Introduction:
International arbitration has undergone a significant transformation over the past decade, evolving into a sophisticated and resource-intensive process. With cross-border disputes involving high claims, expert evidence, technical analysis, and extended timelines, many parties—especially SMEs, distressed companies, and foreign investors—face difficulty funding their cases. In response to rising litigation costs, Third-Party Funding (TPF) has emerged as a commercial innovation that is redefining access to justice in international arbitration. It allows an external financier, unrelated to the dispute, to fund legal costs in exchange for a share of the award or settlement, enabling claimants to pursue meritorious claims without financial strain.
What Third-Party Funding Means in Arbitration:
Third-Party Funding operates on a risk-sharing model where funders finance part or all of the arbitration costs, including institutional fees, arbitrators’ fees, legal fees, and expert expenses. The funder only recovers its investment if the funded party succeeds, making the arrangement non-recourse and commercially attractive. TPF also enables businesses to treat legal claims as financial assets capable of generating investment interest, particularly in large-value and high-impact disputes. This model is now widely recognised as a legitimate financing tool in the global arbitration landscape.
Why Businesses Are Turning to TPF:
The rising popularity of TPF is driven by several commercial and strategic advantages. Companies use TPF not only when they lack liquidity but also as a conscious risk-management tool to reduce financial exposure in complex disputes. By shifting litigation risk to funders, parties can preserve cash flow, mitigate legal expenditure, and pursue claims they might otherwise abandon. Funders often perform rigorous due diligence on the merits, quantum, and enforceability of claims, thereby reinforcing the credibility of the dispute. For many businesses, TPF provides financial predictability and converts legal claims into value-generating assets.
Global Trends and Regulatory Developments:
Around the world, jurisdictions have adopted varying degrees of regulation for TPF. Singapore and Hong Kong, once conservative due to doctrines of champerty and maintenance, have implemented clear statutory frameworks expressly permitting TPF in international arbitration. The United Kingdom and the United States have some of the most well-developed funding markets, with sophisticated funders and established industry standards. Australia, an early adopter, continues to refine its regulatory structure. In Europe, the debate is shifting towards stricter oversight, with the European Parliament calling for uniform transparency obligations. Major arbitral institutions—including ICC, SIAC, LCIA, ICSID, and HKIAC—now require disclosure of funding arrangements to manage conflicts of interest, marking a significant global trend toward transparency.
Key Challenges and Ethical Considerations:
While TPF has expanded rapidly, it brings important legal and ethical considerations. Critics highlight potential funder influence on litigation strategy, settlement decisions, or expert selection, although most modern funding agreements restrict such control. Another concern is confidentiality—sharing documents with funders may create privilege issues depending on the jurisdiction. Questions also arise regarding transparency and the extent to which funding details must be disclosed to the tribunal and the opposing party. Further concerns relate to the commercialisation of disputes or the possibility of speculative claims. Despite these concerns, industry codes of conduct and institutional rules have greatly improved governance and risk mitigation in funded arbitrations.
India’s Evolving Position on Third-Party Funding:
India’s legal stance on TPF is developing but largely favourable. Indian law does not prohibit third-party funding, and several High Courts—including Bombay, Kerala, and Gujarat—have upheld its validity, confirming that it does not violate public policy. However, India lacks a dedicated statutory framework governing TPF in arbitration. The absence of clear rules on disclosure, conflict management, and cost liability creates uncertainty for parties considering funding. Despite these gaps, TPF is increasingly used in India-related commercial arbitrations, insolvency-linked claims, and international disputes involving Indian entities. With rising global funder interest and India’s ambition to become a pro-arbitration jurisdiction, the need for a robust regulatory framework is becoming pressing.
Practical Considerations for Businesses and Lawyers:
For parties evaluating TPF, understanding the commercial and legal criteria applied by funders is essential. Funders typically assess the legal merits of the claim, anticipated damages, enforceability prospects, and overall risk exposure. High-value, asset-backed, or treaty-based disputes are particularly attractive for funding. Parties must carefully negotiate funding agreements, paying attention to confidentiality, cost-sharing, termination clauses, funder rights, and contingencies. Portfolio funding, where a group of cases is funded together, is also gaining traction, offering flexibility and risk diversification for companies with multiple ongoing disputes.
Conclusion:
Third-Party Funding is rapidly becoming an integral component of international arbitration. By unlocking capital, enabling risk-sharing, and strengthening access to justice, TPF has transformed the way cross-border disputes are financed. As global jurisdictions refine their regulatory frameworks and arbitral institutions continue strengthening disclosure requirements, TPF will become even more integrated into mainstream arbitration practice. For India, the opportunity is significant. By adopting a clear and modern regulatory structure, India can position itself as an arbitration-friendly jurisdiction capable of attracting global funding interests. Until then, careful drafting, informed negotiation, and strategic planning are essential for parties navigating the evolving landscape of Third-Party Funding in arbitration.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.