Addressing the Costs Imbalance Resulting from Third-Party Funded Investment Claims

Third-party funding (TPF) has become a hot topic in investment arbitration, and its significant growth has provoked concerns from policymakers, academics, and states. One of the issues raised most frequently has been its impact on costs and security for costs orders. Growing case law suggests that states will likely be held liable for the funded legal costs of the claimant and may even be held liable for the costs incurred by the claimant to obtain funding. At the other end of the spectrum, states face the risk of being unable to recover their costs as the use of funding facilitates access to financially distressed investors. This article highlights that the current arbitral practice and legal framework have brought about a situation in which funders and claimants are able to transfer the risk associated with funding to states. It also demonstrates that the proposed options to address states' concerns, namely holding funders liable for adverse costs and requesting security for costs, are unlikely to function as solutions. Thus, this article argues that unless appropriate amendments or reforms are undertaken to address this imbalance, states will be unfairly burdened for the benefit acquired by the claimant and funder.