North Carolina Journal of International Law

"Connecting North Carolina to the World of International Law"

A Preview of Madam Beatrice Castellane’s Q&A on Third Party Funding

By: Charlotte Smith

Photo Courtesy of hk-lawyer.org

A member of the Paris Bar since 1983, Béatrice Castellane has an expertise in international and domestic arbitration, with a special focus in commercial and corporate law. Having a working familiarity with the practices of the ICC, OHADA CCJA, KLRCA, and HKIAC, she counsels French and foreign companies while acting as sole arbitrator in some cases. Madame Castellane is the founder and lead counsel at Cabinet Castellane Avocats in Paris, France.  During the summer of 2012, I had the pleasure of working with her and learning from her years of experience as an arbitrator.  Madam Castellane kindly agreed to participate in a Question & Answer forum with me, providing the unique perspective of a seasoned arbitrator on third party funding in arbitration and international inconsistencies in regulating the practice.

“Third-party funding refers to proceedings funded by an entity unconnected to a dispute.”[1]  Usually, third party funding involves the practice of an entity, not party to the arbitration procedures, providing financial support and resources to one of the parties in a dispute in order for the arbitration to move forward. Third party funding may occur either through the third-party funder lending directly to a claimant or respondent in a case in exchange for a portion of the claimant’s future award or the funder may negotiate with a firm to fund a case or a series of cases for an agreed upon rate of return.[2]

Generally, law firms do not have a significant amount of accounts receivable or expected fee payments.[3]  “Classic relationship between third-party funders and law firms arose in response to a lack of availability of traditional business loans to law firms.”[4]  The practice of lending money to law firms developed as a result of a actors in the third party funding industry becoming motivated by potential earnings from arbitration cases.[5]  More specifically, litigation funders are willing to accept future expected payments essentially as ‘collateral’ in exchange for lending cash to law firms.”[6]  Additionally, turbulence in the worldwide market has encouraged investors to look outside of traditional investments based on financial markets, stock prices, or company valuations.[7]  Though a relatively young practice, third party funding has already begun to transition from funders lending money, to law firms, to funders investing in law firms.[8]

With third party funding growing in popularity, states will likely need to begin regulating the practice in order to establish a basic foundation of standard practices.  Currently, most nations lack federal regulation of third party funding as third party funding has traditionally been restricted to common law rules that protected vulnerable litigants and tried to “prevent dispute resolution from becoming an area of speculative business venture.”[9]  The historical regulation of third party funding through common law has led to no generally accepted practice uniform throughout jurisdictions around the world.  Due to inconsistent and lacking regulation, third party funders indirectly participate in the litigation, but the other parties, as well as judges and arbitrators, may not know of their involvement.[10] As late as 2015, no state or organization required mandatory regulation of third-party funders in international arbitration.[11]


[1] Timothy Cooke, Singapore: Third-Party Funding for International Arbitration, available at http://www.lexology.com/library/detail.aspx?g=9350e0e0-8dd2-4ff4-9bf0-620d984bcbcb.

[2] http://kluwerarbitrationblog.com/2016/11/03/blurred-lines-between-third-party-funders-and-law-firms/

[3] Victoria Shannon Sahani, Blurred Lines between Third-Party Funders and Law Firms, Kluwer Blog (November 3, 2016), available at http://kluwerarbitrationblog.com/2016/11/03/blurred-lines-between-third-party-funders-and-law-firms/

[4]   “Classic relationship between third-party funders and law firms arose in response to a lack of availability of traditional business loans to law firms.”

[5] “Classic relationship between third-party funders and law firms arose in response to a lack of availability of traditional business loans to law firms.”

[6] Victoria Shannon Sahani, Blurred Lines between Third-Party Funders and Law Firms, Kluwer Blog (November 3, 2016), available at http://kluwerarbitrationblog.com/2016/11/03/blurred-lines-between-third-party-funders-and-law-firms/

[7] Victoria Shannon Sahani, Judging Third-Party Funding, 63 UCLA L. Rev. 388, 395-96.

[8] Victoria Shannon Sahani, Blurred Lines between Third-Party Funders and Law Firms, Kluwer Blog (November 3, 2016), available at http://kluwerarbitrationblog.com/2016/11/03/blurred-lines-between-third-party-funders-and-law-firms/

[9] Timothy Cooke, Singapore: Third-Party Funding for International Arbitration, available at http://www.lexology.com/library/detail.aspx?g=9350e0e0-8dd2-4ff4-9bf0-620d984bcbcb.

[10] Victoria Shannon Sahani, Judging Third-Party Funding, 63 UCLA L. Rev. 388, 399.

[11] Elizabeth Chan, Proposed Guidelines for the Disclosure of Third Party Funding Arrangements in International Arbitration, 26 Am. Rev. int’l Arb. 281, 281.

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