David W. Rivkin is Co-Chair of Debevoise & Plimpton’s International Dispute Resolution Group. He has handled international arbitrations throughout the world and before virtually every major arbitration institution, securing one of the largest ICSID awards ever. Mr. Rivkin is the Immediate Past President of the International Bar Association (IBA), whose membership includes more than 100,000 members and 200 bar associations. He was the first American to serve in that position in 25 years.
When and how did you first encounter outside financing of international arbitration? How has your perspective on outside financing changed over time?
David Rivkin: I first encountered outside finance several years ago, although others at Debevoise had previously worked in the area. I was approached regarding an ongoing matter that Burford was funding, and we agreed to take over as counsel. I found it easy to work with the team at Burford and was impressed by their professional approach and integrity. Over time, as legal finance has become more common, I encounter it in an increasing proportion of my cases. I remain of the view that, for the right case, appropriately structured finance can be a great benefit to the client, the funder and the law firm involved.
From your perspective, what is the current state of dialogue about legal finance in an arbitration context? What are the gaps in understanding that need to be addressed?
DR: While legal finance has been around for over a decade in domestic litigation, the last few years have seen rapid growth and expansion into international arbitration. For what is still a relatively new addition to international arbitration, the dialogue regarding legal finance is advanced. Several years ago, discussions focused on the legitimacy of legal finance and whether it had a permanent place in international arbitration. Now, it is understood that legal finance will have some part to play in international arbitration, and the dialogue centers on how financing can most effectively be deployed, and the issues that come into play when third-party funders finance a claim.
Of course, some issues remain on which we have yet to reach a consensus. For example, there is ongoing debate about whether the existence – and potentially terms – of third-party funding should be disclosed. As things stand, funded parties are under no obligation to disclose their funding arrangements, but some have argued that this can raise potential conflicts of interest issues for appointed arbitrators, among other issues.
Similarly, based on case law in many jurisdictions, it is unclear how, if at all, the disclosure of documents or advice to funders impacts on attorney-client privilege. At present, there is almost no mandatory regulation of litigation finance in any of the major arbitral-seat jurisdictions. As the industry continues to grow, some may press for a degree of regulatory oversight.
As one of the most experienced international dispute resolution practitioners in the world, you regularly work with clients on complex, high-stakes matters in which substantial legal fees and expenses are at risk. How do you approach advising clients on the risks associated with litigating those matters?
DR: It is critical to address these issues upfront with the client. Almost as a matter of course, clients will properly expect a detailed budget proposal, broken down into phases with different assumptions. I find that this is an effective way to manage expectations at the outset, but also to inform the client’s litigation finance strategy. An increasing number of clients now independently request information about litigation funding or insurance in some capacity. In the course of finalizing an engagement letter for a large scale international commercial or treaty arbitration, we often raise the possibility of third-party funding, and then work with interested clients to help secure the type and level of financing that is right for them.
As co-chair of a leading international dispute practice, how do you anticipate that legal finance will impact conversations with clients in the future?
DR: The world of legal finance is still a work in progress. As the industry reaches maturity, this will shape not only future conversations with clients but also fee structuring at law firms.
For example, legal finance is no longer used solely as a necessity, but also as a tool of choice. Corporate clients may prefer to move legal fees and expenses off their own balance sheet in exchange for giving up a portion of the ultimate damages awarded. This will mean more proactive, tailored conversations with clients about how legal finance can optimize their legal budgets.
The portfolio approach to financing cases is also becoming increasingly attractive, both to clients with large disputes portfolios and also to law firms interested in the possibility of offering innovative and flexible fee arrangements to clients while maintaining cash flow. This could revolutionize the dynamic of future fee discussions.
Finally, litigation finance today comprises increasingly sophisticated financial products and structures designed to address specific business needs: For example, purchasing favorable arbitration awards at a discounted rate or acquisition of distressed companies involved in “do or die” disputes. Each case will necessitate a careful discussion with clients and funders about the benefits of risk-sharing and liquidity, while ensuring compliance with the applicable laws.
In your view, is outside financing of international arbitration having a positive impact on the legitimacy of international arbitration as a dispute mechanism?
DR: If used correctly and in appropriate circumstances, I do not believe that legal finance impacts the legitimacy of international arbitration. Rather, it is expanding the opportunity to use the process to some who might otherwise have no recourse to it. It is difficult to ignore the sometimes prohibitively high cost of arbitrating a large international claim. Legal finance can provide a valuable solution to parties with valid claims, who would otherwise be priced out of bringing their case—possibly because of the economic effects of the event at issue. Similarly, it can help address an inequality of arms, where better resourced parties can win simply by turning the case into a war of attrition. These are unquestionably positive impacts.
Detractors have argued that legal finance encourages a litigious culture by allowing claimants to bring non-meritorious or even vexatious claims. In the context of investor-state arbitration, the stakes are raised because the Defendant State will be forced to defend proceedings using public money, which can raise political and public policy concerns.
While no two instances of legal finance are the same, on balance I believe that the overall net effect of the industry is positive and promotes greater access to justice. In most cases, third-party funders invest significant sums of money and expect a return on their investment. It is simply not in their interests to back non-meritorious claims. Legal finance is often only secured after an extensive due diligence process conducted by a sophisticated team at the funder, normally assisted by external counsel. Given this expertise and due diligence, concerns about promotion of a litigious culture are unwarranted in most cases.
Several tribunals have rejected the fact of outside funding as a basis for imposing security for costs on claimants. What is your view on whether outside funding sources should be a factor in considering security for costs applications?
DR: Equating the presence of a funder with impecuniosity reflects an outdated perception of legal finance: Namely, that only cash-strapped or insolvent litigants use it. As I mentioned before, well-capitalized litigants may now use litigation finance for a plethora of reasons unrelated to solvency. As a result, the existence of a funder alone should not be a basis for assuming that the litigant would fail to reimburse costs of the other side if ordered.
In deciding whether to award security for costs, the tribunal’s determination should be based on substance—whether the party is actually insolvent or unable to pay costs if awarded—and not use the existence of funding as a proxy for this determination.
