CJC Review of Litigation Funding – will litigation and arbitration funding diverge?
The CJC has expressly carved out arbitration proceedings from its recommendations in the Final Report on its Review of Litigation Funding, stating that …it should remain a matter for arbitral centres in England and Wales to determine if and, if so, how funding of arbitration is regulated (or not) (7.25).
A two—tier system?
Does that mean that if the CJC recommendations, in whole or in part, are brought into force by new legislation, there will potentially be a two-tier regime as between E&W litigation and arbitrations seated in or which have another nexus to E&W?
That doesn’t seem to me to be the inevitable result, nor am I sure that, even if so, that would lead to adverse effects. It is worth noting that a form of “two tier” system is already in place without any perceptible adverse effect. The current voluntary code of self-regulation for ALF funder members technically only applies to “disputes whose resolution is to be achieved principally through litigation procedures in the Courts of England and Wales”, so arbitration is outside its remit.
What do funders do in practice?
Most funders, ALF members or not, apply the same type of checks, practices and procedures to an arbitration case as they would to a litigation case when considering, negotiating and managing an investment. In fact when a proposed arbitration has a nexus to England & Wales – including for enforcement – funders have a strong incentive to ensure that its funding agreement and behaviour fully align with English law and standards in order to eliminate grounds for complaint, annulment or difficulties enforcing any eventual award.
It would probably follow that if the CJC-recommended “light touch” regulation for funding of litigation cases is implemented, funders will continue to treat arbitration cases in the same way as litigation cases. It would be commercially prudent and expedient to do so, certainly as far as the new regulations impose fair and sensible safeguards for funded parties or funders themselves. For example, if funders will formally need to institute money laundering checks, they are unlikely to ignore those new processes and procedures just because a case is arbitration.
How will arbitral institutions respond?
Arbitral institutions themselves will no doubt consider the extent to which they would opt in to any CJC-recommended regulation when cases have an E&W nexus. That said, the arbitration community has already been proactive in its approach to issues arising out of funding, and may not see the need to adopt additional or overlapping guidance. ICCA’s/ QMUL thorough 2018 Task Force Report provided comprehensive principles and best practice on issues such as privilege, funder control and funder/ funding structures; and we have since seen practical guidance and consideration of when funding should be disclosed in the ICC’s Note to Parties and Arbitral Tribunals and the IBA Guidelines on Conflicts of Interest.
In fact, in various ways the arbitration community has been ahead of the curve on funding issues, and has already addressed some of the significant issues which are the subject now of the CJC recommendations. Various institutions (eg ICC, SCC, HKIAC) already have expectations in terms of disclosure of funding, and tribunals seem increasingly pro-active in ordering disclosure. Most notably, arbitration got there first on recoverability of funders fees – which is expressly seen in the CJC’s Final Report as a model for litigation (in exceptional cases).
Litigation and arbitration on a par?
So it is clear that despite some divergence of practice and rules, the arbitration and the litigation communities have considered similar issues about, and alighted on similar solutions for, the role of funding in dispute resolution. Thus we are unlikely to see one or other forum being left behind or becoming an outlier in the reforms recommended by the CJC.
Certainly these regulatory developments will not translate to any preference by funders for making investments in litigation over arbitration, or vice versa. A meritorious, economically viable, enforceable case will continue to attract funding regardless of dispute resolution method.
Sarah Breckenridge, Erso Investment Counsel