Tribunal Requests Claimants to Disclose to Turkmenistan who is Paying for Their Lawsuit


Even though third party funding is increasingly common in international arbitration, the disclosure of funding arrangements is relatively rare and is required only in exceptional circumstances. Earlier this year in Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti v. Turkmenistan the ICSID tribunal issued an order to compel the parties to disclose third party funding arrangements.

Brief overview of the case

Two Turkish construction companies brought a claim, pursuant to the Turkey-Turkmenistan bilateral investment treaty, against the Republic of Turkmenistan (the “Respondent“) alleging “destruction, impairment, and unlawful expropriation of the claimants’ construction projects in Turkmenistan.” During the proceedings, the Respondent asked the tribunal to order Mr Çap and Sehil Inşaat (the “Claimants“) to disclose whether they had entered into any third party funding agreements to finance their claims in this arbitration. That request was rejected by the tribunal consisting of professors Julian Lew, Bernard Hanotiau and Laurence Boisson de Chazournes.

Disclosure of third party funding agreements to ensure security for costs

A year after the first application was rejected, the Respondent again made a request to order the Claimants to disclose “the identity and nature of the involvement of the third-party funders for Claimants.” To justify its request at this time, the Respondent argued that disclosure was not only necessary to ensure no conflicts of interest, but also to ensure security for costs.

The Respondent was particularly concerned that the Claimants lacked financial means and would unlikely be in position to pay any adverse costs. The Respondent argued that the Claimants pursued a claim in this arbitration only because of third party funding. Since the Respondent had no direct recourse against the third party funder to recover its costs, the disclosure of the funding arrangement was necessary to proceed with an application for security for costs.

Under the security for cost mechanism, if a party shows that the other party lacks financial stability and thus is arguably unable to satisfy the award, the tribunal may order the other party to pay a certain amount of money as security, to the tribunal during the arbitration. This can be later used to recover reasonable arbitration proceedings costs for the prevailing party.

The Respondent alleged that a third party funder “may elect to withdraw at any time and may be able to evade a costs award in the event of an adverse decision” leaving the Respondent with no option to recover its costs from the losing party and a third party funder. Yet the Claimants asked the tribunal to deny such application stating that they “have not assigned their claims”, though they never denied that this arbitration is being financed by a third party funder.

The ICSID tribunal considered the application again and decided in favour of Turkmenistan (the Respondent), ordering the Claimants to disclose their third party funding arrangements, including names and terms of that financing.

The tribunal concluded that disclosure was necessary and found the Respondent’s security for cost argument compelling. As the tribunal noted, “Claimants never denied that there was a third-party funder, when it was obvious to make in case they are not being funded by third-party.

The tribunal concluded that disclosure will allow an assessment of whether it is necessary to order the funded party to provide security for costs. In fact, the tribunal sympathised with the Respondent’s concern that if it is successful in this arbitration, the Claimants will be unable to meet these costs and the third party funder will likely have disappeared as it is not a party to this arbitration. To avoid such situation, the disclosure is necessary at the outset of arbitration to assess whether the tribunal should order the funded party to provide security for costs.

This case confirmed that claimant who benefited from third party funding faces the risk that terms of such funding arrangement may have to be disclosed to assess the necessity of security for costs.

Albina Gasanbekova

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