Insights and challenges of third-party funding in investment arbitration proceedings

Abstract

n recent decades, third-party funding of investment arbitration has evolved from a marginal tool to a central feature of international litigation. This approach has expanded investors’ access to dispute resolution mechanisms, but it has also raised concerns about transparency, fairness, and the integrity of the system, as well as the risk of its instrumentalization by funds, third parties, and law firms with their own interests. The phenomenon has triggered debates on the need to disclose whether third-party funding has been received, in order to prevent conflicts of interest between parties and arbitrators, and about the potential effects on the legitimacy of arbitration. Since 2024, this issue has returned to the agenda of UNCITRAL Working Group III, which is leading multilateral efforts to address this reality and regulate third-party funding in investor-State arbitrations. At the same time, the European Union is moving forward with the creation of a directive that would establish minimum standards, including the authorization and supervision of funders, capital requirements, limits on remuneration, and obligations of transparency and disclosure. This study identifies the incentives of funders, the problems arising from their involvement, and proposes regulatory tools to effectively address these challenges. It examines the various ways funders participate, contractual mechanisms, and recent normative and jurisprudential solutions. The study concludes that the consolidation the role of third-party funders in investment arbitration calls for more ambitious regulation to preserve the integrity and trust in the system.