The idea of arbitration is that it is intended to be a neutral, private and efficient alternative to going through the court system. By letting parties select their own decision-makers and avoid elongated trials, arbitration provided a quicker and more flexible way of resolving disagreements. That has changed, of course: arbitration itself is no longer cheap. Expensive lawyers and arbitrators, costs of expert evidence and long-winded proceedings have made it difficult for many parties to use the Court notwithstanding having legal merit to their claim. Third party funding: changing the face of arbitration due to these financial obstacles, third party funding (TPF) has become a significant development in arbitration. This is where a non-party funder outside of the arbitration pays for all or one part of the cost of the arbitration in exchange for a certain percentage amount from an eventual award that is if it is successful .TPF helps financially weaker parties to pursue valid claims and also to spread the risk involved in arbitration. The thing that started as a tool to improve access to justice has now developed into a commercial industry. Professional funders evaluate claims as investments and may influence how disputes are pursued or settled. Despite this growing influence, funders often remain outside the formal arbitration process, raising concerns about transparency, conflicts of interest, and procedural fairness.
This article examines third-party funding as an “invisible player” in international arbitration. It analyses the growth of TPF, the conflicts of interest it creates, its impact on fairness and equality between parties, and the evolving legal frameworks regulating its use across different jurisdictions.
Why Third-Party Funding Took Over Arbitration
At its core, third-party funding involves a non-party financing the costs of arbitration in return for a share of the proceeds if the claim succeeds. These arrangements are usually non-recourse, meaning the funder bears the financial risk if the claim fails. Although such arrangements were historically viewed with suspicion under the ‘doctrines of champerty andmaintenance’, the realities of modern arbitration have led to a significant shift in attitude.
One of the most important factors behind the rise of third-party funding has been judicial recognition. A key turning point was the decision in Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd (2016),where the English High Court upheld an arbitral award that allowed the recovery of third-party funding costs as “other costs” under the ICC Rules. The Court acknowledged that without external funding, the claimant would not have been able to pursue arbitration at all. This judgment marked a clear departure from earlier skepticism and confirmed that third-party funding could be a legitimate and necessary feature of arbitration.
In addition to the courts, arbitral institutions and leading arbitration jurisdictions have welcomed third-party funding increasingly. Other countries like United Kingdom, Singapore, Hong Kong and Australia have either abandoned the old principles or implemented rules that explicitly allow funding in arbitration. Consequently, claims for arbitration are now routinely considered as financial assets, judged by criteria such as legal merit, potential quantum, likely enforceability of awards and the duration that may be expected before disposal. In fact, even in countries with no dedicated/structured legislation on third-party funding, such as India for example, courts are increasingly showing a disposition to accept funding agreements especially under arbitration where the principle of party autonomy is paramount. This trend of being increasingly pro-arbitration is a reflection that the availability of arbitration should not be based only on one party’s commercial ability to access it
The rise of third-party funding is therefore not an accidental development. Rather, it represents a practical and market-driven response to the increasing costs and financial risks of contemporary arbitration.
The Invisible Player: Conflicts of Interest and Disclosure
The main concern with third-party funding is not that it exists, but that it often operates invisibly within arbitration proceedings. Funders do not formally appear on the record, yet their involvement can influence key strategic decisions, including which claims are pursued, how proceedings are conducted, and when settlements are considered.
This lack of visibility creates a serious risk of conflicts of interest. Arbitrators may have prior professional or financial connections with funders through repeat appointments, advisory roles, or earlier engagements. If the identity of the funder is not disclosed, such relationships may remain undiscovered, raising doubts about the arbitrator’s independence and impartiality. Even the appearance of bias can undermine confidence in the arbitral process.Investment arbitration has highlighted these concerns more clearly than commercial arbitration. In RSM Production Corporation v Saint Lucia (ICSID Case No.ARB/12/10), the tribunal ordered the claimant to disclose its third-party funding arrangement and imposed security for costs. The tribunal was influenced by the claimant’s previous failure to comply with adverse cost awards and the presence of external funding, showing how undisclosed funding can directly affect procedural decisions.Similarly, in Euro Gas Inc. and Belmont Resources Inc. v Slovak Republic (ICSID Case No. ARB/14/14), the tribunal acknowledged that disclosure of third-party funding may be necessary to identify potential conflicts of interest and to protect the integrity of the proceedings. While the tribunal did not question the legitimacy of funding itself, it emphasized that transparency becomes crucial when funding arrangements may affect arbitrator neutrality.
These decisions reflect a growing concern among tribunals and courts about third-party funders operating behind the scenes. The debate over disclosure is no longer theoretical. It has real implications for arbitrator impartiality, procedural fairness, and the overall legitimacy of arbitration as a neutral dispute resolution mechanism.
Access to Justice versus Procedural Fairness
Supporters of third-party funding often present it as a powerful tool for improving access to justice. This claim carries considerable weight. Funding enables financially constrained parties to pursue genuine claims and allows well-resourced companies to manage litigation risk by shiftingfinancial exposure to funders. However, access to justice represents only one aspect of fairness in arbitration. The involvement of a professional funder can significantly affect the balance between the disputing parties. Funded claimants frequently have access to top-tier legal representation, extensive expert evidence, and the financial ability to sustain lengthy proceedings. In contrast, respondentsparticularly smaller or less-resourced entities may experience increased pressure to settle, not because of the strength of the claim, but due to the financial backing behind it.
These concerns often arise in applications for security for costs. In RSM Production Corporation v Grenada (ICSID Case No. ARB/10/6), the tribunal ordered the claimant to provide security for costs, partly because the claimant was supported by third-party funding and had previously failed to satisfy adverse cost awards. While later tribunals have warned against assuming that third-party funding automatically indicates impecuniosity, the case demonstrates how funding can shape perceptions of procedural fairness.More recent decisions reflect a more measured approach. In MuhammetÇap&SehilİnşaatEndustriveTicaret Ltd Sti v Turkmenistan (ICSID Case No. ARB/12/6), the tribunal acknowledged the existence of third-party funding but declined to order security for costs solely on that basis. This approach signals an emerging consensus that funding should not, by itself, place a party at a procedural disadvantage, though it remains a relevant factor in assessing the overall balance between the parties.
Beyond procedural applications, a deeper concern lies in the potential influence of funders over the conduct of arbitration. Although funding agreements generally preserve formal control with the funded party, commercial realities may allow funders to exert indirect pressure on litigation strategy, settlement decisions, or case timelines. If left unchecked, such influence risks shifting arbitration away from a consensual dispute resolution mechanism toward a model driven primarily by commercial returns.
Regulation Playing Catch-Up
RegulationofThird-PartyFunding in InternationalArbitrationisstillverydisorganized,andtherearenotmanyuniformsolutionsworldwide.While soft law instruments, arbitral institutional rules and tribunal practiceshaveassistedtheaccountabilityand transparency of third-party funds, therearenotany binding rules that apply to all arbitrators and thereforeleaveroomforvariationbetweenarbitral forums. Themainregulationsurroundingtheissueofthird-partyfundinghasdevelopedatanationallevel,withmanyjurisdictionsadoptingcompletelydifferentviewsandregulationsinregardingit.Forexample, Singapore and Hong Kong have developed a comprehensive statutory frameworkfortheregulation and use of third-party funding in arbitration thatcontaindetailedprovisions regarding fundamental issues such as mandatory disclosure by the funders, a vetting process for funder eligibility, and protectionandsafeguardingofpartiesagainstpotentialconflictsofinterest. Conversely, the UK takes a much more permissive and free-market approach to the regulation of third-party funding, relying primarily on the judiciary’s oversight,limited to voluntary professional standards andpracticesamongstthe various providers of third-party funding.India presents a particularly nuanced position. Although there is no specific legislation governing third-party funding, Indian courts have not regarded funding arrangements as inherently unlawful. In Bar Council of India v Aparna Basu 2012, the Supreme Court clarified that while advocates are prohibited from funding litigation due to professional ethical rules, there is no general prohibition on third-party funding by non-lawyers. This distinction leaves scope for funding arrangements in arbitration, especially given its commercial and contractual nature and the emphasis on party autonomy.
While the absence of strict regulation offers flexibility and allows arbitration to adapt to evolving commercial realities, it also creates uncertainty. Without clear and uniform standards, parties and tribunals are required to address issues relating to third-party funding on a case-by-case basis. This lack of predictability risks undermining one of arbitration’s core advantages—certainty and procedural efficiency.
What Needs to Change
The growing role of third-party funders in arbitration calls for a careful recalibration of arbitral practice. Rather than resisting third-party funding altogether, arbitration frameworks must focus on integrating it in a manner that preserves fairness, transparency, and procedural integrity.
First, limited and targeted disclosure should be the norm. At least, parties should be compelled to disclose the fact of third party funding and the identity of funders. This information is necessary to determine whether any potential conflicts of interest arise regarding an arbitrator or counsel. Critically, that level of disclosure doesn’t have to go all the way to the terms and conditions with the funder, preserving confidentiality but on a need-to-know basis. Second, the competent authority should clearly authorize arbitral tribunals to address third-party funding issues. This includes the power to hear applications for security for costs, manage conflicts of interests in relation to funders and protect procedural equality between the parties. Clear powers of the Tribunal would prevent funding arrangements from distorting the arbitral process.
Finally, there is a strong case for the development of harmonized minimum standards at the international level. While a uniform global regulatory regime may be impractical, greater convergence around core principles such as transparency, arbitrator independence, and procedural fairness would enhance confidence in arbitration as a neutral and reliable dispute resolution mechanism.
Conclusion
Third-party funding has irrevocably altered the landscape of international arbitration. What began as a tool for access to justice has evolved into a powerful commercial force. Funders, though formally absent from proceedings, now operate as invisible players whose influence cannot be ignored.The challenge is not to eliminate third-party funding, but to regulate its impact thoughtfully. Arbitration must adapt to financial innovation without sacrificing its foundational values. Transparency, proportional regulation, and procedural safeguards are essential to ensuring that third-party funding strengthens rather than undermines the legitimacy of the arbitral process.As arbitration continues to evolve, recognizing and responsibly managing the role of the invisible player will be central to its future.
Author Name- Gati Sharma
