INTRODUCTION

The use of third-party funding in international investment arbitration is increasing rapidly. This growth is driven in part by the high costs of arbitration, which have recently been assessed at over US$8 million per case.1 In the light of this development, this paper considers the role of third-party funding and attempts to identify certain trends in international investment decisions.

By way of background, the paper first considers certain features of investment arbitration and how these impact third-party funding. In particular, it looks at how third-party funding in investment arbitration is different from other contexts, such as commercial arbitration.

Second, it looks at how investment tribunals have addressed third-party funding. While there are a limited number of decisions, questions of jurisdiction and cost allocation have arisen where third-party funders are present.

Third, it notes a recent trend among some investors to voluntarily disclose third-party funding arrangements and discusses the possible implications of this trend, including an increase in challenges to such arrangements and, by consequence, in decisions by investment tribunals on these matters.

Finally, it concludes by observing certain trends in investment arbitration case law. In particular, it appears that investment tribunals have preferred to deal with the formal parties to the proceedings and have declined to recognize the role of third-party funders, which amounts to ignoring the elephant in the room.2 This reluctance raises the following questions - at what point will investment tribunals actually confront the role of third-party funding and how might they define its role?

1 WHAT MAKES THIRD-PARTY FUNDING IN THE INTERNATIONAL INVESTMENT ARBITRATION CONTEXT DIFFERENT FROM OTHER CONTEXTS?

International investment arbitration has characteristics that make it different from other forms of dispute resolution, such as commercial arbitration. Some of these differences include the basis for the tribunal's jurisdiction, the nature of the parties to the dispute, the transparency of the proceedings and the enforcement of awards, as well as various practical differences, such as the duration and cost of the proceedings. These characteristics, which are examined below, affect the way third parties fund international investment arbitrations.

First, unlike commercial arbitration, the jurisdiction of an investor-state tribunal is generally established by an international investment treaty (as opposed to a dispute resolution clause in a contract). For example, under a typical bilateral investment treaty (BIT) a host state will give its general open-ended consent in advance to arbitrate disputes with investors from the other state (as opposed to with a pre-identified party).3 The BIT will usually grant the investment tribunal jurisdiction over legal disputes that arise out of the BIT and that concern an investment made by an investor of one contracting state in the other contracting state.

This jurisdictional aspect of international investment arbitration affects third-party funding because the scope of the state's consent to arbitrate is limited. Namely, the state has only agreed to arbitrate those disputes arising from investments made by qualified investors (as defined in the relevant investment treaty). When funded by a third-party, questions could arise as to whether an investor continues to have standing to bring claims. This includes such questions as whether the state's consent to arbitrate extends to disputes where the party with a real interest in the claims appears to be a third-party funder (as opposed to the investor) and whether such a dynamic is consistent with the object and purpose of the treaty. States have an interest in knowing the identity of the investor (and its funder). They are likely to resist any attempt to broaden the scope of consent or the definition of investor under the relevant treaty, especially where this would permit third parties to benefit from rights that were only intended for qualified investors.

Second, the parties to an international investment arbitration are generally different from those in a commercial arbitration. The respondent in the proceedings is usually a sovereign state that hosts the international investment. The claimant is typically a private-party foreign investor that is responsible for initiating the arbitration and challenging the state's actions that have allegedly undermined its investment. Debate exists as to whether respondent states can pursue counterclaims against investors. Until recently, there has been a general perception that investment arbitration is limited to investors' one-sided claims against states.4

The fact that the respondent is generally a state affects third-party funding. It is the claimant investor, which may be funded by a third-party, that initiates and drives the proceedings, while the state assumes a largely defensive posture. There is also a low risk of the costs of the proceedings increasing as a result of counterclaims. Moreover, the state generally has the resources to satisfy an award, as opposed to a company, which may, for instance, file for bankruptcy. The state's resources are, however, public funds, which could raise policy issues where the proceeds of an award go to a third-party funder. With respect to enforcement of a potential award against a state, issues of sovereign immunity from execution may also arise.

Third, because of the public nature of the respondent state, the proceedings are generally transparent. International investment arbitration is of a mixed public-private character, and the proceedings and the majority of awards are made public. As a result of this transparency, commentators have noted that the possible outcome of the proceedings may be determined and predicted more effectively, which may be attractive to third-party funders.5 For example, based on publically available records and profiles, a number of variables can be assessed, such as how members of the tribunal are likely to decide certain issues, the likelihood of enforcing an award against a state and the effectiveness of counsel or experts.

Fourth, with respect to ICSID cases, the regime for the enforcement of awards under the ICSID Convention makes enforcement particularly effective and therefore attractive to third-party funders.6 Article 54(1) of the ICSID Convention provides that state parties shall recognize an award "as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State".7 Unlike the New York Convention, which applies to the recognition and enforcement of international arbitration awards, there are no possibilities for national courts to review ICSID awards. In this way, the ICSID Convention is more stringent than the New York Convention. Nevertheless, funders will carefully assess a state's profile and track record in order to determine the likelihood of successfully enforcing an award.8

Finally, there are a number of practical differences between international investment arbitration and other types of dispute resolution. The duration and costs of international investment arbitrations are generally greater than commercial arbitration, requiring an up-front investment by the claimant and/or third-party funder over a significant period of time.9 In turn, the awards tend to be bigger, which may make this a potentially lucrative field for third-party funding.10 While in commercial arbitration it is common for the losing party to be ordered to pay the winning party's costs, in investment arbitration there is significant uncertainty as to how investment tribunals will allocate costs between the parties.11

These unique characteristics affect the way third-parties fund investment arbitrations. These effects may include: the development by funders of sophisticated models that assess the risks of investing in a particular case based on publically available information; the need for significant up-front investment over a long duration, with the possibility of high returns; the potential for jurisdictional challenges where third-party funders are involved; uncertainty with respect to cost orders; and specific issues regarding enforcement. Moreover, as investment arbitrations are generally against states, specific public policy issues could arise. The next section will look at how some tribunals have assessed the role of third-party funding, particularly with respect to jurisdictional challenges and questions of costs.

2 HOW HAVE INVESTMENT TRIBUNALS ASSESSED THE ROLE OF THIRD-PARTY FUNDING?

The number of investment arbitration decisions that address third-party funding is limited. However, as this practice becomes more prevalent, the number of such decisions will likely increase. Among these decisions, two general categories emerge - decisions related to jurisdictional challenges and those related to costs. Each category is addressed in turn below.

a. Jurisdictional challenges

The principal jurisdictional issue that has arisen in the context of third-party funding concerns questions of standing. Where a third-party is funding the claimant investor, states have argued that the third-party funder (as opposed to the investor) is the real party with interest in the claim. In turn, tribunals have been called upon to determine whether such an investor has sufficient "interest", or standing, for the tribunal to exercise jurisdiction. This question has often been combined with allegations that the claimant's assignment of its claims affects its standing and that the third-party funder has interfered with the conduct of the proceedings or the claimant's client-attorney relationship. In the three cases to date that have addressed these matters, and which are discussed below, tribunals have rejected these jurisdictional challenges.

Quasar de Valores v. Russia

In Quasar de Valores v. Russia, Spanish investors in the Russian oil company Yukos brought an action against Russia for expropriation under the Spain-Russia BIT.12 The arbitration was not financed by claimants (or a third-party investment company) but rather by Yukos's major shareholder, Menatep, an entity that could not bring claims against Russia under a BIT.

Russia argued that the entire arbitration constituted an abuse of process and that the "[c]laimants are not the real parties in interest and have no genuine interest in the arbitration".13 They were individual shareholders that were financed by Menatep, "the only party-in-interest", and the only party with motives to bring the arbitration.14 Moreover, Russia contended that the claimants were not dominilitis (masters of the suit) in terms of choosing counsel, experts or making other strategic choices in the prosecution of their claims.15

The tribunal held that Russia's argument was

"at its core … a reaction to the Claimants' disclosure that their costs of prosecuting this case are born entirely by another party, namely Menatep, in part in order to establish that portfolio investors in Yukos are able to recover under BITs to which the Russian Federation is a party."16

The tribunal found Russia's arguments unpersuasive, even while recognizing that Menatep's motives for financing the case were in part to create a precedent in the case law. The tribunal nevertheless referred to Menatep as a "Good Samaritan" and did

"not see any element of abuse in this respect. The Claimants held very small stakes of Yukos which would scarcely have warranted the commitment of substantial resources to bring international proceedings against the Russian Federation. But there is no reason of principle why they were not entitled to pursue rights available to them under the BIT, and to accept the assistance of a third party, whose motives are irrelevant as between the disputants in this case."17

While Menatep was not a typical third-party funder, a number of important issues arose as a result of its funding of the claimants. First, it appears that Menatep had ulterior motives for financing the proceedings, namely the creation of favourable case law for future litigation. It was not entitled to any of the proceeds of the award and funded legal costs that were grossly disproportionate to the value of the claims (US$14.5 million in legal costs versus US$2.6 million in claims). Settlement was not an option, and Russia incurred US$9.4 million in arbitration costs. Consequently, it is questionable whether the proceedings were brought in good faith and in accordance with the object and purpose of the Spain-Russia BIT and Russia's consent to jurisdiction. Moreover, important allegations went largely unaddressed by the tribunal, such as whether Menatep controlled claimants' counsel or otherwise interfered with the client-attorney relationship. The tribunal seemed to skirt these issues, finding neither a violation of "due process" nor any "reason of principle" that would prevent the claimants from bringing their claims or accepting the assistance of a third party.18 In summary, the tribunal seemed to prefer to neatly focus on the formal parties to the proceedings and downplay the role of the third-party funder, Menatep.

Teinver v. Argentina

In the decision on jurisdiction in Teinver v. Argentina, the tribunal was asked to consider whether the claimants had standing in an arbitration where, in exchange for financing their litigation expenses, they had assigned certain rights in their claims to Burford Capital Limited ("Burford"), a third-party investment company.19

Argentina argued that the claimants could not have standing because the real interested party was the third-party funder. According to Argentina, Burford itself had invoked having a "common legal interest" with the claimants and would be the only party to benefit from a hypothetical award against Argentina.20 It noted, however, that Burford could not meet the jurisdictional requirements of the ICSID Convention (i.e., it was not a qualified investor or a national of the other contracting party under the Argentina-Spain BIT). "Thus, allowing Burford to benefit from a dispute settlement mechanism authorized under the Treaty is contrary to the object and purpose of the latter, and would impermissibly bypass the limits of Argentina's and Spain's consent to arbitral jurisdiction".21

The claimants argued that their funding agreement with Burford was irrelevant to the question of jurisdiction. They claimed that the parties' consent to arbitrate was perfected when the proceedings were instituted, well before the funding agreement.22 Moreover, Burford was not a party to the arbitration. The claimants did not sell or transfer their claims to Burford, rather Burford funded the arbitration in exchange for a percentage of the recovery in the event of a successful claim. The claimants noted that such financing agreements were frequently made and that Argentina could point to no investment decision that found third-party funding to be illegitimate, unlawful or inappropriate.23

Based on the fact that the funding agreement post-dated the date on which the arbitration was filed, the tribunal found sufficient grounds to reject Argentina's objection.24 It noted that jurisdiction is generally assessed at the date on which the case is filed, so that subsequent events, such as funding agreements, did not affect the tribunal's jurisdiction. "[T]o the extent that Respondent's standing argument is based on the assertion that Claimants transferred their rights or interests in this case to Burford after initiating this arbitration, this argument is unavailing".25 The tribunal also noted that tribunals have rejected arguments that claimants were no longer the real parties in interest where they had divested themselves of or had transferred the rights that had given rise to the dispute after the institution of proceedings.26

Thus, the tribunal chose to dismiss this claim based on the date of the funding agreement.27 Where such an agreement was entered into after the date on which the parties' consent to arbitrate was perfected, it did not affect standing. This does, however, leave open questions as to what happens when funding agreements are entered into prior to a case being filed, such as when investors publically disclose funding agreements even before litigation has commenced.28 Moreover, some commentators have argued that assignment of a claim to a third-party funder may transfer ownership of the claim and could prejudice a tribunal's competence.29

Ambiente Ufficio v. Argentina

In Ambiente Ufficio v. Argentina, the tribunal was asked to assess the role played by a third party, the North Atlantic Société d'Administration (NASAM), which, in addition to funding the claimants, coordinated, organized and instigated the arbitration.30 Argentina's principal concern was not necessarily NASAM's funding of the arbitration but rather its general control over the proceedings. Argentina argued that the claimants were not acting personally for the enforcement of their own rights but that it was in fact NASAM that was acting on their behalf. It further argued that NASAM exercised control beyond that of a third-party funder, making it the real party of interest in the case. Argentina claimed that NASAM selected and instructed claimants' lawyers, that it controlled the case and that it was the sole beneficiary. In this way, NASAM's mandate interfered with the client-attorney relationship and "created an impermissible barrier between claimants and their lawyers".31

While the tribunal recognized that NASAM "played a crucial role" and had a "special relationship" to the claimants, this was not enough to find that it "controlled" the proceedings.32 The tribunal found that NASAM was not a party to the proceedings and that its mandate did not interfere with the claimants' ability to conduct the proceedings or instruct their counsel. In particular, there were "no substantiated indications that there would be an external control of the present proceedings by an external actor or a conflict of interests which would undermine the proper exercise of jurisdiction by the Tribunal".33

In this way, the tribunal preferred to focus on the formal parties to the dispute, though it did consider whether there were any negative effects on the conduct of the proceedings caused by the third party. The tribunal suggested that, absent proof that a third party controls the proceedings or that conflicts of interest exist, its competence would not be affected.

In the few cases to have addressed jurisdictional challenges with respect to third-party funders, a number of important issues have arisen, such as standing, the consent of the state parties to arbitrate and the integrity of the proceedings. Despite the often significant involvement of third-party funders, tribunals have dismissed these challenges and have considered only the formal parties to the proceedings. The bar has been set high for challenges to a tribunal's jurisdiction in these circumstances. The practice of downplaying the role of third-party funders is also seen in decisions on costs, as will be discussed in the next section.

b. Costs and security for costs

The international investment cases that address third-party funding and costs include allegations by both investors and states that they should not be responsible for the other party's costs where such party is funded. Notwithstanding which party alleges the involvement of a third-party funder, tribunals have not taken into account third-party funding arrangements when allocating costs between parties. Instead, they have looked at the conduct of the formal parties to the arbitration and have used cost allocation to penalize a party that attempts to frustrate the proceedings. A second question that has arisen is whether a state can obtain security for costs in cases where an investor delays proceedings in an attempt to secure funding.

i. Costs

The three main cases to address cost allocation in the presence of third-party funding are the joint cases of Ioannis Kardassopoulos and Ron Fuchs v. Georgia, and two annulment proceeding decisions in RSM v. Grenada and ATA Construction v. Jordan.34 Each is described briefly below.

Ioannis Kardassopoulos and Ron Fuchs v. Georgia

The first decision, which applied what has been called a "do not tell, do not ask" policy, was rendered in the cases of Ioannis Kardassopoulos and Ron Fuchs v. Georgia.35 Georgia argued that the claimants' legal costs should not be covered because they had been borne in part by a third-party investor and "it is questionable whether such costs are properly recoverable".36 The tribunal rejected the notion that third-party financing should be taken into account when assessing costs, holding that it "knows of no principle why any such third-party financing arrangement should be taken into consideration in determining the amount of recovery by the Claimants of their costs".37 The tribunal noted that costs may follow the event or may be shifted to the losing party and ordered Georgia to pay the claimants' legal fees of over US$6 million plus expenses.38

RSM v. Grenada

In RSM v. Grenada, an ICSID ad hoc committee ordered the proceedings to be discontinued and the investor to reimburse Grenada for legal costs associated with the annulment proceedings.39 RSM sought to annul an unfavourable award arising out of a contract-based arbitration. However, it did not pay certain costs, and the proceedings were stayed for more than six months. ICSID moved for discontinuation, which was not objected to by the parties.

Grenada argued that RSM should be liable for its costs to defend the aborted case. RSM denied this, especially as it believed Grenada's costs to have been paid by a third party. Grenada did not admit to any third-party funding arrangement but in any event referred to the award in Kardassopoulos and Fuchs v. Georgia, in which the tribunal stated that it knew "of no principle why any third-party financing arrangement should be taken into consideration".40 The committee concurred and ordered RSM to pay Grenada's costs.41

ATA Construction v. Jordan

A similar decision was rendered by the ad hoc committee in ATA Construction v. Jordan, where the claimant (a Turkish investor) argued that it should not assume the costs of the annulment proceeding, as the respondent, Jordan, was funded by a third-party Jordanian company, APC, formerly controlled by respondent.42 The committee reiterated the "do not tell, do not ask" policy espoused in Fuchs, observing that

"it 'knows of no principle why any … third party financing arrangement should be taken into consideration in determining the amount of recovery by [parties] of their costs' incurred in arbitration proceedings".43

Moreover, the Committee found that ATA had unnecessarily increased the costs of the proceedings for Jordan by opposing a number of measures to defer procedural steps in the annulment proceedings.44 The committee therefore considered that "equity and fairness" dictated that ATA should contribute to Jordan's costs.45

These cases stand for the principle that tribunals will not generally take into account third-party funding arrangements in decisions on costs. Instead, they may consider the conduct of the formal parties to the dispute and use cost orders to penalize a party that causes disruptions to the proceedings.46

ii. Security for Costs

Where an investor has struggled to secure third-party funding to keep annulment proceedings going, a state may try to obtain security for costs.47 In the Commerce Group v. El Salvador annulment proceedings, an ad hoc committee considered whether it had the ability to order security for costs pursuant to its inherent powers to protect the integrity of the proceedings.48

Commerce Group was in financial difficulties and was negotiating with several third-party funders in an attempt to secure financing to cover litigation expenses associated with the annulment proceedings it had commenced against El Salvador. It had failed to pay ICSID's advance on costs, and as a result the annulment proceedings were stayed in December 2011. Five months later, the Secretary General of ICSID recommended that the proceedings be discontinued if payments were not received.49 Commerce Group responded by requesting an extension of two months to make payment, as it continued attempts to secure third-party funding.50

Despite the Secretary General's recommendation for discontinuance, the ad hoc committee decided "to grant a one-time 10-day extension", which amounted to an additional month from the expiration of the deadline.51 In total, the proceedings were delayed for nearly seven months, and extra time was given on account of Commerce Group's negotiations with third-party funders, which could be seen as a tacit endorsement by the committee of the role of third-party funding in international investment arbitration.

In response to these delays, El Salvador submitted an application for security for costs.52 It requested that the committee order Commerce Group to post security of US$2 million for its estimated legal fees and costs as well as the estimated fees, costs and expenses of ICSID and the committee. El Salvador argued that Commerce Group had initiated annulment proceedings that it could not fund, which constituted an abuse of process, and that security was necessary in order to ensure funds to cover El Salvador's costs.

The ad hoc committee confirmed that it could use its inherent powers to order security for costs. However, such power would be exercised "only in extreme circumstances, for example, where abuse or serious misconduct has been evidenced".53 In the present case, the committee could not identify "incontrovertible evidence" of abuse, bad faith or any threat to the integrity of the proceedings, and El Salvador's application was refused.

The decision confirms that ad hoc committees have inherent powers to order security for costs in ICSID annulment proceedings, but that this power will be exercised only in "extreme circumstances".54 Nevertheless, it remains to be seen how this standard will evolve, and at what point the "integrity of the proceedings" could be affected by third-party funders (or lack thereof).

As a postscript to this case, three months after this decision, the annulment proceedings were suspended for a second time due to lack of payment. Based on this second suspension, El Salvador requested reconsideration of its request for security for costs. It also included, as an alternative request, that the amount of advance payment requested from Commerce Group be increased to cover the estimated costs of the entire proceedings so as to avoid further delays. Commerce Group replied that it was at an advanced stage of discussions with a new set of third-party funders, which would be concluded within the week with funds possibly available by the end of the month. In a surprising move, it filed a letter from a third-party broker as proof of its attempts to secure financing.55 Ultimately, the committee decided to increase the advance on costs payable by Commerce Group, but it denied El Salvador's request for reconsideration of its application for security for costs.56 However, the fact that Commerce Group disclosed a letter by a third-party funder could presage a new "normal" with respect to disclosure and acceptance of the role of third-party funding in international investment arbitration.

Where an investor is unable to finance the costs of arbitration without the backing of a third-party funder, tribunals might consider ordering security to cover the costs incurred by the state where there is a chance that the investor will abandon its claims. States may also increasingly call upon the inherent powers of tribunals or ad hoc committees to take measures to safeguard the integrity of the proceedings where there is a significant risk created by questionable third-party funding arrangements. The next section will consider disclosure of third-party funding arrangements.

3 THE TREND TOWARDS TRANSPARENCY - INVESTORS DISCLOSING THIRD-PARTY FUNDING ARRANGEMENTS

Recently, investors have voluntarily disclosed their third-party funding arrangements, which is permissible due to the largely transparent nature of international investment arbitration. Disclosures were made by Oxus Gold plc. ("Oxus"), which is involved in an UNCITRAL arbitration against Uzbekistan, and by EuroGas Group, which has indicated that it intends to bring ICSID proceedings against the Slovak Republic.

By way of background, Oxus brought UNCITRAL arbitration proceedings against Uzbekistan in August 2011, alleging that the state breached the United Kingdom-Uzbekistan BIT by, inter alia, unlawfully expropriating the company's interest in two mining projects.57 The company operated exclusively in Uzbekistan, meaning that as a result of the state's actions, its operations and revenue effectively ceased. This created significant cash flow problems, affecting the company's negotiating position vis-à-vis Uzbekistan and its ability to fund its law suit. It came as a significant relief to shareholders when, on 1 March 2012, Oxus voluntarily issued a press release, entitled "Litigation Funding", describing the terms of a litigation funding agreement.58 Specifically, the funder would pay Oxus's legal costs related to the arbitration in return for a material stake in any settlement. The funding was provided on a non-recourse basis, meaning that the funder would recoup its fees only in the event of a final settlement. The amount of these fees also depended on, inter alia, the value of and time needed to reach settlement. Unsurprisingly, on the same day as its disclosure, Oxus's share price rose by more than 32%.59 Moreover, the entry of a third-party funder also led to the appointment of new counsel, which could raise concerns with respect to control over the attorney-client relationship.60

Similarly, in November 2012, the EuroGas Group issued a press release stating that it had secured third-party funding for its legal costs so that it could pursue its billion dollar ICSID arbitration against the Slovak Republic. The company stated that "[a]fter having examined the damage claim proposed by EuroGas and evaluating its prospects for a successful outcome, the Fund agreed to finance all legal costs related to the proceeding, confident in the merit of the claim".61 The dispute relates to the alleged expropriation by Slovakia of the Gemerska Poloma talc mine, which belonged to EuroGas' affiliate, Rozmin s.r.o. The company added that the "financial backing of EuroGas will insure that it will have the means to vigorously pursue its damage claim before the international arbitration institution ICSID".62 On 15 March 2013, EuroGas announced that it had been admitted to trade on the GXG Markets First Quote, a market designed for small and medium-sized companies that look to raise funds through a private placing.63 It is possible that the fact that EuroGas managed to secure funding for its claims against Slovakia influenced its decision to be listed.

It appears that disclosure of third-party funding can make sense for companies in certain cases. For example, it may positively affect the company's valuation, which means that it can actually be in the company's interest to disclose. Moreover, instead of tying up funds in litigation costs, third-party financing permits these funds to be reinvested in the company.64

However, in cases where an investor's third-party funding arrangement has been made public, it may increase the likelihood of the state challenging the arrangement. To the extent that this trend continues, tribunals will likely be increasingly called upon to decide issues with respect to the role of third-party funders.65 At the same time, the increase in voluntary disclosure of third-party funding arrangements will add to the debate on whether parties should be required to disclose these arrangements.66

CONCLUSION

While a substantial body of investment arbitration case law concerning third-party funding has yet to develop, some trends appear to be emerging. In particular, investment tribunals seem to prefer to ignore third-party funding - the elephant in the room - and to deal exclusively with the formal parties to the arbitration. They have thus declined to directly recognize third-party funders as having a role in investment arbitration.

For example, tribunals have dismissed allegations that third-party funders are real parties "in interest" or that they could "control" the proceedings. They also appear reluctant to rule on the links between a claimant, its counsel and the third-party funder, a relationship triangle that might be considered beyond the reach of the proceedings. With respect to orders for costs, tribunals have ignored the effect of third-party funding, and any procedural misconduct (such as delay) or subsequent adverse costs rulings have been imputed to the formal parties. Security for costs has been denied even where a tenuous relationship existed between the investor and its third-party funders and where a risk existed that the investor would be unable to pay an adverse costs order.

The current trend in case law suggests that tribunals would recognize challenges to the involvement of third-party funders only when a significant risk of disruption to the proceedings existed. This would likely have to rise to the level of abuse of process or to an undermining of the tribunal's jurisdiction. While unclear, based on the cases reviewed in this paper, these disruptions might include proof that the third-party funder actually controls the proceedings, that a conflict of interest exists between the third-party funder and the tribunal or that the investor is deemed to have transferred its ownership in the claim to a third-party before the tribunal's jurisdiction has been established. In the light of these circumstances, states may also begin to call more frequently upon tribunals to use their inherent powers to ensure the integrity of the proceedings.

With respect to orders for the allocation of costs, there do not appear to be any indications that tribunals will begin to directly consider the role of third-party funders. However, where an investor has dubious third-party financing arrangements and risks being unable to pay an adverse costs order, tribunals may be more frequently called upon to order security for costs.

In any event, cases challenging the role of third-party funders in international investment arbitrations are likely to increase as third-party funding arrangements become more common and are increasingly disclosed. In this way, tribunals may be forced to ultimately confront the elephant.

1
OECD, 'Government Perspectives on Investor-State Dispute Settlement: A Progress Report', Freedom of Investment Roundtable, 14 December 2012, OECD, Investment Division, Directorate for Financial and Enterprise Affairs, Paris, France, p. 9 ("Although information about costs is limited, it appears that legal and arbitration costs for the parties in recent ISDS cases have averaged over US$8 million. In a recent case involving mass claims, the parties had spent almost US$40 million in legal fees alone by the time the tribunal decided it had jurisdiction to decide the merits."). Available at: http://www.oecd.org/daf/inv/investment-policy/ISDSprogressreport.pdf.

2
Particularly with respect to decisions on costs, this has also been referred to as a policy of "do not tell, do not ask" in the excellent paper on this issue by Willem H. van Boom, 'Third-Party Financing in International Investment Arbitration' (December 2011), p. 50. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2027114.

3
Id., at p. 14.

4
See Jean E. Kalicki, 'Counterclaims by States in Investment Arbitration', Investment Treaty News, 14 January 2013 (discussing two recent ICSID decisions that reached opposite conclusions on the issue of jurisdiction over a state's counterclaims and suggesting a need to revisit this issue in a more systematic way). Available at: http://www.iisd.org/itn/2013/01/14/counterclaims-by-states-in-investment-arbitration-2.

5
Eric De Brabandere and Julia Lepeltak, 'Third-Party Funding in International Investment Arbitration', ICSID Review 27(2) (2012), p. 383.

6
Id., at p. 387.

7
ICSID Convention, art. 54(1).

8
Consider, for example, the track record of Argentina, which has systematically failed to comply with ICSID awards. See also Sarah Downey, 'Euro-Gas secures total funding for ICSID suit', Commercial Dispute Resolution, 19 November 2012, p. 2 ("'In practice ... it all depends on who the sovereign is. Funders will assess carefully the sovereign profile and track record. This will have an effect on the pricing of the capital for funding.'"). Available at: http://www.cdr-news.com.

9
OECD, supra note 1, at p. 8.

10
Id., at p. 9.

11
Van Boom, supra note 2, at p. 54.

12
Quasar de Valores SICAV S.A. et al. (formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC case no. 24/2007, Award, 20 July 2012. Available at: http:// www.italaw.com/cases/documents/1510.

13
Id., at para. 11.

14
Id., at para. 12.

15
Id., at para. 31.

16
Id.

17
Id., at para. 33.

18
Id.

19
Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID case no. ARB/09/1, Decision on Jurisdiction, 21 December 2012. Available at: http://italaw.com/cases/documents/1650.

20
Id., at para. 245.

21
Id., at para. 246.

22
Id., at para. 250.

23
Id., at para. 254.

24
Id., at para. 259.

25
Id., at para. 256.

26
Id. With respect to tribunals rejecting arguments on standing based on objec tions to the "real party in interest", see Ceskoslovenska Obchodní Banka, a.s. v. Slovak Republic, ICSID case no. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999, para. 32 (holding with respect to the claimant's planned assignment of its claims that the absence of beneficial ownership in a claim or the transfer of the economic risk in the outcome of a dispute should not affect standing). Available at: http://www.italaw.com/ cases/238.

27
See, however, the separate opinion of Kamal Hossain, in which he concurred with the tribunal's holding on standing but noted that the existence of a third-party funding agreement could affect relief granted at the merits phase, though it is unclear what those affects could be. See Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID case no. ARB/09/1, Separate Opinion of Dr Kamal Hossain, 21 December 2012, at paras. 33, 37. Available at: http://italaw.com/cases/documents/1650.

28
For example, this could potentially be an issue with respect to EuroGas, which disclosed its third-party funding arrangement though it has not yet filed a case with ICSID. See also section 3 below.

29
See Van Boom, supr a note 2, at p. 53.

30
Ambiente Ufficio S.p.A. and Others v. Argentine Republic, ICSID case no. ARB/08/9 (formerly Giordano Alpi and Others v. Argentine Republic), Decision on Jurisdiction, 8 February 2013. Available at: http://www.italaw.com/ cases/1750.

31
Id., at para. 186.

32
Id., at paras. 277-278.

33
Id., at para. 278. With respect to potential conflicts of int erest and thir d-parties, especially in regard to amicus curiae submissions, see Van Boom, supra note 2, at pp. 12-13.

34
See Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID case nos. ARB/05/18 and ARB/07/15, Award, 3 March 2010, at para. 691, available at: http://italaw.com/cases/documents/600; RSM Production Corporation v. Grenada, ICSID case no. ARB/05/14, Order of the Committee Discontinuing the Proceeding and Decision on Costs, 28 April 2011, at para. 68, available at: http://italaw.com/cases/documents/941; ATA Construction, Industrial and Trading Company v. Hashemite Kingdom of Jordan, ICSID case no. ARB/08/2, Order Taking Note of the Discontinuance of the Proceeding, 11 July 2011, at para. 34, available at: http://www.italaw.com/cases/97.

35
Van Boom, supra note 2, at p. 50.

36
Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID case nos. ARB/05/18 and ARB/07/15, Award, 3 March 2010, at para. 686.

37
Id., at para. 691.

38
Id., at para. 692.

39
RSM Production Corporation v. Grenada, ICSID case no. ARB/05/14, Order of the Committee Discontinuing the Proceeding and Decision on Costs, 28 April 2011, at para. 68.

40
Id.

41
Id., at paras. 68, 69.

42
ATA Construction, Industrial and Trading Company v. Hashemite Kingdom of Jordan, ICSID case no. ARB/08/2, Order Taking Note of the Discontinuance of the Proceeding, 11 July 2011.

43
Id., at para. 34.

44
Id., at para. 33.

45
Id., at para. 35.

46
A subsequent issue to consider is enforcement of cost orders and whether third-party funders could somehow be liable for these. This issue was raised by states participating in the OECD Freedom of Investment Roundtable on 14 December 2012. See OECD, supra note 1, at p. 9.

47
See also Libananco Holdings Co. Limited v. Republic of Turkey, ICSID case no. ARB/06/8, Decision on Preliminary Issues, 23 June 2008, at paras. 35, 59 (where the Tribunal denied the Respondent's application for security for costs, which was based in part on the argument that the Claimant was funded by a third party). Available at: http://www.italaw.com/cases/626.

48
Commerce Group Corp. and San Sebastian Gold Mines Inc. v El Salvador, ICSID case no. ARB/09/17 (Annulment Proceeding), Decision on El Salvador's Application for Security for Costs, 20 September 2012. Available at: http://www.italaw.com/cases/296. See also the publically available record on this case, including the parties' correspondence regarding third-party funding, available at: http://www.minec.gob.sv/index.php?option=com_phocadownload&view=section&id=16:commerce-group-vrs-repblica-de-el-salvador&Itemid=63.

49
Id., at para. 11.

50
Id., at para. 12. See also letter from Commerce Group of 18 June 2012. Available at: http://www.minec.gob.sv/index.php?option=com_phocadownload&view=category&id=79:correspondencia-relacionada-a-pago-al-ciadi&Itemid=63.

51
Id., at para. 16.

52
Id., at paras. 15, 19.

53
Id., at para. 45.

54
On inherent powers, see Constantinos Salonidis, 'Inher ent Powers of ICSID Tribunals', in I. Laird and T. Weiler, eds., Investment Treaty Arbitration and International Law (Juris Publishing, 2012).

55
Letter from Commerce Group to ad hoc Committee of 11 January 2013. Available at: http://www.minec.gob.sv/index.php?option=com_ phocadownload&view=category&id=79:correspondencia-relacionada-a-pago-al-ciadi&Itemid=63.

56
E-mail from ICSID of 18 January 2013. Available at: http://www.minec.gob.sv/ index.php?option=com_phocadownload&view=category&id=79: correspondencia-relacionada-a-pago-al-ciadi&Itemid=63.

57
See Oxus Gold plc v. Republic of Uzbekistan, the State Committee of Uzbekistan for Geology & Mineral Resources, and Navoi Mining & Metallurgical Kombinat, UNCITRAL, Notice of Arbitration, 31 August 2011. Available at: http://italaw.com/cases/documents/782.

58
Oxus Gold Plc, Press Release, 'Litigation Funding', 1 March 2012. Available at: http://www.reuters.com/article/2012/03/01/idUS101378+01-Mar- 2012+RNS20120301.

59
David Keohane, 'Oxus leaps after securing legal funding', Financial Times, 1 March 2012. Available at: http://www.ft.com/intl/ cms/s/0/1e2923a2-63c5-11e1-9686-00144feabdc0.html#axzz2J0M8Z6lB.

60
See Kyriaki Karadelis, 'Oxus Gold claim survives jurisdictional challenge',Global Arbitration Review, 16 November 2012 ("Calunius's entry into the case in February led to Oxus retaining new counsel"). Available at: http://www. globalarbitrationreview.com/news/article/30985/oxus-gold-claim-survives-jurisdictional-challenge.

61
EuroGas, Press Release, 'Europäischer Investment-Fonds finanziert Milliar den- Klage der EuroGas Gruppe gegen die Slowakische Republik', 6 November 2012. Available at: http://www.eurogas-ag.com/76-0-AdHoc-Meldung.html

62
Id.

63
See EuroGas, Press Release, 'EuroGas AG is Admitted To Trading On The GXG Markets First Quote', 15 March 2013. Available at: http://www.eurogas-ag. com/119-0-Pressemitteilung.html.

64
Downey, supra note 8, at p. 2 ("'I think these large-scale funding transactions are part of a growing trend', says Marius Nesta, chief executive at London-headquartered funder Redress Solutions. 'These companies don't want to use their own cash to fund litigation but instead want to use their cash to grow their business… optimal utilization of cash is absolutely key for any organization.'").

65
Where disclosure of a third-party funding arrangement occurs, members of tribunals may want to ensure that they have no conflicts of interest with such funders.

66
On the disclosure of third-party funding arrangements, see also Maxi Scherer, 'Out in the open? Third-party funding in arbitration', Commercial Dispute Resolution, 26 July 2012. Available at: http://www.cdr-news.com/categories/ expert-views/out-in-the-open-third-party-funding-in-arbitration.