Although third-party funding (“TPF”) continues to grow rapidly in Canada, one may observe that TPF’s mechanics and implications are mainly discussed and debated in the context of litigation (notably in class actions and, more recently, litigious claims of insolvent entities). The case of ADR is quite different: besides a few articles and law blogs providing the lay of the land in domestic and international arbitration, TPF remains largely underexamined in the ADR realm, and even more so in mediation. This is somewhat peculiar considering that the bulk of civil/commercial disputes never “see” the inside of a courtroom and, as a result, one could speculate that there are several funded cases in Canada that are never reported and thus go unnoticed. A lack of Canadian TPF regulations and of court precedents relating to TPF in arbitration matters have been contributing to this trend.
Professional ethics represent one of the many issues not being discussed to an adequate extent, especially with respect to conflicts of interest emerging from relationships between third-party funders/funded parties and ADR providers such as arbitrators and mediators. Of course, this issue is tied to the disclosure (if any) of the presence of a third-party financier to the arbitral tribunal, the mediator, and so forth. Practically, the rationale behind said disclosure is to ward off undesirable challenges to the appointment of ADR providers, notably arbitrators, and to arbitral awards already issued and potentially in the process of being enforced, which is particularly unpleasant to parties whose claims were originally deemed meritorious and thus justifying recovery from their opponents.
Notwithstanding the already-mentioned exceptions of class action proceedings and claims in the insolvency context, Canadian laws, regulations and court precedents do not mandate disclosure of the existence of TPF agreements between funders and parties involved in litigation. The same holds true in the case of domestic arbitration. However, international arbitration is slightly different: although the various international arbitration statutes in Canada (which largely adopt the 1985 UNCITRAL Model Law) do not require TPF disclosure, the potential for conflicts of interest between arbitrators and funders have been among the main topics garnering global attention as regards the effects of TPF in international arbitration generally. This has culminated in guidelines, laws and regulatory provisions that offer some useful guidance on how to deal with potential conflicts of interest and corresponding disclosure mandates.