Third party funding dilemma for international arbitration

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The rising popularity of third party funding (TPF) has caught the attention of the international arbitration community. On one hand, TPF is not a new practice at all. Professor Maya Steinitz traces TPF back to medieval England in her book Whose Claim is This Anyway? Third-Party Litigation Funding. She pointed out that wealthy nobles supported parties in litigation by providing advances “as a source of revenue” and hoped to “share the litigation interests in the future”.

On the other hand, TPF has been deemed a violation of the doctrines of champerty and maintenance among common law countries for a long time. Although champerty and maintenance is subject to criminal charges in certain jurisdictions, legal insurance and contingency fee arrangement, which are broadly defined as a form of TPF, are now becoming a popular practice in litigation internationally, and the use of non-resource financing by a third party has also been gradually accepted in international arbitration.

TPF supporters claim the practice will ultimately promote access to justice by offering parties sufficient backups for initiating an arbitration proceeding, especially for those who lack financial capability.

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Zhang Xi is a case manager at Beijing Arbitration Commission