Research on Regulations of Third-Party Funding in IIA

Abstract

In recent years, third-party funding (TPF) in international investment arbitration (IIA) has made a significant impact both in theory and practice. Nowadays, a Chinese law firm (the "PRC law firm") acted as the sole agent in the international investment arbitration case AsiaPhos v. China and the Chinese party won the lawsuit. One of the petitioners in the suit, AsiaPhos (Asiahua Group), claimed that its board of directors and its subsidiaries had entered into a formal financial aid agreement with a US-based fund, namely TPF. The financial support offers an opportunity to approach justice to applicants in economic distress or intending to share arbitration risks and also produces deterrence to the host state from any improper behaviors harming the interests of investors. However, on the one hand, due to commercial litigation, the arbitrators and investors will have a conflict of interest, on the other hand, third parties and investors usually live abroad, where governments lack the relevant information and competence that require international cooperation. In addition, the host country, especially the developing country, will also face the high cost of investment arbitration, and solving the problem must be needed for relevant mechanisms. This article discusses the application and development of TPF in IIA and analyzes the negative impact of TPF based on some legal issues, and then proposes the relevant rules and policy. On this basis, the study also provides suggestions for the practice of TPF from the perspective of the Chinese party to promote the development of TPF and puts forward advice for international investment rule-making balance in China.