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CIArb News

Paris Bar Council Welcomes Third Party Funding

1 June 2017 Features
By Sabina Adascalitei MCIArb, Research and Academic Affairs Coordinator

On 21 February 2017, the Paris Bar Council adopted a resolution to confirm its support for third-party funding (“TPF”). The resolution indicates that TPF is not prohibited by French law and it is, ultimately, an improvement with regard to international arbitration and access to justice.

Given that litigation does not involve high costs in France, arbitration is primarily resorted to for transnational disputes, which are perceived as being significantly more expensive. TPF in international arbitration will place contracting parties on a roughly equal position, allowing an interested party to bring a claim in where it would have perhaps been unable to afford to do so.

In addition to confirming its legality under French law, the resolution addresses two challenges that are of general concern: the potential interference of the third party funder between the lawyer and the client as well as prospective disclosure issues regarding the funding agreement.

In this sense, it was noted that the lawyer of the funded party should not provide any advice to the third party funder. Therefore, any meeting with the funder must take place in the presence of the client and any instructions must be given directly to the client.

French law raises the issue with regard to the extent to which a funding agreement should be privileged. This is arguably covered by the “secret professionnel” rule, which prevents a lawyer from sharing case-related information, documents and opinions with a third party in the absence of the client, even where express instructions had been given to accommodate this.

To avoid this criminally-sanctioned rule, the resolution suggests that the client should always be present in meetings with the funder as well as be copied in any correspondence with the same.

With respect to the disclosure of the funding agreement, the resolution notes that lawyers should encourage their clients to disclose such an arrangement to the arbitral tribunal, considering that non-disclosure may become a possible ground of refusing recognition and enforcement of the award.

Although revealing the funding arrangement may not be seen to be in the best interest of the claimant, it arguably has the power to positively influence the tribunal, in the sense that if a funder is backing the claim, it must be perceived as being a strong one.

In this respect, it is best practice that such a funding agreement should be disclosed from the outset and the lawyers should warn their clients about the potential consequences of not doing so. To do otherwise would involve taking a risk that the non-disclosure will raise issues of conflict of interest and render the award unenforceable.

Furthermore, the obligations of the lawyers towards their clients in the presence of a third party funder reiterate that even though the funder may pay the attorney fees, the lawyer is under a duty to protect the client and not the funder.

The TPF provisions are very well-received and are an essential tool in the field of international arbitration. Embracing such provisions will make Paris a more competitive seat of arbitration, placing it in line with other arbitration-friendly jurisdictions.