Investment treaty arbitration filings continued their growth in 2018. As more parties seek to file meritorious claims, demand for third-party funding for these arbitration claims will also continue to rise.
The International Centre for Settlement of Investment Disputes (ICSID) - which administers investment treaty arbitrations across the globe - recently published its 2018 caseload statistics. The report shows that more investor state arbitrations were filed last year than in any previous year, continuing the growth trend dating back to the 1990s. Overall, 58 investor state arbitrations were filed with ICSID in 2018.
As noted in a recent American Lawyer article, the increasing use of third-party dispute funding may be part of the reason for this growth. Dispute funding can allow investors to advance meritorious treaty claims where they would otherwise have lacked the capital to do so. The claimant is often undercapitalized precisely because of the respondent’s conduct, which is often an expropriation of the claimant’s investment. This scenario is particularly common in natural resource, energy and infrastructure cases, where the project at issue is the claimant’s only source of revenue. Indeed, of the 58 cases filed in 2018, 21% were disputes in the oil, gas and mining sectors, 20% concerned energy disputes, and 14% were construction disputes. Funding can be particularly valuable because funders can cover not only the cost of advancing the arbitration, but also provide working capital to enable claimants to maintain their day-to-day operations as the claim proceeds.
Increasingly, well-capitalized entities and investors with financial strength are also seeking litigation funding for arbitration claims. This funding allows them to move litigation costs and risks off their balance sheets, enabling them to use their capital for new projects or business operations at the core of their businesses.
Investment treaty arbitrations can yield significant returns, but can also be risky. ICSID’s statistics show that outcomes are balanced between states and investors: “Half of the thirty-six cases that were concluded in 2018 were settled or otherwise discontinued. Of the remaining 18 cases, the tribunal partly or fully upheld claims in 50% of cases, dismissed all claims in 33% of cases, and declined jurisdiction in 17% of cases.”
Even when a claimant is successful in establishing liability, quantifying the loss is challenging in this sphere. Claimants with expropriated projects often seek damages representing their lost profits in addition to the amounts invested in the project (sunk costs). Succeeding on recovery of lost profits will, however, depend on whether the project was viable and its stage of development. When assessing likely damages, Bentham can assist clients and counsel by providing seed funding for early expert opinions, and working with the legal team to ensure meritorious claims are advanced with the strongest evidentiary record possible.
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