Considerations on Chapter 4 – TPF and Conflicts of Interest
1. Chapter four deals with the topic of disclosure and conflicts of interest. It starts by drawing two alternatives separated by the notion that (option A) parties shall disclose the existence of TPF and the identity of the funder to the arbitrators and arbitral institutions and that (option B) tribunals and arbitral institutions shall have discretionary powers to request that the parties disclose the existence of TPF.
Subsequently, this chapter provides alternative definitions (again option A and option B). In this regard, the difference between the definition A and the definition B is that the former covers insurance and persons who provide insurance, while the latter does not include such categories of funders.
My first comment is that the introductory options of this chapter are not clear as to whether these alternatives are independent or, to the contrary, each alternative definition applies to the correspondent initial choice regarding the moment and initiative of disclosure. In other words, the way the alternatives are laid down may lead to think that definition A applies to the initial alternative A, and that the same applies to alternative B. Thus, the introduction of this chapter should be clear in that the two alternatives are independent from each other.
2. My second observation is that this chapter is clear enough in setting out the reasons for disclosure and the dangers associated with conflicts of interests absent such disclosure. On the other hand, arbitral tribunals have more frequently been requiring from parties the disclosure of the existence of a funding and the identity of the funder. Arbitral institutions have also put in place regulation to that effect (see inter alia the CAM-CCBC, ICC, and SIAC). It thus seems that disclosure of the existence of a funding arrangement and the identity of the funder is becoming a standard in international arbitration.
As such, I tend to opt for alternative B. I would even be tempted to think that such disclosure should be set forth as a requisite of the request for arbitration, so that the appointed arbitrators and the arbitral institutions may become aware from the outset of any situation giving grounds to possible conflicts of interest.
3. The question that follows is whether the duty to disclose should also apply to the contents of the funding agreement. Currently, it is not clear whether the Essar case may be replicated in similar (but not necessarily identical) situations. Bearing in mind that this case was an ICC arbitration, and that the uplift of the funder may be awarded in virtually every arbitration conducted under the rules that accord to the arbitral tribunal the power to decide which costs should be recovered by the prevailing party, serious thought must be given to extending the level of disclosure to the details of the funding agreement.
Therefore, I think that the Essar case and its potential impact on future arbitrations should be addressed in the chapter dedicated to disclosure.
4. Finally, taking into account the IBA Guidelines on conflicts of interest and disclosure, I think that the definition to adopt in this chapter should cover every financial arrangement that may potentially be affected by or benefit from the final award. Further, BTE (before the event insurance) must not be carved out from the definition as a matter of principle. Indeed, the insurance policy may grant the insurer a right to exercise subrogation rights against the liable party. To be more precise, regarding liability insurance policies, most (if not virtually every) national legislations (including those promulgated under EU regulation), grant the insurer a non-waivable right to exercise subrogation rights upon the party liable for the event that triggered the insurance coverage. As a matter of principle, those subrogation rights are exercised after the final court decision or after the final arbitral award because only at that time the insurer becomes aware of the amount to pay under the insurance policy. Thus, it is almost self-evident that an insurer may have an indirect, if not direct, interest in the outcome of the arbitration. The same applies to ATE (after the event insurance).