A party with a strong international arbitration claim and limited resources to pursue it faces a real problem. A substantial ICC or ICDR proceeding — with institutional filing fees, arbitrator fees, expert costs, and counsel fees — can easily run into the millions of dollars over a multi-year timeline. Third-party funding has emerged as a mainstream solution to this problem, and understanding how it works, what it costs, and what it requires in terms of disclosure is now a necessary part of any serious international arbitration practice.
What Third-Party Funding Is
Third-party funding (also called litigation finance or arbitration finance) is an arrangement in which a party to an international arbitration — typically the claimant — receives funding from an outside investor to finance the cost of the arbitration in exchange for a share of any recovery. If the claim succeeds, the funder receives a return (typically 20–40% of the recovery, or a multiple of the funded amount, whichever is greater). If the claim fails, the funder loses its investment and the claimant owes nothing under a non-recourse arrangement.
Third-party funding in international arbitration has grown significantly over the past decade. Funders range from dedicated commercial litigation finance firms (Burford Capital, Bentham IMF, Omni Bridgeway) to hedge funds and sovereign wealth funds. A well-funded arbitration case — particularly one with a realistic eight-figure or nine-figure claim — is a mainstream asset class in litigation finance.
How Funders Evaluate Cases — What Makes a Fundable Arbitration Claim
Funders conduct detailed due diligence before committing capital. The assessment focuses on: (a) the merits of the claim — funders want strong liability cases with defensible damages theories, not close calls; (b) the quantum — funders generally require a minimum claim size (often $5–10M) to justify the due diligence cost and return profile; (c) the enforceability of an eventual award — a meritorious claim against a party with no assets in any enforcement-friendly jurisdiction is not fundable regardless of its legal strength; and (d) the claimant's existing litigation team and case management — funders often have a view on counsel and will sometimes require changes.
The funder's due diligence typically includes reviewing the underlying contract and arbitration clause, the key facts and evidence, the legal analysis (often including a "merits memo" prepared by counsel), and the damages model. The process can take weeks to months. Claimants who approach funders before retaining counsel, or before developing a coherent damages theory, typically receive less favorable terms or no offer at all.
Disclosure Requirements — When Must the Funder Be Disclosed?
Disclosure of third-party funding is one of the most contested procedural issues in modern international arbitration. The concern is conflicts of interest: if a funder has a financial relationship with an arbitrator or with opposing counsel's firm, that relationship must be disclosed for the arbitrator appointment process to work correctly. A funder whose identity is unknown cannot be checked against arbitrators' conflict databases.
The ICC, in its 2021 Note to Parties and Arbitral Tribunals, requires parties to disclose the existence of third-party funding and the funder's identity at the outset of the case. ICDR rules similarly require disclosure. The Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, and other leading institutions have adopted mandatory disclosure requirements.
Under U.S. procedural law (applicable in enforcement proceedings in U.S. federal court), there is no standalone duty to disclose third-party funding absent a specific court order. But in arbitration proceedings subject to ICC or ICDR rules, the institutional requirement applies regardless of where the proceeding will eventually be enforced.
Failure to disclose funding when required can result in adverse inferences, cost sanctions, and — in extreme cases — an argument that the award was procured through procedural irregularity under Article V of the New York Convention. The risk of non-disclosure significantly outweighs any perceived tactical advantage in concealing funding.
The Funder's Role in the Arbitration — Who Makes Decisions?
A well-structured funding agreement gives the claimant control over litigation decisions, including settlement authority. Funders who try to control the litigation strategy — directing what arguments to make, when to settle, or which witnesses to call — create problems: they may be seen as a party to the arbitration for purposes of costs awards, and their control may affect the attorney-client privilege analysis.
Settlement is the critical point of tension. A funder whose return is capped at a multiple of the funded amount may prefer to push to a final award rather than accept an early settlement that produces a smaller absolute recovery even if the settlement is attractive to the claimant from a risk-adjusted perspective. The funding agreement should address settlement authority clearly: who can accept a settlement, what notice the funder receives, and whether the funder can veto a proposed settlement.
Adverse costs orders — where the losing party pays the winner's costs — can in some circumstances reach the third-party funder. ICC and ICDR tribunals have occasionally ordered funders to pay adverse costs, particularly when the funder's presence was disclosed and the funded claim was found to be without merit. This risk should be reflected in the funder's return model and the claimant's assessment of the funder's incentives.
Considerations for Claimants with LATAM-Connected Disputes
Third-party funding is particularly relevant for claimants who have strong arbitration claims against LATAM counterparties but lack the liquidity to pursue a multi-year ICC or ICDR proceeding. The funded model allows claimants to pursue claims that might otherwise be abandoned because the cost of arbitration (often $500K–$2M or more in a substantial dispute) is prohibitive relative to the claimant's current financial position.
Enforcement planning is central to any funding discussion for LATAM disputes. A funder will want to know where the respondent has assets — in the United States, in a third country, or only in the respondent's home jurisdiction — and whether enforcement through the New York Convention is realistic. A respondent with significant Florida real estate holdings or U.S. bank accounts is a far more attractive target for a funded claim than one whose assets are exclusively in a jurisdiction with weak enforcement infrastructure.
For claimants considering third-party funding, the earlier the conversation begins, the better. Funders who are engaged at the outset can contribute to case strategy, refine the damages model, and structure their involvement in a way that avoids the disclosure and control problems that arise when funding is secured mid-proceeding. Early engagement also gives claimants the most leverage in negotiating funding terms.