Harsh Patidar & Monish Raghuwanshi*


This part of the Article succinctly coruscates Third-Party Funding by highlighting its merits, demerits, and complexities that can be ascribed to third-party funding. In peroration, this article curtly ails to delineate certain recommendations and suggestions in the form of remedies to get rid of all the complexities associated with TPF and to make the arrangement of TPF an effective and viable route for litigation funding.

Benefits of Third-Party funding IN ARBITRATION

The business of law is evolving in recent time which mandates the need to have third party funding in domestic and international arbitration. In the middle of this context, it is not only increasingly timely but extremely important to explore the interplay between conflict funding and arbitration. A way to reconcile the increasing need of business for the funding of legal issues with maintaining the dignity and ultimate enforceability of awards should be found out. Dispute settlement proceedings can be a considerable burden for the parties and as a result of the dispute itself, financial problems occur. Companies that are eventually party to arbitration disputes should take into account the possible benefits of third-party funding and should be aware of the potential risks.

I. Provides access to justice to under-resourced parties

Third-Party Funding of an arbitration dispute has the potential to provide adequate justice and access to justice for parties having fewer resources and are facing financial burden. This enables under-resourced parties to go ahead with the arbitration proceedings which would otherwise be halted due to lack of finances.

II. Reduces the arbitration costs

The exorbitant costs of claiming and advancing arbitration can be discouraging. Third-Party funding in arbitration supports claims which are worthwhile but would not be followed simply because of the substantial costs otherwise. Even a business with a substantial amount of funds should consider third party funding to their arbitration dispute. This reduces the expenses involved and affects positively its cash flows and allows capital that would otherwise be incurred in legal fees to be allocated to other productive areas of that business. Also, without a set mold of a third-party funding agreement, parties can negotiate on the terms and conditions of the agreement making it flexible and a less costly affair.

III. Minimises the risk

Arbitration proceedings are associated with risks making the parties unwilling to take such risks. Third-Party Funding eliminates the risk factor involved in an arbitration proceeding as the costs involved therein are relieved for the parties. The third-party funder does not play any role in taking decisions on the case or the negotiations involved in order to reach a consensus in the arbitration matter.

The emphasis of the third party is on properly evaluating the potential of success of the case for which the funding is proposed, taking into account all of the considerations such as the competency and experience of the legal representative of the claimant, increasing or lowering the speed in the execution of the proceedings. Also, the funder cannot at any time interfere with the process or with the decisions of the claimant.

IV. Extra layer of scrutiny

The additional layer of oversight that comes with the third-party funding may be another benefit of a funding arrangement with an external party. A third-party funder is like any other organization and it is doubtful that they will back a claim unless they are optimistic about its success. The funder only takes into account the cases that guarantee merit. This acts as a validation for the party and could also contribute to an early settlement. Third-party funders also have their own legal advisors to review claims and often evaluate the merits of a claim by independent research and evaluation. They give an objective and independent assessment of the situation and provides an extra layer of scrutiny by a realistic approach.

Plugging the complexities ASSOCIATED with third-party funding in arbitration & litigation

In India, there exists no legal embargo to third-party funding arrangements, yet, there are certain convolutions associated with third-party funding. They are as follow:

I. Public Policy Considerations

The laws of “public policy” do not ascribe to a customary or a fixed rule. The main question of whether an agreement is against the public policy or not is to be determined on formal doctrines only. Public policy can a constitute breach of an Act and whatever is contrary to the acceptable principles when made the main consideration of a contract.

II. Mere right to sue

In pursuant to the contention that the contract is against the public policy, one can contend that a specific arrangement is nothing but an assignment of a right to sue that is inhibited by Section 6(e) of the Transfer of Property Act, 1882. Further, in the Sri Sarada Mills case,[1] the Supreme Court of India held, “claims to damages for breach of contract or claims to damages for tort and assignment of the mere right of litigation, are bad. The reason behind this rule is that a bare right of action for damages is not assignable because the law will not recognize any transaction which may savour maintenance or champerty. It is only when there is some interest in the subject matter that a transaction can be saved from the imputation of maintenance. That interest must exist apart from the assignment, and to that extent, must be independent of it.”[2]

III. Conflict of interest

In TPF, a funder can resort to a pre-established connection with a person belonging to the Arbitral Tribunal, in that case, the autonomy and impartiality of an arbitrator might be alleged if such facts appear before opposite party. From fifth Schedule of the Arbitration Act,[3] which takes an arbitrator’s indirect interest into consideration, one can infer that it might envisage third-party funding.

IV. Confidentiality

In India, the Arbitration Act[4] has added Section 43A that binds the parties and Arbitral Tribunal to restore the confidentiality of all the proceedings pertaining to arbitration. Thus, there exists a possibility of the opposite party challenging violation of confidentiality on the ground of such a third-party funding arrangement cannot be set at naught.

Emerging International Trends in Third-Party Funding

A. Innovative risk transfer arrangements

The third-party funding arrangements for the party comprise of the cases where the party does not want to incur the costs of litigation but would pay from his pocket, a share of the envisaged value of a triumphant party, upon dismissal of the averment. The parties not only want the litigation connected costs funded but also the risk of a contrary decision transferred. For this, the market includes certain paraphernalia which provides insurance and some sort of arrangements that transfer the risk of an issue for a plummeted price paid by the funder.

B. Proliferating legal imposition for third party funding

Countries like Australia, Hong Kong, etc, are abandoning the clunky common law principles of champerty, and maintenance, and have made third-party funding legal. Recently, Singapore brought the amended Civil Law Act and the Civil Law Regulations, 2017 legalizing third-party funding in arbitration.

C. Emergence of artificial intelligence

Nowadays, Artificial Intelligence abled algorithms are being used to ascertain the results of disputes, and to assess and price the risk in funding a matter. For example, “Legalist”, a tech third-party funding entity, uses an Algorithm that ascertains the possibilities of winning the matter using its database of 10 million court disputes before making an investment.

D. The portfolio funding

Under portfolio funding, a plenitude of averments brought by a claimant in contrast to identical or non-identical defendants is funded. This aids the claimant to seek more favourable terms since the funder’s finding and return is rampant across the averments, trivializing exposure to only one claim. Further, funders are being contacted to carry out transactions such as payment to creditors of an insolvent entity who would otherwise have to await the output of a claim before receiving the payment, proliferating the proceeds of a settlement, and even funding the expenses of the business, which may be based on a triumphant claim.

The Future Ahead

In India, states like Gujarat, Madhya Pradesh, Maharashtra, Uttar Pradesh, Orissa, Andhra Pradesh, and Tamil Nadu have recognized third-party funding after amending Order 25 Rule 1 of the Civil Procedure Code, 1908. This Order authorizes the courts to secure expenses for litigation by asking the financier to fund by becoming a party in order to deposit the costs in court. On adverting to some infrastructure companies such as Patel Engineering and Hindustan Construction Company have countenanced third-party funding in relation to their unresolved and unsettled averments in the sphere of arbitrations. The pivotal purpose seems to be to relax their advantageous status and position. It is axiomatic that third-party funding is evolving as an endeared path for alleviating tensions and conflicts in debt-laden construction entities. The ambiguity prevailing over the market demands emanating in the light of COVID-19 pandemic, coupled with the worldwide economic nosedive, can discourage claimants from making cogent and strong averments by adverting to these on the basis of a monetary deficit. Arbitration financing as a means in the current financial health can help micro-level entities and other claimants encountering difficulties in accomplishing their administration and maintenance costs or widening their regime by saturating the fund saved on litigation.


Third-Party Funding in Arbitration is a new emerging trend all over the world. With an upsurge in the arbitration claims and costs and risks involved in it, third-party funding gives relief to businesses and commercial organizations. The benefits of third-party funding clearly exceed any supposed shortcomings which have been noted in the above discussion. However, the complexities revolving around the adoption of this concept in arbitration needs to be addressed by means of adequate contractual regulation. Given the increased number of new third-party funders entering the market as well as globalization, many funders are operating across many jurisdictions. Therefore, the implementation of uniform external regulations is needed for different jurisdictions.

In India, there is no clear regulation regarding third-party funding. It is, however, established by judicial precedents that third-party funding other than that of advocates is an accepted practice in India in litigation proceedings. Such an agreement between the third-party funder and party to a dispute takes into account the doctrine of public policy and the principles of justice, equity and good conscience. As there is no fundamental difference between litigation and arbitration proceedings, the third-party funding in the arbitration claims should be validated in India through a statute.

*Harsh Patidar is a III Year, B.A. LL.B. (Hons.) student at National Law Institute University, Bhopal, harshpatidar.ug@nliu.ac.in Monish Raghuwanshi is a II Year, B.A. LL.B. (Hons.) student at National Law Institute University, Bhopal, monishraghuwanshi.ug@nliu.ac.in [1] Sri Sarada Mills Ltd. V. Union of India, (1973) AIR 281. [2] Id. [3] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India). [4] Id. § 43, cl. A.