Research On The Regulation Of Third-Party Funding In International Commercial Arbitration

With the increasing importance and complexity of international arbitration in recent years,the costs of arbitration continue to rise.The parties to arbitration are in great need of seeking innovative funding to provide financial support for themselves.In this context,third-party funding in arbitration has sprung up and been applied in many countries and regions.It has gradually expanded from the original litigation field to the international arbitration field.Its market has shown a vigorous developing trend,and third-party funding has become the forefront topic in international commercial arbitration.Currently,there are narrow and broad definitions of third-party funding in arbitration.In a narrow sense,only third-party investment is defined as third-party funding.Third-party investment involves third-party funding institutions acquiring the right to make profits by investing in arbitration process on a non-recourse basis.It is a kind of venture capital mode in arbitration and the research focus of this article.The third-party funding in arbitration acts as a remedy in alternative dispute resolution.On the one hand,it is beneficial to the parties to realize their legal rights through providing access to justice and make the parties recognize the odds of winning the arbitration.On the other hand,it is conducive to promoting the efficiency of case resolution,optimizing the legal environment of dispute resolution,and sharing the social pressure in the field of litigation.However,at the same time,third-party funding has also brought impact to international arbitration procedures,especially in the conflict with the traditional principle of “Maintenance and Champerty”,conflicts of interest and information disclosure,the influence on the confidentiality of arbitration and so on.There is an urgent problem for countries and regions to be resolved,that is,how to clarify the advantages and disadvantages of third-party funding,maximize its positive functions and restrain its negative effects according to the existing international experience.At present,the third-party funding in mainland China is still in the stage of initial development,but specialized third-party funding institutions have emerged,such as“dslegalcapital” and some funding platforms in Beijing,Shanghai and etc.Under the background of “The Belt and Road”,more and more Chinese parties will actively or forcibly participate into international arbitration,especially for large amount of small and medium-sized enterprises in China.To a certain extent,third-party funding in arbitration can enhance their confidence and enthusiasm in protecting their legitimate rights and interests,thus generating more demand and dependence on third-party funding.However,at the regulatory level,there are currently no clear legal provisions on third-party funding in mainland China and no public litigation or arbitration cases involving the affirmation of third-party funding.There are some blanks in the regulation of third-party funding both in legislative and judicial levels.In mainland China,in order to encourage the third-party funding to develop in a legitimate and healthy way,enhance the influence of local arbitration institutions and promote the long-term development of arbitration industry,it is necessary to explore and better prepare the regulation of third-party funding.This paper consists of the following four chapters:The first chapter is an overview of third-party funding in arbitration.The first section defines and clarifies the definition of third-party funding and discusses the main characteristics of it.The third-party funding in arbitration can be illustrated in broad sense and narrow sense.In a narrow sense,only third-party investment is defined as third-party funding,acting as a kind of venture capital mode in the field of arbitration.Then,this section introduces the operation mode of third-party funding in arbitration,and clarifies that the focus of this study lies in the narrow scope.The main characteristics include that the funders are unrelated to the funded parties,they aim at making profits,the objects of funding are usually valuable arbitration claim and the funding institutions' costs are on a non-recourse basis.The second section introduces the industry development of the third-party funding.On the one hand,in the international field,third-party funding is a booming industry.On the other hand,especially in mainland China,third-party funding industry is in the developing period.It has been applied to play a direct or indirect role.The need for third-party funding in arbitration is inevitable.The second chapter is about the necessity of the regulation in third-party funding in arbitration.This chapter mainly demonstrates the necessity of regulating the third-party funding by discussing the advantages and functions as well as the potential negative impacts and problems that may arise from it.The first section introduces the advantages and functions of third-party funding in arbitration.Firstly,it can help the parties that are in weak economic status to resolve the financial crisis and initiate arbitral proceedings to get access to justice.Secondly,it can promote the parties to enjoy a more equal right to negotiate,thus promoting the efficient settlement of arbitration cases.Thirdly,the involvement of third-party funding can help the parties to better understand the case and evaluate the probability of winning the case,which is believed to be valuable.The second section deals with the potential problems arising from the third-party funding.First of all,it may lead to the impact on the traditional principle of “Maintenance and Champerty” in common law system and public policy in civil law system.Next,the investment relationship in third-party funding is more secret and has stronger economic relevance,which may lead to potential conflicts of interest and issues related to information disclosure.And the third-party funders may adversely affect the legal privilege according to the communications with the funded parties.Then,the funders' needs of controlling risks may have conflicts with parties' confidential obligations.In addition,third-party funding in arbitration can lead to problems such as the burden of arbitration costs.The third section discusses the necessity about regulation of third-party funding.Firstly,with the rapid development of third-party funding,only by regulating its potential negative effects can we better promote a healthy funding industry in international arbitration.Secondly,the regulation plays an important role.It helps to reduce the risks and promote the healthy development of third-party funding.The third chapter shares the international experience in the regulation of third-party funding.The first section emphasizes the cutting-edge attempt regulation of third-party funding in Singapore and Hong Kong.Both of them are famous seats of international arbitration,their experiences of regulation are highly representative and targeted.Their significant features of regulation include: firstly,they adopt a“two-track” approach to distinguish the regulation of third-party funding in litigation and arbitration and choose an arbitration-oriented regulation,limiting the current regulation to the arbitration field.Secondly,they choose to restrict or abolish the doctrines of “Maintenance and Champerty” and keep the exception clauses at the same time.Thirdly,considering the stability of arbitration,the effective prevention of conflicts of interest and the effectiveness and enforceability of the award,they choose to impose mandatory disclosure obligation on arbitration.Fourthly,they adopt a mixed regulatory framework,combining “Hard Laws” and “Soft Laws” together.The second section studies and refers to the regulatory experience of other countries and regions,mainly including Australian case restraint regulatory approach,the self-regulation approach in England and Wales and legal profession regulation in the United States.Also,there are some comments on the regulation above.The fourth chapter explains the choice of third-party funding regulation in mainland China.Section one introduces the feasibility of introducing third-party funding in arbitration into the mainland China.At the policy level,there is a macro-policy emphasizing the construction of alternative dispute resolution in China at present.The third-party funding will play a positive role in increasing the number of arbitration cases,which conform to the policy trend.It helps to stimulate the potential of arbitration market in China.At the commercial level,there is a vast market for legal services in mainland China.The introduction of third-party funding in arbitration will help attract foreign sponsors to enter the Chinese market.At the legal level,mainland China does not explicitly prohibit the third-party funding at present,and the existence of contingency fees and its related practices also show that the broad sense of third-party funding is allowed and recognized.Finally,the introduction of third-party funding also caters to the trend of international arbitration regulation.The second section studies the choice of regulation in third-party funding and puts forward some suggestions.Firstly,the regulation in mainland China can draw lessons from the regulatory experience of Singapore and Hong Kong that mainly aims at the field of arbitration.Secondly,the government should take a “light touch” approach in the early period,and reserve some space for the industry development of third-party funding in arbitration.Thirdly,at the legislative level,it is appropriate to adopt a mixed regulatory framework combined with “hard laws” and “soft laws”,and we can pilot the regulation in Free Trade Zones to see its effect.Fourthly,compared with direct legislation and law revision,amending the "soft laws" such as arbitration rules should be more suitable for mainland China.At the same time,the rights to decide whether to apply third-party funding in arbitration should be given to the parties.Fifthly,the mandatory disclosure obligation of third-party funding in arbitration should be legislated in mainland China.Sixthly,in the regulation of third-party funding in regulation,we should try to combine self-regulation with legal profession ethics to promote the cooperation of arbitrators,lawyers and arbitration institutions,so as to achieve a better regulatory effect.