IMPACT OF THE COVID- 19 PANDEMIC ON THIRD PARTY FUNDING AND SECURITY FOR COSTS IN INTERNATIONAL COMMERCIAL ARBITRATION
Author: Swapna Sudha Sahoo, SOA National Institute of Law, Bhubaneswar, Odisha.
The COVID- 19 pandemic has already created a great loss to the private companies along with the individuals in market company and society. This topic mainly focuses on two ideas- 1) whether the pandemic is an upturn to third party funding arrangements. 2) whether the arbitrating parties should take an initiative to expose themselves to applications of security regarding the costs in international commercial arbitration. COVID- 19 has no doubt created a big problem for the normal people of this country even the basic amenities are quite difficult for the poor people to arrange in such a pandemic situation.
WILL THE INTEREST IN THIRD PARTY FUNDING INCREASE FOLLOWING THE IMPACT OF COVID- 19?
According to the latest report of the ICCA- Queen Mary Task Force on Third Party Funding in International Arbitration, a great amount of parties to arbitrations are requiring the help third party funding due to a very lack amount of funds to carry on the process the arbitrations, also to keep a reasonable balance on the flow of cash and to keep a good track on the outcome of favourable proceedings.
In such a pandemic environment many companies are facing the risk of revenue reduction and also the liquidity risk. Therefore, they are trying to keep such a situation under the control and so taking various remedial steps. The effect of COVID- 19 has increased the interest rate and potential usage of third party funding.
Parties to commercial arbitrations are also going to face the trouble of expecting the cost of meeting the commercial arbitration proceedings as well as existing proceedings. The pandemic itself may also create a number of disputes necessary for arbitration. Further the delay in the proceedings may make the parties long over their outcome crisis and cash flow to be directed towards funding the proceedings for a prolong period of time. Since the pandemic the arbitrations are being delayed and disrupted.
These delays may include problems while submitting the written reports, postponement of in person hearings and the difficulties in facing the clients and their problems, discuss the matters and solve the problems. As much more arbitrations come up with in person hearings and its quite difficult to hear their matters in real court cases so they have to present the cases in virtual hearings. Also the awards may also be presented through the virtual hearings.
However the problem that arises is that there may be delay in awarding the damages to the party who had actually suffered. Third party funders a prolong period of due diligence before committing to a fund arrangement, which may affect a party to hear case in an urgent basis. As parties are willingly to avoid the lengthy process of getting the third party funding which may be urgently needed, they may make arrangements to make the funds to be available to them more easily.
A POTENTIALLY GREATER ROLE FOR SECURITY FOR COSTS FOLLOWING THE IMPACT OF COVID- 19
LCIA Annual Casework Reports between 2017 and 2019 suggest that the security for costs are rare, they are likely to make the interim measures more successful. The security costs was still an exceptional measure. The tribunals agree to an order to be issued on the basis of prima facie evidence provided that the party is not able to meet the adverse costs or awards. Institutional rules and national arbitration laws don’t address the impact of the third party funding arrangement and it depends upon whether the security cost must be provided to the third party funding. The application for the security cost to be provided was that whether the party was able to meet the award.
The financial impact of the COVID- 19 pandemic on arbitrating parties is likely to increase recourse to third party funding arrangements and also exposing to the security cost of applications. The deterioration of a party’s financial position due to pandemic also provided the grounds for security costs. This is an example that how a pandemic may have a long lasting impression on international disputes and reminds parties to counsel to keep the potential consequence of third party funding in mind when negotiating such arrangements.