Expansive Disclosure: Regulating Third-Party Funding for Future Analysis and reform

Hong Kong. Photo by Rato Design via Unsplash.

During the Global Financial Crisis, certain financial markets temporarily dried up, and left  some corporations and investors seeking  new avenues for building wealth, both for themselves and for their shareholders. One such avenue is commonly called third-party funding (TPF), in which an individual or corporation outside of a legal dispute provides financing to one of the parties—usually the claimant. In return, the non-party may receive a return on the amount of the claim recovered, if any.

 TPF began in domestic litigation, but has taken root in other jurisdictions around the world – most notably  in international investment arbitration. In investor-state dispute settlements, states always play the role of respondent and private investors in the role of claimants. Despite this apparent imbalance, TPF proponents argue that it provides much needed access to justice for poorer clients and adds value to the system by providing a more disinterested evaluation of legal arguments.

A journal article by Rachel Thrasher in Boston College Law Review investigates these claims in international investment arbitration. The data presented demonstrates that TPF is not serving the goals of international investment agreements and is resulting in unexplained side effects. TPF also encourages a structural imbalance in favor of investors. Thrasher argues that TPF suffers from a severe lack of access to information and transparency and instead pushes for expansive disclosure. Overall, the article recommends utilizing information gathered from expansive disclosure to challenge the status quo.

Read the Journal Article