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Protecting investments – the growing role of third-party funding in investor State arbitration

By Giorgio Francesco Mandelli & Robert Kovacs (Volterra Fietta, London)
Posted: 30th January 2017 08:28
When evaluating foreign investment opportunities, a range of critical factors have traditionally come into play. Those factors include, but are not limited to, the initial capital outlay necessary for the investment, the regulatory environment (including the applicable fiscal regime) into which the investment would be made, the perceived risks (political and/or expropriatory) of investing in a particular host State, and the expected (for some investors, the necessary) rate of return on the investment. More recently, sophisticated investors also have become cognisant of the substantive protections afforded by bilateral and multilateral investment treaties and of the investor‑State dispute settlement provisions contained therein. As a result, not only are investors increasingly taking these treaties into account in the calculus of their investment decisions, but they also are proactively – and permissibly – structuring (and, in certain circumstances, restructuring) their investments to hedge their ability to draw upon the most beneficial protections if necessary.
Of course, that makes sense. While no foreign investor likes to dwell at the outset on the potential downside risk that an investment ultimately may fail due to actions taken by a host State in violation of international law, recognising that eventuality from the nascent stages of an investment leads to potentially prescient, sound and prudent planning. The natural corollary of the need to protect an investment – which often runs to the millions of dollars – is the ability to bring (and fund) a claim at the appropriate time. To that end, the presence and continued development of third-party funding constitutes an important, and often too‑easily‑overlooked, puzzle piece of any investment decision. A fortiori, the increased availability of this form of funding can be particularly important for the ever‑growing number of single‑asset companies operating in the investor-State milieu. Without the prospect of being able to secure third-party funding, those single-asset companies might otherwise be reluctant to contemplate making any foreign investments at all.
Below, we have briefly set out some salient considerations regarding the continued development and acceptance of third‑party funding, how third-party funding has been used successfully to protect foreign investments and why the burgeoning accessibility to third-party funding may open up new investment opportunities.
The continued development and acceptance of third-party funding
In its most basic (and perhaps most common) form, and on the simplest terms, third-party funding is a financing tool by which an entity extraneous to an underlying dispute covers the legal fees and disbursements incurred by a claimant in arbitration (or other dispute resolution) proceedings, usually in exchange for a fee or for a percentage of any damages awarded.[1] Third-party funding tends to be seen as especially useful for impecunious (or asset-poor or less-than-liquid) entities unable to fund the costs of bringing a claim. However, it has the potential to be just as popular with either asset-rich companies which may lack the requisite liquidity to fund the ongoing (and often significant) costs of an investor-State arbitration, or companies which simply prefer to manage risk creatively and to free up their cash flow. Even more accurately, in fact, third-party funding should not be perceived as the exclusive domain of claimants. On the contrary, albeit subject to different economic models and imperatives, we are witnessing respondent States increasingly looking to, and drawing upon, the availability of third-party funding.
Historically, many jurisdictions were opposed to so-called non-interested parties providing financial assistance to litigants, and, in order to prevent the perceived interference in dispute resolution proceedings, those jurisdictions maintained laws prohibiting maintenance and/or champerty. In the words of Lord Justice Steyn, “[i]n modern idiom[,] maintenance is the support of litigation by a stranger without just cause. Champerty is an aggravated form of maintenance. The distinguishing feature of champerty is the support of litigation by a stranger in return for a share of the proceeds.”[2] More recently, however, a number of those jurisdictions have relaxed their positions and have become much more permissive vis-à-vis third‑party funding. For example, each of England and Wales, Australia and Canada now allows third‑party funding.[3] Additionally, in the United States, where the position on third‑party funding varies from state to state, the trend is towards permitting this type of funding.[4] Finally, Singapore – frequently the harbinger of shifts across the entire Asian region – recently introduced a bill into parliament to legalise third-party funding.[5] The Hong Kong Law Reform Commission has recommended the same approach.[6]
Acceptance has also come from arbitral tribunals. In fact, a number of investment treaty arbitration and commercial arbitration tribunals have concluded that a party is entitled to recover its costs even if those costs have been front-loaded or borne by a third-party funder.[7]
The successful use of third-party funding to protect foreign investments
Notably, the growing acceptance of the use of third-party funding by numerous national legal systems (and international tribunals) has coincided with – or perhaps it has precipitated – the increased use of third-party funding by foreign investors to pursue claims under the dispute resolution mechanisms enshrined in bilateral or multilateral investment treaties. Most often, this type of funding is used in cases where a claimant investor is insolvent or otherwise unable to fund its claim properly or fully.
That was the case of the claim brought by Canadian mining company Crystallex International Corporation (“Crystallex”) for measures imposed by Venezuela on its investment in the Las Cristinas gold project, including for the rescission of the operating contract to develop the gold reserves. Earlier this year, an ICSID Additional Facility Rules tribunal held that, in violation of the Canada-Venezuela bilateral investment treaty (“Canada-Venezuela BIT”), Venezuela, inter alia, had failed to accord fair and equitable treatment and had unlawfully expropriated Crystallex’s investment in Las Cristinas. The tribunal awarded Crystallex more than $1.38 billion USD in damages.[8]
As a result of Venezuela’s measures, Crystallex (whose single asset was its investment in the Las Cristinas gold project) had been forced to apply for bankruptcy protection in Canada. Because of that bankruptcy, Crystallex only was able to pursue its claim against Venezuela thanks to third-party funding. Without that third-party funding (approved, as it was, by a Canadian bankruptcy court), Crystallex would not have been able to ask an international arbitral tribunal to adjudicate what was found to be a valid, meritorious and, in the end, valuable claim.
Similarly, Rusoro Mining Ltd. used third-party funding to pursue – successfully – its claim against Venezuela for the unlawful expropriation of its investment and for the imposition of unlawful restrictions on the export of gold in violation of the Canada-Venezuela BIT.[9] Recently, yet another Canadian mining company, Eco Oro Minerals Corp., entered into a funding agreement that would enable it to pursue an investment treaty claim against Colombia for alleged violations of the Canada-Colombia Free Trade Agreement.[10]
The burgeoning accessibility to third-party funding may open up new investment opportunities
The increased, and ever-increasing, ability to use third-party funding to pursue investment treaty claims has the potential to alter the risk profile of foreign investments being contemplated by investors. Put differently, greater access to this type of funding could serve to reduce an investor’s perceived political risk of investing in a particular country, safe(r) in the knowledge that it likely will be able to fund any future claim against a host State engaging in conduct which is in violation of international law. Thus, increased accessibility to funding may well open up new investment opportunities. In recent years, while working on a number of funded, high-value investor‑State arbitrations, we have witnessed increased activity from established litigation funders. And, in the last few months, despite a global trend towards the diversification of risk, the appetite shown by third‑party funders for so‑called “bet‑the‑company” investor-State disputes has only grown, seemingly driven by an excess of liquidity. The world over, and certainly in the context of foreign investment and investor‑State arbitration, third‑party funding appears well-poised to play a significant and continuing role.
Volterra Fietta is an elite global firm that focuses entirely on public international law. It is also the UK’s first and largest international arbitration specialist law firm. Its clients are governments, international organisations and private clients. Volterra Fietta deals with matters ranging from boundary disputes to investment treaties (including investment-protection planning), diplomatic law to immunity, oil and gas to joint developments, business and human rights to trade issues.
The information in this article is intended only to provide a general overview. It is neither intended to be comprehensive, nor does it constitute legal advice.

Giorgio Francesco Mandelli is qualified as a solicitor-advocate in England and Wales and as an attorney in New York.  A graduate of Princeton University, Giorgio obtained his law degree from the University of Oxford and an LLM (International Legal Studies) from New York University School of Law.

Giorgio can be contacted on +44 (0)207 380 4388 or by email at
Robert Kovacs is an Australian lawyer. He holds an LLB (Hons.) and BCom from Monash University and a PhD (summa cum laude) from the University of Geneva.

Robert advises companies and sovereign States on wide range of contentious and non-contentious public and private international law matters, including the protection of foreign investments under international investment treaties and the enforcement of arbitration awards.

Robert can be contacted on +44 (0)207 380 3897 or by email at

[1]              See generally,N. Rowles-Davies, J. Cousins,Third Party Litigation Funding (Oxford University Press, 2014); L. B. Nieuwald and V. Shannon, Third-Party Funding in International Arbitration (Aspen Publishers, 2012).
[2]              Giles v Thompson [1993] 3 All ER 321, 328.
[3]              See Arkin v Borchard Lines [2005] EWCA Civ 655; Campbells Cash and Carry v Fostif [2006] HCA 41; Bayens v Kinross Gold Corporation, 2013 ONSC 4974.
                See also Essar Oilfield Services Limited v Norscot Rig Management Pvt Limited [2016] EWHC 2361 (Comm) (upholding the decision of the arbitrator in an ICC arbitration to allow – under the rubric of “other costs” as provided for in the Arbitration Act 1996 and the applicable ICC Rules of Arbitration, and in addition to the award of damages and costs – the recovery of the costs of third-party funding).
[4]              See L. B. Nieuwald and V. Shannon, Third-Party Funding in International Arbitration (Aspen Publishers, 2012), page 145; Harbour Litigation Funding, “Country Summary:  United States of America” (2014).
[5]              See Civil Law (Amendment) Bill 2016, Bill No. 38/2016.
[6]              See “Third Party Funding for Arbitration”, Hong Kong Law Reform Commission (October 2016).
[7]              See, for example, Ioannis Kardassopoulos v Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010; ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Order Taking Note of the Discontinuance of the Proceeding dated 11 July 2011; Norscot Rig Management Pvt Limited v Essar Oilfield Services Limited, ICC Arbitration.
[8]              See Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award dated 4 April 2016; Global Arbitration Review, “Crystallex wins billion-dollar award against Venezuela” (6 April 2016).
[9]              See Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award dated 22 August 2016.
[10]            Eco Oro Minerals News Release, “Eco Oro Minerals Announces Investment by Tenor Capital” (22 July 2016).

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