Third-Party Financing in Investor-State Dispute Settlement: For Better or for Worse?

Abstract

The proliferation of international investments during the past few decades has contributed to the rise in the number of disputes that are submitted to Investor-State Dispute Settlement forums. Concomitantly, the criticisms of the conventional ISDS have also increased. Critics often refer to certain inherent flaws in the system inter alia the involvement of third-party financing for ISDS cases. With the growing costs and the significant interests involved in investment disputes, ‘investment claims’ themselves have emerged as a new class of assets that international actors pursue. In such circumstances, this study attempts to evaluate the existence of TPF for ISDS claims, and how that could contribute to or undermine the essence of ISDS, as an impartial dispute settlement mechanism which balances and accommodates diverse interests of the parties involved, namely, the largely commercial interests of the investors and the macro-economic, public and social interests of the host states. This study was conducted as a library-based study with relevant case law being analysed to comprehend the trend of TPF in ISDS cases. Evidently, TPF is not unwelcoming in its entirety. While it could inter alia provide financial support for meritorious claims which are otherwise unable to withstand the rising costs of ISDS which is positive, it could also have the negative effect of inter alia untenably increasing the number of ISDS cases by minimising the risk factor and possibly encouraging marginal claims. The paper concludes by recommending both the bilateral treaties and the international arbitration institutions should strive to achieve transparency in the matter of ISDS where TPF is involved.