The use of third party funding of arbitration and litigation proceedings provides broader access to formal claim resolution mechanisms, but that benefit may come with some unique issues for the uninitiated.[1] However, forewarned is forearmed. In a prior post, we discussed the recoverability in arbitration proceedings of third party funding costs.[2] This post identifies the discoverability issues in arbitration concerning third party funding.
This will be a two-part discussion. Here, we describe the arguments concerning requests for disclosure of funding agreements and correspondence with funders, as well as the significance of the relevance of such documents to the substantive claims in issue. In a second part, to be posted here soon, we will discuss the emerging case law regarding whether such documents can be shielded from disclosure by reason of the attorney-client privilege or the work-product doctrine.
Identify the Governing Rules
Generally, the discoverability of third party funding agreements and related documents will be governed by several sets of rules, including those of the particular arbitral proceeding (as set out in the pertinent arbitration agreement expressly or by incorporation by reference of other administrative rules), state law, and/or federal law. Other procedural rules, such as the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration, may also have been adopted by the parties or be considered by the arbitral tribunal as guidance. Fundamentally, arbitration is contractual, and so the applicable rules beyond state and/or federal law will vary principally based on the terms of the arbitration agreement. And obviously, applicable state and federal law may vary by jurisdiction.[3] In any case, one’s first task is to identify the applicable rules.
Relevance of the Existence, Identity, and Terms of a Third-Party Funder, Etc.
Next, let us distinguish two subjects of disclosure relating to third-party funders: (1) disclosure of the existence of a funding arrangement (and the identity of the funder); and (2) disclosure of communications between the funder and its client and the client’s counsel (including the funding agreement). The relevance of these two sorts of disclosures differs.
While the leading arbitration-administering organizations (e.g., AAA, ICC, LCIA) do not currently have specific rules regarding to the disclosure of third-party funding arrangements, such disclosure may be necessary in connection with the typical assessment of potential conflicts of interest of the arbitrator(s).[4] Most sets of rules for administered arbitration proceedings require disclosure by the parties of information that will enable arbitrator candidates to identify potential biases or interests or the appearance of same. Thus, disclosure of the existence and identity of a third-party funder arguably would...
