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View this email in your browser <https://mailchi.mp/law/perspective-253?e=dd153d6a25> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看： http://ccsi.columbia.edu/publications/columbia-fdi-perspectives. <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=6f79dc02a1&e=dd153d6a25> *Columbia FDI Perspectives* Perspectives on topical foreign direct investment issues No. 253 June 3, 2019 Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Marion A. Creach ([log in to unmask]) *The case against third-party funding in investment arbitration <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8290362e76&e=dd153d6a25>* <#m_-670040274997415321__edn1>* by Frank J. Garcia and Kirrin Hough** <#m_-670040274997415321__edn2> Third-party funding (TPF) of investment disputes is rapidly increasing, as investors discover the high returns to be made by funding claimants in investor-state dispute-settlement (ISDS) cases. In exchange for covering related costs, funders stand to gain not only a significant share of the award, but also some influence over case management by requiring progress reports, monitoring fees, approving expenditures, seeking direct access to clients’ attorneys, and influencing both the process of appointing the claimants’ arbitrators and tailoring settlement decisions.*[1]* <#m_-670040274997415321__edn3> However, irrespective of any benefit brought by TPF in other dispute settings, TPF in ISDS differs in key respects and should be regulated, if not banned outright. First, the financial risks are unbalanced. Under the current ISDS regime, governments generally cannot assert counter-claims offsetting an award. Moreover, claims are paid or settled by states two-thirds of the time.[2] <#m_-670040274997415321__edn4> Procedurally, claimants have a direct voice in the selection of adjudicators, and there is no right of appeal. These factors enable funders to make sizeable profits, which can reach as high as a 700+% return on investment,[3] <#m_-670040274997415321__edn5> while risking nothing but costs. This has led one arbitrator to characterize TPF in the area of ISDS as a gambler’s paradise: “heads I win, tails I do not lose.”[4] <#m_-670040274997415321__edn6> Second, the funding opportunities are unbalanced. As states cannot win any financial awards in ISDS cases, TPF generally funds only claimants. Moreover, evidence suggests that TPF is contributing to a rise in investment claims, facilitated by the increasingly common portfolio model of dispute funding that may encourage claimants to bring more (and potentially less meritorious) claims against states. Therefore, TPF increases available resources for FDI investors while intensifying budgetary pressures on states, thus skewing the system. Finally, the source of the award differs fundamentally. In ISDS, TPF profits come from respondent states and their citizens, not shareholders as in commercial disputes, since host countries’ tax-payers—not shareholders—are the residual risk-bearers in ISDS. Moreover, a substantial portion of the award flows to TPF funders, who are neither stakeholders nor beneficiaries of the system, but nevertheless are in a position to influence case management and case law. From a fairness perspective, TPF could be seen as effecting uncompensated wealth transfers through ISDS from the public, often in developing countries, to speculative investors.[5] <#m_-670040274997415321__edn7> Proponents argue that TPF promotes access to justice and filters out unmeritorious cases. However, any social benefits in other dispute settings are unlikely to occur in ISDS. ISDS TPF is not about capacity-building for social justice but, as funders have acknowledged, about balance-sheet management, allowing well-resourced claimants to minimize risks associated with bringing claims.[6] <#m_-670040274997415321__edn8> For all these reasons, TPF in its current form threatens to intensify the investment regime’s legitimacy crisis and does not play a constructive role in investment arbitration. States should at least regulate, if not ban, TPF in investment agreements and in the arbitral rules of the International Centre for Settlement of Investment Disputes and the United Nations Commission on International Trade Law. Any access to justice concerns can be covered by political risk insurance or non-contingent commercial dispute funding. As long as TPF remains in play, there should be mandatory, expansive disclosure of TPF agreements and their terms, so that parties know who is controlling the case and sharing in its proceeds, while empirical evidence is generated for more comprehensive regulatory schemes. Mandatory security for costs in TPF cases can also disincentivize funders from pursuing cases with little merit only for settlement value or a possible pro-investor precedent. It is critically important that investors, stakeholders, academics, and civil society take a careful, sustained look at the risks that TPF poses to the public and to the investment regime itself, while effective regulation is still possible. ------------------------------ *** <#m_-670040274997415321__ednref1> *The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.* ** <#m_-670040274997415321__ednref2> Frank J. Garcia ([log in to unmask]) is Professor and Dean’s Distinguished Scholar at Boston College Law School; Kirrin Hough ([log in to unmask]) is an attorney and member of the Boston College Law School Working Group on Investment Reform. The authors are grateful to Brooke S. Guven and Lise Johnson for their feedback and to Daniel Behn, Stephan Schill and an anonymous peer reviewer for their helpful comments. *[1]* <#m_-670040274997415321__ednref3> International Council for Commercial Arbitration, “Report of the ICCA-Queen Mary task force on third-party funding in international arbitration” (2018), p. 28 <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=942f296015&e=dd153d6a25> . [2] <#m_-670040274997415321__ednref4> Rachel Denae Thrasher, “The regulation of third-party funding: Gathering data for future analysis and reform,” *Boston College Law School Law and Justice in the Americas Working Paper No. 9* (2018) <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=b1ed864fd2&e=dd153d6a25> . [3] <#m_-670040274997415321__ednref5> Returns generally average 30-50%; Willem H. van Boom, “Third-party financing in international investment arbitration (2011), p. 30 <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=4c95fb2f2c&e=dd153d6a25>. However, in *Teinver v. Argentina* (ICSID Case No. ARB/09/1), Burford Capital realized a 736% return on its US$13 million investment against Argentina; Burford Capital, Annual Report 2017 (2017), p. 23. [4] <#m_-670040274997415321__ednref6> Gavan Griffith draws this analogy in *RSM Production Corporation v. St. Lucia* (ICSID Case No. ARB/12/10). [5] <#m_-670040274997415321__ednref7> Frank J. Garcia, “Third-party funding as exploitation of the investment arbitration system,” Boston College Law Review, vol. 59 (2018) <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=2e731f34f9&e=dd153d6a25> . [6] <#m_-670040274997415321__ednref8> In the words of the Burford Capital CEO, “it is increasingly the case that more complex arrangements are becoming the norm, with companies using external capital out of choice, not necessity.” Christopher P. Bogart, “Third-party financing of international arbitration,” *Global Arbitration Review*, (Oct. 14, 2016). See generally Tara Santosuosso and Randall Scarlett, “Third-party funding in investment arbitration: misappropriation of access to justice rhetoric by global speculative finance, *Boston College Law School Law and Justice in the Americas Working Paper No. 8* (2018) <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=cec248267b&e=dd153d6a25> . *The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Frank J. Garcia and Kirrin Hough, ‘The case against third-party funding in investment arbitration,’ Columbia FDI Perspectives, No. 253, June 3, 2019. Reprinted with permission from the Columbia Center on Sustainable Investment (**www.ccsi.columbia.edu* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=cd5f6b5443&e=dd153d6a25>*).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at **[log in to unmask]* <[log in to unmask]>*.* For further information, including information regarding submission to the *Perspectives*, please contact: Columbia Center on Sustainable Investment, Alexa Busser, [log in to unmask] <[log in to unmask]>. *Most recent Columbia FDI Perspectives* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=1274497f09&e=dd153d6a25> - No. 252, Adam Douglas, “Will the United States join the Trans-Pacific Partnership, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or neither?,” May 20, 2019 - No. 251, Karl P. Sauvant, “Promoting sustainable FDI through international investment agreements,” May 6, 2019 - No. 250, Qianwen Zhang, “The next generation of Chinese investment treaties: A balanced paradigm in an era of change,” April 22, 2019 *All previous FDI Perspectives are available at * *http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=271d7805fe&e=dd153d6a25> *. * *Other relevant CCSI news and announcements* - *On September 27, 2019*, CCSI, the Sabin Center for Climate Change Law, Landesa, and Wake Forest Law School will be hosting a day-long conference on the intersection between land use, the climate crisis and clean energy transition, and human rights. *For more information, and to register, please see our website here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=c8dbcca189&e=dd153d6a25>.* - CCSI is hiring two Researchers on SDG-aligned Practice in Energy and Agribusiness Sectors. *Please see our website here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=0f35b6f10b&e=dd153d6a25> for more information and to apply.* - *On May 6, 2019*, CCSI began the new semester of its free, popular massive open online course (MOOC) on Natural Resources for Sustainable Development: The Fundamentals of Oil, Gas and Mining Governance <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=ffb4ad0438&e=dd153d6a25>. Now in its sixth edition, this joint course was developed by CCSI, the Natural Resource Governance Institute, the World Bank, and the United Nations Sustainable Development Solutions Network and has enrolled thousands of participants from all over the world. Click here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=548ff44144&e=dd153d6a25>to enroll. Watch the trailer here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8291836c9b&e=dd153d6a25> . Karl P. Sauvant, Ph.D. Resident Senior Fellow Columbia Center on Sustainable Investment Columbia Law School - Earth Institute Ph: (212) 854-0689 Fax: (212) 854-7946 *Copyright © 2019 Columbia Center on Sustainable Investment (CCSI), All rights reserved.* [log in to unmask] *Our mailing address is:* Columbia Center on Sustainable Investment (CCSI) Columbia Law School - Earth Institute, Columbia University 435 West 116th Street New York, NY 10027 Add us to your address book <https://columbia.us6.list-manage.com/vcard?u=ab15cc1d53&id=a61bf1d34a> unsubscribe from this list <https://columbia.us6.list-manage.com/unsubscribe?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25&c=8a6fb437c9> update subscription preferences <https://columbia.us6.list-manage.com/profile?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25> [image: Email Marketing Powered by Mailchimp] <http://www.mailchimp.com/monkey-rewards/?utm_source=freemium_newsletter&utm_medium=email&utm_campaign=monkey_rewards&aid=ab15cc1d53&afl=1> -- *Karl P. Sauvant, PhD* *Resident Senior Fellow* *Columbia Center on Sustainable Investment* Columbia Law School - The Earth Institute, Columbia University 435 West 116th St., Rm. JGH 825, New York, NY 10027 | p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | w: www.ccsi.columbia.edu | t: @CCSI_Columbia <https://twitter.com/CCSI_Columbia> "Promoting sustainable FDI through international investment agreements", "Determining Quality FDI", "The State of the International Investment Law and Policy Regime", "Towards G20 Guiding Principles on Investment Facilitation for Sustainable Development", "Five Key Considerations for the WTO Investment-facilitation Discussions, Going Forward", "Arriving at Sustainable FDI Characteristics", "Putting FDI on the G20 Agenda", "International Investment Facilitation: By Whom and for What?", "Moving the G20's Investment Agenda Forward", "Emerging Markets and the International Investment Law and Policy Regime", "Sustainable FDI for Sustainable Development", "Towards an Investment Facilitation Framework: Why? What? When?", "Beware of FDI Statistics!", "Towards an Indicative List of FDI Sustainability Characteristics", and "The Evolving International Investment Law and Policy Regime: Ways Forward" *are* available at https://ssrn.com/author=2461782 and http://www.works.bepress.com/karl_sauvant/. ____ AIB-L is brought to you by the Academy of International Business. For information: http://aib.msu.edu/community/aib-l.asp To post message: [log in to unmask] For assistance: [log in to unmask] AIB-L is a moderated list.