences is that,since the one who seeks for funding is usually the ’impecunious’ claimant,whose economic ability can’t afford the entire proceeding,and the funder is an independent third party.Therefore,even the award on the merits obtained by respondent,but the costs of proceeding is usually difficult to be compensated.As a provisional measure,security for costs requires the claimant to provide bank guarantee or other guarantee in the early period of proceeding to protect the possible winning interest of respondent effectively.For this reason,in ISDS proceedings,the practices that the respondents apply for security for costs based on the existence of third-party funding are increasing.In the ISDS proceedings which involving third party funding,how to deal with the application of respondent applying for security for costs,and using security for costs to regulate third-party funding is an urgent problem to be solved.The first chapter introduces the provisions of third-party funding in the current legislation and code of conducts,bilateral investment agreements,free trade agreements and arbitration institutions’ documents.Based on these existing legal documents,attempting to define the meaning of third-party funding in ISDS proceedings.Meanwhile,elaborating the meaning and value of security for costs,combined with the arbitration practices,concluding that the scrutiny of the applications has deficiency,that is,third-party funding is not a main consideration factor,the tribunals fail to fully consider the possible negative effects caused by third party funding.The second chapter analyzes the main factors affecting the supply and demand relationships of third-party funding,combined with the characteristics of ISDS proceedings,concluding that third-party funding will be the normal practice in ISDS field.Analyzing the possible negative effects caused by third-party funding,such as exacerbating the unequal status of arbitration parties,challenging the host country’s regulatory power further,triggering undue ’cost war’ and frustrating ISDS proceedings’ purpose.Analyzing the positive significance of security for costs in suppressing these negative effects,in the cases where the respondents apply for security for costs based on the existence of third-party funding,making third-party funding as the decisive consideration factor to realize the regulation of negative effects caused by third-party funding through security for costs is fully necessary.The third chapter discusses the international practice of disclosing third-party funding and proposes the establishment of disclosure obligation in ISDS field.Clarifying that under the premise of establishing disclosure obligation and perfecting the funding agreement,through the shift of the burden of proof,making claimant prove the reasons for not providing security,can realize the flexibility of regulation;when the respondent loses the case,the reasonable expense paid by claimant due to providing security for costs should be compensated by respondent,and this can ensure the fairness of regulation effectively.It is quite feasible to use security for costs to regulate the negative effects caused by third-party funding in ISDS field.The fourth chapter responds to the doubts that may arise from the decisive role of third-party funding in reviewing the application for security for costs,including whether it would prevent the claimant from bringing dispute to arbitration,whether it would delay the process of proceeding,whether it would cause inconsistencies in identical proceeding,and when the conduct of host country makes investor has no choice but to look for third-party funding,whether the security for costs will be unfair,and whether providing security for costs will result in inequalities about the obligations of claimants who look for different financial assistance.Combining the legal principles and specific practices to analyze and refute the possible doubts,clarifying that there is no realistic dilemmas to regulate the negative effects caused by third-party funding through security for costs.The fifth chapter analyzes that as one of the international arbitration centers,China should improve domestic legislation actively to promote international change,since it’s difficult to revise the arbitration rules in ISDS field.Modifying the arbitration legislation and arbitration rules,clarifying the legal status of security for costs,recognizing and regulating third-party funding.Through these methods,China would be a mainstream force for international change and accelerate the ’internationalization’ of domestic arbitration,and also occupy the dominant position in the background of fighting for arbitration jurisdiction.