FUND ME IF YOU CAN: THE WORLD OF ARBITRATION FINANCING
Arbitration has become the preferred mode of dispute resolution in commercial disputes due to its efficiency, confidentiality, and party autonomy.
However, arbitration proceedings, often involving high-value and complex commercial disputes, can be significantly expensive. Legal costs, tribunal fees, expert witness expenses, and administrative charges frequently deter financially constrained parties from pursuing their claims.
To address this challenge, Third-Party Funding (TPF) has emerged as a viable financing model, allowing parties with meritorious claims to secure external funding in exchange for a share in the arbitration award or settlement. While TPF is widely accepted in international arbitration[1], its recognition in India is evolving. This article examines the concept of TPF, its legal status in India, the approach of foreign jurisdictions, and the potential roadmap for India to regulate and facilitate TPF in arbitration.
What is TPF?
The global landscape of dispute resolution has undergone a significant transformation over the past few decades, marked by a shift from traditional court litigation to more flexible and commercially viable mechanisms like arbitration. Once perceived as a private, elite alternative, arbitration is now widely accepted as a mainstream mode of adjudication – one where, quite unconventionally, adjudicators are paid by the parties themselves. This evolving mindset reflects a broader openness towards innovation in dispute resolution, paving the way for allied concepts like TPF. As parties become more cost-conscious and outcome-driven, TPF has emerged as a pragmatic solution that democratizes access to justice and aligns with the commercial realities of modern disputes.
TPF refers to a contractual arrangement where an external financier – typically a specialized litigation or arbitration funder – provides financial assistance to a claimant in an arbitration proceeding in return for a portion of the compensation if the case succeeds.[2] Simply put, a non-signatory to an arbitration agreement bears all costs of contesting or defending the arbitration proceedings.
These funding arrangements can take different forms. In some cases, the funder covers all arbitration-related expenses, including legal counsel fees, tribunal fees, and expert witness costs, under a full funding model.[3] Alternatively, in a partial funding arrangement, the funder may cover only specific arbitration costs, such as tribunal fees or expert witness expenses. Another common model is portfolio funding, where a funder finances multiple arbitration claims of a single entity, thereby diversifying risk.[4]
TPF offers several advantages, making it an attractive option in arbitration. It allows financially weaker claimants to pursue legitimate claims without being hindered by excessive costs, thereby improving access to justice. It also enables businesses to mitigate risk, as they do not have to bear the financial burden of arbitration proceedings upfront. Additionally, companies can manage their cash flow more efficiently by allocating their resources to operations instead of legal battles.[5]
TPF is often misunderstood as a tool designed solely to assist impecunious parties in pursuing arbitration. However, its utility extends far beyond that narrow lens. In today’s commercially driven environment, even financially sound entities view TPF as a strategic financial tool – one that enables them to ring-fence the costs of arbitration and avoid significant hits to their profit and loss statements or cash flow. By outsourcing the financial risk of a dispute, companies can maintain healthier balance sheets while still pursuing meritorious claims or defences. This shift in perspective highlights that TPF is as much about financial efficiency and risk management as it is about access to justice.
TPF in foreign jurisdictions
Several jurisdictions have proactively regulated TPF in arbitration to promote transparency and mitigate ethical concerns. Singapore and Hong Kong have been at the forefront of introducing legislative frameworks to govern TPF in arbitration.[6]
In Singapore, the Civil Law (Amendment) Act, 2017 legalized TPF in international arbitration. The legislation imposes eligibility criteria for funders and mandates disclosure of TPF arrangements to arbitral tribunals to prevent conflicts of interest. Further, Singapore International Arbitration Centre (SIAC) and the Law Society of Singapore have issued separate guidelines on TPF, aiming to create a fair and transparent mechanism. The guidelines require disclosure of TPF to prevent conflicts and maintain arbitrators’ impartiality, and to define the rights and obligations of third-party financiers. The recently enacted SIAC Arbitration Rules 2025 require parties to disclose third-party funders, report TPF agreement changes, and provide information requested by the arbitral tribunal. Additionally, TPF agreements must not create conflicts of interest with any arbitral tribunal member.[7] SIAC also introduced provisions in the Singapore Investment Arbitration Rules, 2017, adopting and acknowledging TPF arrangements.[8]
Similarly, Hong Kong enacted the Arbitration and Mediation Legislation (Third-Party Funding) (Amendment) Ordinance, 2017, allowing TPF in arbitration. Like Singapore, Hong Kong’s framework mandates disclosure requirements to ensure transparency. In effect, Hong Kong permits TPF for arbitration proceedings, subject to the condition that funding shall not by a lawyer acting for a party to arbitration.[9] The Hong Kong International Arbitration Centre has also enacted detailed provisions relating to the obligation to disclose any TPF arrangements entered by the parties.[10]
In contrast, the United Kingdom follows a self-regulatory approach through the Association of Litigation Funders (ALF). While TPF is widely used in the UK, funders must adhere to ALF’s Code of Conduct, which ensures ethical compliance and financial stability. The English courts have consistently upheld the validity of TPF agreements, provided they are fair and do not undermine the integrity of the proceedings. One noteworthy judicial pronouncement was in Arkin v. Borchard Lines Ltd.[11], wherein the English Court of Appeal established that funders could be held liable for adverse costs up to the amount they invested, creating a balanced system. Further, in Excalibur Ventures LLC v. Texas Keystone Inc[12], funders were held to be liable for indemnity costs, emphasising that their involvement necessarily brings about shared financial risks. Similarly, the decision in Essar Oilfield Services Ltd v. Norscot Rig Management Pvt. Ltd.[13] reaffirmed the idea that funders should also be accountable for costs, even in arbitration settings. Crucially, Excalibur set the wheels of judicial interest in TPF in motion, with Lord Justice Tomlinson’s observation that: “Third party funding is a feature of modern litigation.”
Australia has been another early adopter of TPF, particularly in class action litigation and arbitration. The Australian courts have upheld TPF agreements so long as they are not unconscionable or exploitative. In Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd.[14], the High Court of Australia ruled that TPF is permissible and does not interfere with the administration of justice. Unlike Singapore and Hong Kong, Australia does not have a statutory regulatory framework for TPF, instead it relies on judicial supervision to prevent abuse.[15]
Position in India
India does not have a statutory framework regulating TPF in arbitration. However, Indian courts have historically acknowledged the validity of TPF in civil litigation. One of the earliest cases recognizing TPF was Ganga Ram v. Devi Das[16], where the Privy Council upheld TPF agreements, stating that such arrangements were not per se illegal. Similarly, in Re: G. A. Senior Advocate[17], the Supreme Court ruled that while lawyers cannot fund litigation due to ethical concerns, non-lawyer third parties can. More recently, in Bar Council of India v. A.K. Balaji[18], the Supreme Court clarified that TPF is not barred under Indian law, provided the funder is not a practicing advocate.
While these rulings pertain primarily to civil litigation, their rationale can be extended to arbitration. Given that arbitration is a contractual and party-driven process, funding arrangements should be enforceable if they do not contravene public policy. However, India still lacks specific guidelines or legislation governing TPF in arbitration, creating legal uncertainties regarding its scope and implementation.
One of the concerns surrounding TPF is its connection to champerty and maintenance – doctrines originating from English common law that prohibited third parties from funding litigation for profit. However, Indian courts have taken a pragmatic approach, holding that TPF is not invalid unless the agreement is extortionate or unfair. In Ram Coomar Coondoo v. Chunder Canto Mukherjee[19], the Privy Council acknowledged that champertous agreements are not inherently illegal unless they are against public policy.
The High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India[20] in 2017, and the Vishwanathan Committee Report[21] in 2024 have both discussed the evolution of TPF agreements across the globe from increasing non-reliance on doctrines of maintenance and champerty in common law jurisdictions. These reports highlight arbitrator non-biasness and the importance of establishing rules to disclose any prior relation or connection of the arbitrator with that of the arbitration funding party.
The Vishwanathan Committee Report even recommends insertion of a new section in the Arbitration and Conciliation Act, 1996 (Indian Arbitration Act) mandating disclosure of details of the funding party to the arbitral tribunal.[22] Further, it recommends amending Explanation 2 in the Fifth Schedule of the Indian Arbitration Act to state that “affiliate” includes all companies in a group, including the parent company, and any person funding arbitration costs for a party. This ensures arbitrators consider their relationships with third-party funders when declaring independence or impartiality.
A significant development in Indian jurisprudence is the Delhi High Court’s ruling in Tomorrow Sales Agency Private Limited v. SBS Holdings[23] wherein the court addressed whether a third-party funder, not a signatory to the arbitration agreement, could be held liable for adverse cost awards. It held that funders who are not parties to the arbitration agreement cannot be saddled with such liabilities, emphasizing the importance of party autonomy in arbitration. This decision underscores the judiciary’s recognition of TPF’s role in facilitating access to justice while delineating the boundaries of funders’ liabilities.
Despite the growing relevance of TPF in arbitration and its recognition in judicial pronouncements, the Draft Arbitration and Conciliation (Amendment) Bill, 2024 (Draft Bill) remains conspicuously silent on the subject. This omission is particularly striking given that the Vishwanathan Committee expressly recommended the inclusion of provisions to regulate TPF within the Indian Arbitration Act. The disconnect between the judiciary’s evolving stance, expert committee recommendations, and the Draft Bill underscores a missed opportunity to provide much-needed clarity and structure to a mechanism that is increasingly shaping access to justice in commercial disputes.
One key issue is whether parties should be required to disclose TPF arrangements to the tribunal to ensure transparency. Another concern is the degree of control funders may exert over the arbitral proceedings, which could lead to conflicts of interest. Additionally, there is no clarity on adverse costs liability – if a claimant loses the arbitration, it remains uncertain whether the funder or the claimant would be liable for the adverse cost award. These gaps highlight the need for legislative clarity on the role of TPF in Indian arbitration.
Road Ahead
Given India’s ambition to become a global arbitration hub, a clear regulatory framework for TPF is necessary. Legislative recognition of TPF in arbitration would provide clarity on the rights and obligations of funders, claimants, and tribunals. Questions of confidentiality and potential conflicts of interest, enforceability of cost or adverse award orders against third parties, and the ambit of funder liability will all need to be addressed. As the funding landscape evolves, these concerns must be anticipated and resolved to ensure a balanced and transparent arbitral framework.
For TPF to function effectively within the Indian arbitral framework, ensuring arbitrator impartiality and robust disclosure obligations is paramount. The presence of a funder introduces additional relationships and potential conflicts that must be transparently disclosed at the outset. Statutory safeguards mandating disclosure of any ties – direct or indirect – between arbitrators and funders are essential to preserving the integrity of the proceedings and maintaining party confidence in the arbitral process.
India could also consider establishing ethical and financial standards for funders, similar to the Singaporean model, where funders must meet eligibility criteria to operate. This would ensure that only credible and financially stable entities engage in TPF. Another critical aspect is defining liability for adverse costs – it should be clear whether the claimant or the funder bears the financial burden if the case is unsuccessful.
In the evolving landscape of TPF in arbitration, there is a pressing need to revisit the manner in which arbitration clauses are drafted in commercial agreements. Traditionally treated as boilerplate, arbitration clauses often fail to address critical procedural and financial considerations – including the prospect of external funding. By proactively incorporating provisions that acknowledge or regulate the use of TPF, parties can ensure clarity and consensus at the outset of their contractual relationship. This not only facilitates procedural efficiency but also ensures that parties are ad idem on how potential disputes will be financed, reducing the scope for future contention and aligning expectations from the very inception of the agreement.
By omitting third-party funding from the Draft Arbitration Bill, 2024, India has not only missed the chance to provide it with substantive statutory recognition but has also delayed the development of a much-needed procedural framework. As the funding landscape grows, crafting clear, well-defined rules to regulate disclosures, conflicts, and funder participation will be critical to instilling confidence among investors and funders and positioning India as a credible arbitration hub.
Concluding Remarks
TPF has the potential to transform arbitration in India by enhancing access to justice and improving financial sustainability for claimants. With institutions like SIAC and HKIAC embracing TPF and addressing its challenges through symposiums and deliberations, and the International Council for Commercial Arbitration establishing a commission on TPF in international arbitration[24], it is crucial for India to resolve the uncertainties surrounding TPF. Indian arbitral institutions such as the Mumbai Centre for International Arbitration and Delhi International Arbitration Centre must take the lead in framing clear, practical guidelines that can set the tone for a robust and transparent funding ecosystem.
Co-authored by our Partner, Sudeshna Guha Roy and Associate, Treenok Guha.
[1] Dr. Dean Lewis, “Jurisdiction guide to third part funding in international arbitration”, Pinsent Masons, 07 May 2021, available at: https://www.pinsentmasons.com/out-law/guides/third-party-funding-international-arbitration
[2] William Park and Catherine A. Rogers, “Third-Party Funding in International Arbitration: The ICCA Queen Mary Task Force”, No. 42-2014, Penn State Law Legal Studies Research Paper Series (2014).
[3] Bourgeois Arnaud, “Third-Party Funding”, Jus Mundi, 14 October 2024, available at: https://jusmundi.com/en/document/publication/en-third-party-funding
[4] Anant Garg and Sreejita Mitra, “Regulating Third Party Funding in Arbitration in the Indian Context”, Bar and Bench, 13 December 2022, available at: https://www.barandbench.com/law-firms/view-point/regulating-third-party-funding-in-arbitration-in-the-indian-context
[5] Gokul Holani, “Third Party Funding in Arbitration: Indian Legal Perspective”, Delhi Law Review, Vol. VI, Manupatra, 2019, available at: https://articles.manupatra.com/pdf/133005e4-8f89-4437-bfa0-9b68361fff0e.pdf
[6] Riffat Soin, “Third-Party Funding in Arbitration: Global Trends, Challenges, and the Roadmap for India”, The Arbitration Digest, available at: https://thearbitrationdigest.com/third-party-funding-in-arbitration-global-trends-challenges-and-the-roadmap-for-india/
[7] Rule 38, SIAC Arbitration Rules, 2025.
[8] Rule No. 24(l), SIAC Investment Rules, 2017.
[9] Dr. Dean Lewis, “Jurisdiction guide to third part funding in international arbitration”, Pinsent Masons, 07 May 2021, available at: https://www.pinsentmasons.com/out-law/guides/third-party-funding-international-arbitration
[10] Article 44, Hong Kong International Arbitration Centre Administered Arbitration Rules, 2024.
[11] Arkin v. Borchard Lines Ltd., [2005] EWCA Civ 655.
[12] Excalibur Ventures LLC v. Texas Keystone Inc., [2016] EWCA Civ 1144.
[13] Essar Oilfield Services Ltd v. Norscot Rig Management Pvt. Ltd., [2016] EWHC 2361 (Comm).
[14] Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd., [2006] HCA 41.
[15] Gokul Holani, “Third Party Funding in Arbitration: Indian Legal Perspective”, Delhi Law Review, Vol. VI, Manupatra, 2019, available at: https://articles.manupatra.com/pdf/133005e4-8f89-4437-bfa0-9b68361fff0e.pdf
[16] Ganga Ram v. Devi Das, (1886) ILR 8 All 369.
[17] Re: G. A. Senior Advocate, (1954) AIR 393 SC.
[18] Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379.
[19] Ram Coomar Coondoo v. Chunder Canto Mukherjee, (1876) 2 App Cas 186.
[20] Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, 30 July 2017.
[21] Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 to make it alternative in the letter and spirit, 07 February 2024.
[22] Para. 3.17, Vishwanathan Committee Report.
[23] Tomorrow Sales Agency Private Limited v. SBS Holdings, 2023 SCC OnLine Del 3191.
[24] The International Council for Commercial Arbitration, Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, The ICCA Reports No. 4 p. 17.
29 April 2025
