Whether you are a supporter of third-party funding—believing that it promotes access to justice, or a detractor—believing that it encourages frivolous claims, one thing is clear: Third-party funding is here to stay. This is attested to by the growing number of funders around the world, new legislation in Singapore and Hong Kong—both leading arbitral seats—authorizing the use of third-party funding in international arbitration, and pronouncements by professional bodies, such as a recent one by the Paris Bar Counsel, to the effect that third-party funding is a positive development in international arbitration. (One blip in this general trend in favor of third-party funding was a decision of the Irish Supreme Court last month holding that third-party funding is unlawful.).

The growth of third-party funding has raised certain novel issues in international arbitration. These issues relate to the disclosure obligations of arbitrators who may have some connection to a funder, the impact of the use of third-party funding on the attorney-client privilege, and the award of costs. This article will focus on one of those issues—costs.

For those accustomed to U.S. litigation, where cost-shifting is rare, a distinctive feature of international arbitration is that it is relatively common for arbitrators to order one party (almost invariably the losing party) to pay some or all of the “costs” of the other (the prevailing party). The term “costs” when used in the international arbitration context is commonly understood to include both the attorney fees and other expenses involved in pursuing or defending against a claim. The authority of arbitrators to award costs is embodied in the rules of the main international arbitral institutions. For example, the ICC Rules permit an arbitral tribunal to award “the reasonable legal and other costs incurred by the parties for the arbitration,” and provide that, in making decisions as to the award of costs, the tribunal may “take into account such circumstances as it considers relevant.” Article 38(1) and (5). And while the Federal Arbitration Act (FAA) does not itself address costs, some states have adopted international arbitration statutes (as distinct from statutes governing domestic arbitration) authorizing arbitrators to award costs. See, e.g., Cal. Civ. Proc. §1297.318(a) (“Unless otherwise agreed by the parties, the costs of an arbitration shall be at the discretion of the arbitral tribunal”) and § 1297.318(b)(2) (defining “costs” to include “[l]egal fees and expenses”).