INTRODUCTION

A third-party funder does not have it easy in deciding whether to fund the capital needed to pay the legal fees for prosecuting an international arbitration claim. The investment decision must be made with little in the way of a track record. Few known investments have been made in commercial arbitration claims. While they have been made in public international claims - claims against foreign sovereigns under ICSID - even those leave a lot to be desired in terms of tangible known factors on which to base a decision.

Furthermore, in all arbitrations, rules of confidentiality make it hard if not impossible in most cases to determine and analyse what has gone on in the past and is going on now. Add to that problem the fact that arbitrations involve less defined and definite rules of procedure, coupled with an inclination of arbitrators to compromise claims, plus a wide discretion for those arbitrators to reach a decision, and the picture becomes more opaque.

These complexities are then put into the mix of complexities of the funding industry. Here, the drivers in a decision may have been identified, taken from ordinary investment decisions - demand, supply, risk, reward, quality and price, to cite key examples - but the factors needed to gauge and determine these drivers, such as experience, rules and predictability, are in their early days.

A particular problem as it relates to international arbitration is that most of the attention and guidelines in the funding world today only relate to domestic disputes. They do not yet relate directly to international arbitration.

In fact, for the most part, they do not even relate directly to international disputes at all, whether arbitration or litigation. This is true even though funding an international claim is distinctinctly different from funding a domestic one. At least two layers of added complexity exist when a funder processes an international arbitration.

First, litigating an international dispute involves different pleading, discovery and trial rules than litigating a domestic dispute. For example, discovery may be disallowed entirely or minimized in an international dispute, as compared to full-blown discovery in a domestic dispute. Furthermore, the culture, local rules and practices, the language and the degree of government involvement all add major differences. In addition, litigators who are experienced and skilled in international litigation are usually trained in a distinct arena.

Second, the funder itself has many different considerations relating solely to funding. Certain aspects of funding may be permissible in one jurisdiction and prohibited in another. That type of problem applies across the board to an almost countless number of issues. Differences in culture, the local rules and practice, the language and the degree of government involvement all play their part in the funding decisions as well as in litigation decisions.

As discussed below, there is yet another major difference: that between international litigations and international arbitrations. The added complications resulting from this difference, referred to further elsewhere in this paper, are in themselves a challenge.

Where does this leave a decision-maker who is considering investing in an international arbitration claim? What can that decision-maker use as his or her compass?

To a significant extent, investors must be willing to imagine and predict what the unborn or unforeseen rules will turn out to be. They will have to work on a case-by-case basis. They will want to encourage and participate in the collection of information and experience and the creation of rules, regulations and guidelines.

There is no doubt that international arbitration claims are important, plentiful and growing. There is no doubt that third-party funding is also important and is also growing. There should be no doubt that certain funders with the capacity (and, unfortunately, some without the capacity) will chase international arbitration claims.

For reasons like these, this paper urges that investment in international arbitration claims be facilitated through the development of a record of experience as well rules, regulations and guidelines (voluntary and/or involuntary). This multi-layered path is both feasible, as discussed below, and needed. The key step now is to make an emphatic start in that direction. Such a process should then gain momentum and a life of its own. In turn, the context will regularize and promote meritorious funding of international arbitration claims, as the market deserves.1

1 INTERNATIONAL ARBITRATION AND THIRD-PARTY FUNDING: SEPARATE INDUSTRIES

On separate tracks, international arbitration and third-party funding are expanding independently and decisively. Some of the same factors fuel both expansions, such as:

• increased international commerce and communications;

• increased competition among countries to attract international arbitration and third-party funding as a commercial advantage; and

• increased understanding of and experience with international arbitration and third-party funding.

In some important ways, there is even a parallel between the birth and growth of international arbitration about two generations ago and the experience of third-party funding today.

2 INTERNATIONAL ARBITRATION AND THIRD-PARTY FUNDING: LINKED INDUSTRIES

Although separate, the industries are also linked. Each has the capacity and utility to support the other. Third-party funding of international arbitration claims is, as a new partnership or industry, in fact on the rise.

a. History

As little as three years ago, little was said about international arbitration and third-party funding together. Since then, the situation has changed dramatically.

In 2011, some major conferences on the topic began to take place. The first one was held in New York, in June of that year. It was sponsored by the New York State Bar Association, together with Fordham Law School, and was organized by Edna Sussman.2 Another, held in Miami during November 2011, was sponsored by Iberian Lawyer and Kluwer Law International and was entitled "New Options for Funding International Arbitration". Several law firms publicized their involvement. Yet another conference was held in Madrid in December 2011. This conference was sponsored by the Corte de Arbitraje in Madrid and was organized by Bernardo Cremades.3 During that same year, several articles were also published on the topic.4

In March 2011, Columbia Law School held a one-day conference that included third-party funding of international arbitration, especially the funding arbitrations against sovereigns under ICSID.5 At the end of 2011, Global Arbitration Review and Fulbrook Capital Management published a booklet that included a comprehensive selection of court decisions, articles and other materials relating to the funding of international arbitration.6 Aren Goldsmith of Cleary Gottlieb Steen and Hamilton and Maxi Scherer of WilmerHale organized an in-depth study, round tables and reports on the topic that extended into 2012.7 Professor Maya Steinitz of the University of Iowa Law School published a major analysis and report on third-party funding in general, which included considerable coverage of funding of international arbitrations.8 Certain leading publications, such as Global Arbitration Review and Commercial Dispute Resolution, also started to focus more on the topic.9 The beat goes on.10 In the meantime, the funding of public international arbitrations against sovereigns also seemed to pick up.

b. Today

The drumbeat became even louder in 2012 and 2013. Recently, Columbia Law School created a Center for International Commercial and Investment Arbitration (CICIA), which devotes extensive time and advanced, different study to the industry.11 The New York University School of Law has established its own Institute on International Arbitration and has included funding within its ambit. The New York Center for International Arbitration, another new organization, will also address it. Leading centres are also devoting time and support to the study of third-party funding. An excellent example is the recent ground-breaking conference that the ICC Institute of World Business Law held on the topic in Paris in November 2012 (co-chaired by Bernardo Cremades and Antonias Dimolitsa). Major global consulting firms like FTI and NERA are also already focused on this issue.

c. Tomorrow

As to the future, the handwriting is on the wall: funding of international arbitration is becoming an industry unto itself. Equally evident is the fact that the industry has a long way to go. Many challenges - and many opportunities - lie ahead.

As noted above, international arbitration and third-party funding should be analyzed separately as well as together.

On the one hand, although it still preserves other crucial distinctions and advantages, such as confidentiality, choice of forum and choice of the decision-makers, international arbitration has shown that it has not achieved a number of its advertised advantages:

• it is too often expensive rather than inexpensive;

• it takes a considerable amount of time rather than being swift;

• it has many of the trappings of litigation rather than being free of them, as illustrated by the issue of discovery.

The overall international arbitration process has actually become comparable to litigation in several fundamental respects In addition, many arbitrations are still required to go through court proceedings. This occurs, for example, when injunctive relief is pursued, when the award is enforced or challenged and at the outset when facing the issue whether a matter is even arbitrable.

Third-party funding, for its part, has also faced challenges of its own. As these challenges are met, others seem to pop up in their place. For example, while issues of champerty, usury and excessive pricing currently seem to be somewhat less prominent, complaints concerning conflicts have become more prominent, as have complaints about the alleged encouragement of sham claims and dissatisfaction with the lack of formal rules and regulations. It appears that these new complaints are being addressed by firms with the same rigour and relative success. But as the industry expands, new issues will continue to arise. In addition, some old issues will remain, such as those concerning "control".

3 CURRENT STATUS

To date, the funding of international arbitrations has not yet drawn active fire as a collaboration and a new industry. That is no doubt due in good part to the fact that it is still early days. Relatively little has been said or written about such funding, although this is beginning to change. It is also due to the lack, in recent analyses, of a discussion of the distinctions and differences between the funding of domestic disputes and the funding of international disputes.

However, the challenges are starting and are expected to continue. The best illustration at this time is an extensive study and report published in November 2012 containing a broad survey and critique of international arbitration.12 Within the study, a separate chapter coupled international arbitration with funding.13 The report criticized this combination.

The true challenge faced by the funding of international arbitrations is to address adequately the criticism that is waiting in the wings. That goal will be achieved if the industry is able to get off the starting blocks. It can do so by creating a plan for this new industry that: (a) optimizes the benefits that it can deliver; (b) recognizes, anticipates and minimizes the issues and concerns that are genuine; and (c) deals with the less genuine concerns generated by faux critics who have a separate agenda.

As noted above, there is currently little in the way of judicial or arbitral decisions or of the literature addressing the funding of international arbitrations.

There is also very little material on the funding of international litigations. The international aspect has, as a whole, been lost on the sidelines. For example, there is not a word about it in the new UK Code of Conduct for Litigation Funders.14 That is equally true of the ground-breaking investigation and report carried out in the UK under the auspices of Lord Justice Jackson with the support and backing of the UK government (the "Jackson Report").15 The international side of funding litigation or arbitration was not touched, even though London is a centre for resolving international disputes and has recently announced that it is committed to becoming the centre of international arbitration.

The same can be said about the formal and important studies by Bar associations in the United States, such as: the American Bar Association's substantial and comprehensive three-year study (through the group it appointed as the ABA's 20/20 Working Committee)16; and the New York City Bar Association's Ethics Committee's study, publishing its important opinion on ethics and third-party funding in June 2011.17 None of these studies speak directly about the funding of international arbitration - or, for that matter, about domestic arbitration, or about international litigations as distinct from domestic litigations.

This, despite the fact that international disputes have become the most active aspect of litigations and arbitrations. They will only become more important as time goes by.

Yet, as referred to elsewhere in this paper, there are huge differences - ones that are of course far too extensive to discuss here - between litigating an international dispute and a domestic one. For example, different procedural rules apply (such as the requirement that a pleading filed abroad should be translated into the local language or served under various treaties or local rules), as do distinctly different discovery and trial rules (such as the common foreign rule - found in treaties as well as in the international concepts of comity and discretion - that US-style discovery is prohibited, or the local Swiss rule in existence at the time a foreign lawyer stepped onto Swiss soil to take a deposition, which provided for his arrest).

Naturally relating to these differences, the funding of international disputes, as opposed to their litigation, differs dramatically from the funding of domestic disputes, spawning related issues. What happens when some aspects of third-party funding are restricted in one jurisdiction, for example under the common law rule stating that a funder cannot legally or ethically "control" the funded litigation, but not in another that permits "control"? What happens if the international dispute needs some information gathering abroad but the local jurisdiction forbids discovery? In conflicts, which law governs and to what extent? What about in a situation calling for comity among the different countries, and the discretion of a local court to try to accommodate the foreign and different rule?

To make matters more complex, we must remember that there are many different types of funding relating to such varied disciplines as the international arbitration of patent claims, antitrust claims and claims against sovereigns. There are a host of differences that can arise, some relating to new "products" and services, such as funding of the defendant rather than the claimant.

An overarching and far-reaching challenge exists because of the gaping differences between international litigation and international arbitration. These differences - which can sometimes be reconciled or at least harmonized up to a point - cover legal, procedural, ethical, cultural and governmental issues. They have their own impact and raise their own questions and hurdles for the funder.

In addressing such questions, the best that can be done at this stage is to analyze the situation as an independent, original state of affairs and see if there are any domestic rules - such as the UK Code of Conduct for Litigation Funders - can give guidance on what rule should be applied in the funding of international arbitrations. Some rules and policies from the domestic arena will certainly apply at the international level and can be borrowed or modified and then borrowed.

All this leads to the conclusion that the next steps that funding of international disputes must take, involve the formation of policy and the creation of rules, voluntary or involuntary regulations and guidelines. This is discussed below.

4 RULES, REGULATIONS AND GUIDELINES

Given the relative newness and complexity of the funding of international disputes as an industry, rules and regulations (e.g., legislation, voluntary rules, guidelines and other forms of regulations) are needed.

At the outset, the task involves breaking the "international" aspect up into segments, starting with a division between litigation and arbitration. Then there is a need for further subdivisions, such as a subdivision devoted to patents, another to antitrust, a third to breach of contract and a fourth to the funding of defendants versus claimants.

This exercise will take a lot to accomplish. Time is therefore not on the side of the rule-makers. For that reason, there is no time to lose.

5 A PROPOSED WAY FORWARD

a. Priorities

A set of priorities needs to be established. What are the most important general first questions to ask? Next, what are the most important specific questions to ask? How many of these specific questions can be profitably addressed before an overall general picture emerges? And how much of a general picture is needed to adequately address the specific questions?

b. Public policy v. contract policy

A starting point would be a general consideration of some of the rules and policies that govern litigations versus those that govern and distinguish arbitration. A difference here is that in litigation public policy is generally the chief governing consideration, ultimately trumping the will and wishes of the parties, while in arbitration the wishes of the parties, as reflected in their contract, are usually paramount. The importance and impact of that difference needs to take centre stage.

At the same time, attention can also be devoted to important subsets of subjects, such as those identified below.

c. "Control"

In litigation, it is commonly accepted that generally a third-party funder (or any other third party), cannot "control" the claim of another.18 The ultimate decision-making authority must remain with the claimant (and the claimant's lawyer and other representatives).19

In arbitration, the situation may be different. If the claimant in an arbitration proceeding contracts away control, should this not govern? If that is the wish of the parties, should this not end the matter? These questions deserve immediate attention. They will have different answers depending on the different specific situations.

d. Disclosure and transparency

What about disclosure and transparency? In litigation, a common question is whether there needs to be disclosure of a funding agreement to the court and other stakeholders. This question has not been fully answered. On the contrary, it remains largely unanswered. As with virtually all other basic questions, the question will have different answers depending on different situations.

In arbitrations, this question has particularly pertinent in the early stages, when conflict questions exist as to who the arbitrators are.20 Here, as a threshold issue, arbitrators have shown a distinct desire to know whether there is a funder involved. This may relate to whether the arbitrator is in a conflict situation. If an undetected conflict surfaces later, this could abort the entire proceeding.21 The question therefore impacts not only the arbitrators but also the parties. The impact could be catastrophic.

It, and other questions, are complicated by the fact that arbitration is generally such a confidential process. So is funding, to a significant extent.

In this context, the parties should consider the following questions early on:

• If it is agreed that funding should not be disclosed, can the parties waive any "conflict" that might have otherwise existed or been revealed?

• Can this waiver occur in the original arbitration agreement?

• Is the waiver of any impact on an investor?

• If one party refuses to agree to non-disclosure, does this mean that disclosure must occur, even though the rules of third-party funding often state that the existence of such funding should be kept confidential?

• Can partial disclosure be sufficient, e.g., the name of the funder but not the terms?

• What parallel rules exist in the litigation world that might give some guidance?

e. Other important illustrative issues

There is no lack of other issues competing for early attention. Can parties to an arbitration agree to other practices that may be prohibited (or questionable) in litigations, and if so, does this agreement bind all third parties such as the arbitrator, or an investor? For example:

• The claimant agrees to transfer "control" to the Funder.

• The parties agree to waive any conflict that might arise as a result of what the identities of the funder and arbitrators turn out to be?

• A price is agreed to for funding that might be considered unenforceable in a litigation under public policy because it is "usurious" or "unconscionable".

• It is agreed that any communications with the third-party funder will be subject to attorney-client privilege, even though in a litigation such communications might not be privileged under local law?

There is another key question that has still not been asked, let alone answered, in the world of litigation funding, and it relates to the issue of corporate compliance. When the claim of a public company is funded and the claimant has an arbitration agreement with the defendant, what corporate governance rules might apply to the funder and/or the claimant? Do they include the rules prohibiting price manipulation or insider trading? Is there any reason or requirement (given the strict confidentiality doctrines surrounding arbitration and third-party funding) to have different rules for arbitration and litigation? What are the policy concerns and goals of corporate governance rules outside the issue of funding? Moreover, how many issues can be anticipated and dealt with in the original arbitration agreement? (This and related topics are the topic of another paper being included by the ICC in this book)

These questions all qualify as good starting points for analyzing the differences between third-party funding in arbitration and litigation. They deal with recurring significant issues and require a review and comparison of the different policies and rules. Any rules resulting from this process will have a real impact. They will give a boost to and shed light on further study and progress.

6 ONE SIZE DOES NOT FIT ALL

In any study, we have to consider the fundamental truth that international arbitration is multi-faceted. First, it consists of two key elements that have some overlap but also have substantially different contexts and needs. Private commercial international arbitration is not public arbitration against sovereigns. The nature of the disputes and disputants differs widely. In fact, for various reasons, third-party funding has been comparatively significant in international public arbitration against sovereigns, in contrast to international commercial arbitration.

Second, as noted above, the international arbitration of a patent dispute differs from an international arbitration of an antitrust claim, which in turn differs from a simple breach of contract case. Each situation demands its own analysis. Each occupies an important field of international arbitration. Each poses different considerations for funders. One size does not fit all.

7 THE INVESTMENT DECISION

a. Is it all worth it?

If one puts oneself in the shoes of a potential funder in an international arbitration claim, the decision may initially appear as a challenge that is not worth taking or is even impossible to make - at least in the abstract and when compared to investments in claims that the investor has frequently invested in before. What has led funders to overcome this possible initial reaction, and what can encourage them to do so in the future?

First and foremost, investors that are familiar with international arbitration know that international arbitration claims are already significant and will only become more so in the future. Investors also familiar with funding, know that international arbitration claims are very possibly on their way to becoming as attractive an opportunity as any other in the funding world. This view is supported by several facts, such as:

• International arbitration agreements almost by definition frame big-ticket transactions that have the potential to give rise to a host of big-ticket claims.

• International arbitration claims can also be found outside the United States and the United Kingdom, which currently have by far the largest claims markets in the world.

• International arbitration claims are expanding in terms of quantity and quality and will continue to do so as international commerce and communications continue to grow.

This expansion of arbitration claims is especially apparent in certain areas. One such area is patent claims. International arbitration in this area is growing rapidly and is likely to grow faster, harder and higher than in most other areas.

Another area that has seen expansion in terms of international arbitration is antitrust claims. The size of these claims and the opportunities they provide are particularly interesting to certain funders. They also, with some frequency, are linked to patent claims as counterclaims.

International arbitration claims thus present attractive investment opportunities. They represent a new and in many ways untapped market. This market is big and will only get bigger. Qualified investors should therefore find such opportunities impossible to resist and will establish decision-making frameworks to make such investments. The basic elements of those frameworks are discussed below.

b. Investing 101

As noted by various observers and practitioners, investing in claims is in many ways no different than other forms of investing by established investors, such as private equity funds, venture capitalists and hedge funds. The asset is the claim (or a portfolio of claims). The investment is in the claim. The return to the investor, if any, typically materializes when the claim is resolve - the asset is "sold" or otherwise transferred - because the defendant or another party pays for the claim on settlement or after an award is enforced.

This may be compared to a private equity entity that invests in a company that has one or more (or many) litigation claims. Those claims are part of the investment assets. In fact, they are commingled with business assets and risks. This commingling of litigation risks with business risks can make evaluation of the company more difficult than analyzing a single commercial claim.

The individual claim is valued through a procedure unique to each investor and investment, although the various valuation procedures have some common ground.22 Through various stages of analysis, the potential investor examines the facts, law and issues at stake in the claim - does its "due diligence" - to determine what the chances are that the claim will be successful and what amount the claimant may be able to recover.

Funders generally look for claims that have about a 75% chance of being successful.

In addition, funders typically look for a return of at least three to one on the capital invested, or 20% to 40% of the recovery, whichever is larger. This return is anticipated to take place within about three years.

This "formula" has countless variations. There are also independent and different approaches that funders can use (such as looking at the internal rate of return, or emphasizing total amount recovered versus a particular return on an investment). Further complicating the situation is the fact that institutional funders will review each claim within a portfolio of claims that have their own individual and group characteristics, an exercise that itself influences the funder's decision.

An investor in arbitration claims is thus in a situation comparable to other investors in other asset classes. The primary differences stem from the nature of the asset class. Within this particular asset class - arbitration claims - we find a large variety of claims: international versus domestic claims; international litigation versus international arbitration; patent claims versus antitrust claims versus breach of contract claims; and so forth.

c. Cost of the investment

The starting point of a decision to invest is often the investment cost. In funding, the cost is the capital needed to prosecute the claim (and sometimes some additional costs for business or personal or other use). That cost is usually budgeted at the beginning, although it can and often does vary as the prosecution unfolds.

d. Claim value: projected recovery amount and chance of success

The calculation of the value of the claim is discussed above. It might be compared to buying another asset and projecting the chance of selling the asset at a profit. If the projection is that the claim will recover $100 million and there is a 75% chance of the claim achieving this, the value of the asset is roughly $75 million.

Valuation can only be carried out by skilled and experienced evaluators. The investor needs to have these resources and know how to apply them.

e. Time to recovery

This is another important issue. A recovery within one year is of course far better than a recovery of the same amount within five years.

Investors will try to predict when a hearing or trial will occur and will then consider whether a settlement can be anticipated and, if so, in what timeframe and amount. The investor then estimates the time to recovery.

f. Demand v. supply

The amount of the demand cannot be determined with precision. The same holds true for the supply (considering both institutional funders and individual funders).

What seems undeniable, however, is that the demand significantly outstrips the institutional supply. This is confirmed by the large number of claims that are considered by institutional funders and the small number that are actually funded. A ratio of ten (or more) to one is often cited. While the true measure of demand is obviously not simply the number of claims coming in, since the true measure relates to the number of promising claims, among other things, it nevertheless provides some indication. So does the fact that leading institutional funders have committed so much of their capital that they have had to seek recapitalization and have again found the commitments to be extensive.

What also seems undeniable is that demand is growing more quickly than institutional supply. This is due to several factors behind this increase in demand. For instance, more claimants are learning about third-party funding, more claimants that can afford to pay their own way are choosing funding for its advantages, and defendants are starting to look for funding.

By comparison, on the supply side, the capital coming into the industry from institutional funders is coming in slowly for a number of reasons:

• the industry has high entry barriers;

• there are conflicts keeping many potential entrants out; and

• the industry is still hard to understand, even for experienced participants, because it is growing, evolving and changing so quickly and in so many ways.

As a result, there is a large and growing gap between demand and institutional supply.

A qualifying caveat needs mentioning, even stressing: starting to come over the horizon is a more visible activity from individual investors in individual claims - the hedge funds, private equity entities, family offices, high net worth individuals, and others - as distinguished from the institutional investors. This capital is potentially enormous. One hedge fund, for example, which has ten or more billion to invest, has more capital then perhaps the entire community of institutional funders.

While individual investors, especially hedge funds investing in the patent area, have been known for some time to be participants in the investment exercise directly or indirectly, the participation has been impossible to quantify. It still is. But what seems to be happening is that more of such investors are appearing in the media and otherwise. Another important new development in an industry, and market, that has so many wheels turning and so many new developments occurring constantly, that it is no easy chore trying to keep up, let alone plan.

g. Price to the claimant, profit to the investor

How much of the overall recovery will go to the investor? That figure is the price that the claimant pays for funding.

As noted, there are many factors that determine the answer to this question, and many different criteria and measures are used. The issue must also be negotiated with the claimant and its lawyers and representatives. To convey some important basics, the following discussion presents a somewhat oversimplified picture of the issue.

There are a vast number of ways to compute an investor's return in a given case. If we assume that the investment is $5 million; the goal is a three to one return on capital or 20% to 40% of the recovery, whichever is greater, that the return will occur in about three years, and the return will be $100 million, we end up with the following scenarios:

• The return on capital is $15 million, with at least $5 million to repay the capital advanced (not including a success bonus for the lawyers), and $10 million as the approximate net profit. The claimant receives the balance, or $85 million.

• The percentage of recovery, assuming 30%, is $30 million. After paying the lawyers, the approximate net profit to the investor is $25 million. Since this is higher than the multiple of the capital, this amount prevails. The claimant receives the balance, or $70 million.

While the above is an illustration based on an institutional investor, the formula might be used in an individual investment. Moreover, as stressed elsewhere, there is a vast array of different formulas or approaches that can be used in a third party investment.

It is worth noting, in any pricing/profit discussion in this industry, that, there are several reasons why the pricing and costs should eventually come down:

• greater experience and knowledge will be gained in the industry and the market;

• more skills will be developed in evaluating and prosecuting claims and pricing investments;

• efficiencies developed through experience and technology will lower the costs and risks for the investors;

• more investors will enter the industry;

• rules, regulations and guidelines will develop; and

• economists will study the industry and produce analyses, pricing ideas and proposals.

h. Intangibles

As in virtually all situations, many intangibles can play their part. Principles of 'right' and 'wrong,' pride and prejudice, reputation, commercial and personal relationships and so forth all have an impact. Each case comes with its own set of intangibles. A claimant or a defendant may be especially risk adverse, for example. Each case differs from the next as each snowflake differs from the next.

8 THE DECISION AND THE DECISION-MAKER

If the above makes anything clear, it is that decisions in this area are not for the unskilled. To be qualified, the decision-maker should have - or have access to - understanding, experience and skill in international arbitration. That is a tall order. It requires the decision-maker to draw on the expertise of several others, including litigators, financiers, risk analysts, damage analysts, specified business experts and others.

The decision-maker must also have - or have access to - understanding, experience and skill in the funding of international disputes in general and international arbitrations in particular. He or she must also have sufficient experience in funding for the type of claim involved (e.g., patents) and the jurisdiction involved (e.g., the UK or the US), as well as a mastery of other areas.

9 A POSITIVE OUTLOOK

With these qualifications and a good grip of the basic factors discussed above, decision-makers will find exciting opportunities. The market will also produce its own exciting opportunities.23 As more experience and skill are gained and as the market and industry mature, investment analysis and decision-making will themselves mature. The decision-maker will welcome a more user-friendly environment.

10 A START

With so many issues in this young industry, it is a daunting challenge to embark on a comprehensive study to foster understanding and guidance in the field of arbitration funding.

This complexity is increased because the funding world is changing every day, in important ways and sometimes at a gallop. For example, the funding of defendants, including sovereigns, has recently started to lift off. It also seems possible, if not probable, that at some point down the road the claims will themselves become tradable, both privately and publicly, with the concomitant development of good and bad derivatives. In fact, within each funding, as the proceedings develop from day to day, so do the needs and the applicable rules. The industry itself is also changing, as capital is being linked to special services to enhance or otherwise influence claims and expert advisers, delinked from capital, are appearing in reaction to the growth of the complexity of the industry and market.

Nonetheless, the very same considerations make the point that a start is needed.

Where does one start? The questions, considerations and speculations outlined in this paper provide several starting points for examining the general question as to what policies, rules, regulations and guidelines should be articulated, as well as for examining a number of specific questions about specific segments of the industry that are simultaneously demanding attention.

There are also many other valid starting points. An entirely different approach could be appropriate.

Complications are most terrifying at the outset. However, as is the case in a number of other funding areas, it is time to begin. The funding of international arbitration is a growth industry. That seems eminently true - and will remain so for as far as the eye can now see. Before this phenomenon develops too much more, it needs to be seriously studied and guided.

A swift start will ensure that immediate attention is given to some immediate problems and will make it clear that the project is both feasible and needed. The project will be a gift that keeps on giving to all participants in the industry.

1
Much of what is covered in this paper reaches into areas that have not yet been studied or documented. Indeed, the main thrust of the paper is that these areas require study and documentation. Rather than being based on other analyses, with citations, the points presented in this paper are based on commonly accepted premises and experience-based propositions, suggestions and proposals.On the other hand, a body of good basic sources of information and analysis is developing. This work and those contributing to it include: Lisa Nieuwald and Victoria Shannon, Third-Party Funding in International Arbitration (Kluwer Law International, 2012); blogs devoted to the industry, such as the blog recently started by Professor Maya Steinitz of the University of Iowa Law School and the Kluwer Arbitration blog; the Legal Futures website organized and run by Neil Rose, an experienced and respected voice in the funding industry; bar associations or societies such as the American Bar Association, and many state and city bar associations in the US, including the New York City Bar Association; the UK Law Society, which sponsors the Litigation Funding magazine; various sites of institutional funders and advisors, including Burford, Harbor Litigation Funding, IMF Funding, and Fulbrook Capital Management LLC; some trade journals and specialist journals, in particular Global Arbitration Review and Commercial Dispute Resolution, which are both based in the UK but whose impact stretches far beyond (CDR's editor, Edward Machin, is also an accomplished and admir ed journalis t who writ es e xtensively and w ell about third-party funding); institutions that focus on international arbitration, notably the International Chamber of Commerce, the recently established Columbia Law Center on International Commercial and Investment Arbitration (CICIA); conferences on the topic organized by LEXIS NEXIS; and lectures, conferences and roundtables organized at law schools and other institutions. Most recently, Keith N. Hylton has provided an economic rationale for the regulation of third-party funding which supports the claims made in this paper. See 'Toward a regulatory framework for third-party funding of litigation,' Boston University School of Law working paper 13-27 (2013) available at: http://papers.ssrn. com/sol3/papers.cfm?abstract_id=2281453. Hylton argues that because third-party funding is economically equivalent to the sale of legal rights through waiver, subrogation, and settlement, the regulation of these arrangements provides models for the regulation of third-party funding. This argument supports the view that third-party funding is another type of economic arrangement utilized in the administration of legal rights, amenable to regulation in the mode of other such arrangements.

2
Roundtable on Third-Party Funding of International Arbitration Claims: The Newest "New Thing", June 15, 2011, available at: http://consumerattorney resource.com/?page_id=414.

3
Seminar held on December 13, 2010, 'New Options for Funding International Arbitration', organized by the In-House Club of Iberian Lawyer, supported by Burford Group and the Corte de Arbitraje de Madrid. The moderator was Bernardo M. Cremades of B. Cremades y Asociados and the guest speakers were Selvyn Seidel, then of Burford Group, and Susan Dunn of Harbour Litigation Funding. See also Selvyn Seidel, 'Investing in International Arbitration Claims', Iberian Lawyer, January 4, 2011, available at: http://www.iberian lawyer.com/index.php/67-practice-areas/ legal-updates/litigation-adr/3439- investing-in-international-arbitration-claims. That year, Bernardo Cremades Jr. published a major study, 'Third-Party Litigation Funding: Investing in Arbitration', TDM 4 (2011), available at: http://www.curtis.com/siteFiles/ Publications/TDM.pdf.

4
See Maya Steinitz, 'Whose Claim is this Anyway?Third Party Litigation Funding', Minn. L. Rev.. 95 (2011), p. 1268, available at: http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1586053.

5
See: http://www.law.columbia.edu/columbiaarbitrationday-2011.

6
This booklet isava ilable onre quest from SSeidel@FulbrookManagement.com.

7
Aren Goldsmith, M. Scherer and C. Flechet,'Third -Party Funding inInte rnational Arbitration in Europe: RDAI/IBLJ Roundtable 2012', International Business Law Journal / Revue de Droit des Affaires Internationales 2 (2012) (Part I), pp. 207-219; Aren Goldsmith, M. Scherer and C. Flechet, 'Third-Party Funding in International Arbitration in Europe: RDAI/IBLJ Roundtable 2012', International Business Law Journal / Revue de Droit des Affaires Internationales 6 (2012) (Part II).

8
See M. Steinitz andJ. Matthews, eds., 'TDM Special Issue: Contingent Fees and Third-Party Funding in Investment Arbitration Disputes', TDM 4 (2011),

9
See, e.g., M. Scherer, 'Out in the Open ?',CDR(May 2012) pp. 55-59, available at: http://www.wilmerhale.com/uploadedFiles/ WilmerHale_Shared_ Content/Files/Editorial/Publication/cdr-9-expert-view-wilmerhale.pdf; Sebastian Perry, 'Third-Party Funding: The Best Thing Since Sliced Bread?', GAR, November 28, 2012. See also Eric De Brabandere and Julia Lepeltak,'Third-Party Funding in International Arbitration', ICSID Rev.. 27 (2012), p. 379; prominent blog postings, e.g., Munir Maniruzzaman, 'Third-Party Funding of International Arbitration - A Menace or Panacea?', Kluwer Arbitration Blog, December 29, 2012, available at: http://kluwerarbitrationblog.com/blog/2012/12/29/third-party-funding-in-international-arbitration-a-menaceor-panacea; and Jean Kalicki, 'Third-Party Funding in Arbitration: Innovations and Limits in Self-Regulation', Kluwer Arbitration Blog, March 13 and 14, 2012, available at: http://kluwerarbitrationblog.com/blog/2012/03/13/third-party-funding-in-arbitration-innovation-and-limits-in-self-regulation-part-1-of-2.

10
See, e.g., Roula Harfouche and James Searby, 'Third-Party Funding: Incentives and Outcomes', European, Middle Eastern and African Arbitration Review (2013), available at: http://www.fticonsulting.com/global2/critical-thinking/articles/third-party-funding-incentives-and-outcomes.aspx

11
See: http://www.law.columbia.edu/cicia.

12
See Pia Eberhardt and Cecilia Olivet, Profiting from Injustice: How Law Firms, Arbitrators and Financiers Are Fuelling an Investment Boom (Brussels, 2012).

13
Id., at pp. 56-63, 'Speculating on Injustice: Third-Party Funding of Investment Disputes'.

14
See Association of Litigation Funders of England and Wales, Code of Conduct for Litigation Funders (November 2011), available at: http://associationoflitigationfunders.com/wordpress/wp-content/uploads/ 2012/05/CodeofConductforLitigationFundersNovember20111.pdf.

15
Lord Justice Jackson, Review of Civil Litigation Costs (December 2009), available at: http://www.judiciary.gov.uk/JCO%2fDocuments%2fReports%2fjackson-final-report-140110.pdf.

16
American Bar Association Commission on Ethics 20/20, 'Informational Report to the House of Delegates' (February 2012), available at: http://www.americanbar.org/content/dam/aba/administrative/ ethics_2020/20111212_ethics_20_20_alf_ white_paper_final_hod_informational_report.pdf.

17
New York City Bar Association, Formal Opinion 2011-2: Third Party Litigation Financing, available at: http://www.nycbar.org/ethics/ethics-opinions-local/2011-opinions/1159-formal-opinion-2011-02

18
There are some contrary or differing arguments. See, e.g., Selvyn Seidel, 'Time to Pass the Baton?', CDR (November-December 2012), p. 46; Anthony Sebok, 'Control Issues: Litigation Investment, Insurance Law, and Double Standards', Cardozo Legal Studies Research Paper No. 394 (2013), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2271762; Maya Steinitz, 'The Litigation Finance Contract', William & Mary L. Rev. . 54 (2012), p. 455, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2049528. These positions usually note that, if control is allowed, there is usually a price to pay, such as possibly assuming more burdens. See, e.g., Selvyn Seidel, and Professor Maya Steinitz, cited above in this footnote.

19
See Association of Litigation Funders of England and Wales, Code of Conduct for Litigation Funders, supra n. 14.

20
Aren Goldsmith, M. Scherer and C. Flechet, 'Third-Party Funding in International Arbitration in Europe: RDAI/IBLJ Roundtable 2012', supra n. 7 (Part I).

21
Id.

22
Groundbreaking work has been done on valuing claims. See Maya Steinitz, 'How Much Is That Lawsuit in the Window: Pricing Legal Claims', Vanderbilt L. Rev. . (2013, forthcoming).

23
See Selvyn Seidel, 'The Third Man', . The European Lawyer. 106 (May 2011), p. 5.