Introduction
Third-party funding has quietly transformed the economics of international arbitration. What was once a niche financing arrangement confined to common law jurisdictions and insolvency litigation has expanded into a sophisticated global industry, with dedicated litigation finance funds managing billions of dollars in deployed capital across commercial arbitration, investor-state arbitration, and mass arbitration claims. Burford Capital, Omni Bridgeway, Bentham IMF, and a growing roster of specialist financiers now routinely back arbitration claimants in exchange for a share of the recovery — typically between 25 and 40 percent.
The practice raises fundamental questions about the integrity of arbitral proceedings: Who controls litigation strategy when a financier with divergent interests holds the funding lever? When must the existence of third-party funding be disclosed, and to whom? Can an arbitrator’s past relationship with a funding entity constitute a disqualifying conflict of interest? And more broadly, does the commodification of arbitration claims as financial assets undermine the adjudicative character of the process?
These questions are no longer theoretical. They are being litigated before arbitral tribunals, challenged in enforcement proceedings, and increasingly addressed through institutional rule reform — often inadequately.
Legal Framework
India lacks a dedicated statutory framework for third-party funding of arbitration. The Arbitration and Conciliation Act 1996, even as amended, is silent on the practice. The question of whether maintenance and champerty — doctrines that traditionally prohibited the funding of another’s litigation in exchange for a share of the proceeds — apply to arbitration in India remains unresolved. Indian courts have historically treated maintenance and champerty as contrary to public policy under Section 23 of the Indian Contract Act 1872. However, modern Indian courts have shown increasing reluctance to apply these doctrines rigidly, particularly in commercial contexts where the parties are sophisticated and the funding arrangement is structured through a formal contract.
At the international level, Singapore amended its Civil Law Act in 2017 to expressly legalise third-party funding in international arbitration, accompanied by the Legal Profession (Professional Conduct) Rules which impose disclosure obligations on lawyers. Hong Kong enacted parallel legislation in 2019. The European Parliament’s 2022 Resolution on responsible private funding of litigation, while not binding, articulated principles including funder disclosure, caps on return ratios, and judicial oversight of funding agreements.
Several leading arbitral institutions have introduced disclosure requirements into their rules. The ICC Rules 2021 require parties to promptly disclose the existence of a third-party funding arrangement and the identity of the funder. The SIAC Rules 2016 impose similar obligations. The IBA Guidelines on Conflicts of Interest (2014, updated 2024) identify a funded party’s relationship with its funder as a relevant circumstance requiring disclosure.
Judicial Developments
The most consequential recent judicial engagement with third-party funding in arbitration occurred in Essar Oilfields Services Ltd v. Norscot Rig Management Pvt Ltd (2016) before the English Commercial Court, where Mr Justice Clarke declined to set aside an ICC award that had allocated third-party funding costs as part of the arbitration costs against the losing party. This decision, while not Indian, established a significant precedent: that funded proceedings could generate cost recovery obligations tied to the funding arrangement itself, not merely the legal fees.
In the investor-state context, the tribunal in Infinito Gold Ltd v. Costa Rica (ICSID Case No. ARB/14/5) addressed third-party funding disclosure at length, concluding that disclosure of the funder’s identity was necessary to enable the tribunal to verify the absence of conflicts of interest. This procedural conclusion has been widely adopted in subsequent investor-state proceedings as a matter of best practice even where institutional rules do not expressly mandate it.
Indian domestic courts have not yet adjudicated a dispute squarely turning on the validity of a third-party funding agreement in the arbitration context. However, the Delhi High Court’s observations in certain commercial matters suggest an evolving judicial openness to such arrangements, particularly where the funded party is a legitimate claimant who lacks resources to pursue a meritorious claim independently.
Contemporary Issues and Analysis
The conflict of interest dimension is the most structurally complex problem in third-party funding regulation.
When a funder has financed multiple arbitrations in different cases, the possibility that an arbitrator appointed in one of those cases has a relationship — past, present, or ongoing — with the funder creates a genuine independence concern. The practical difficulty is that these relationships are often invisible. An arbitrator may have served on a committee funded by Burford Capital, lectured at an event sponsored by Omni Bridgeway, or sat as a fellow arbitrator with a Bentham-backed party, without any of these connections being disclosed. The IBA Guidelines’ requirement of disclosure extends only to relationships that are “relevant” — a standard that requires the arbitrator to know of the funding arrangement in the first place.
This creates an epistemic problem: disclosure obligations only work if the arbitrator knows of the funder’s identity, which requires the party to disclose the funding arrangement. Absent a mandatory initial disclosure regime with teeth, the system is self-defeating.
A second issue concerns control rights. Funding agreements routinely give the funder significant influence over settlement decisions, occasionally including veto rights over settlements below a threshold return. This arrangement fundamentally alters the principal-agent dynamic in arbitration — the claimant’s counsel owes duties to the client, but the client’s decision-making is constrained by a third party whose interests may diverge sharply. No arbitral institution has directly addressed the question of what happens when a funder’s refusal to approve a settlement prevents a funded party from exercising its autonomous right to resolve the dispute.
The mass arbitration problem is a third frontier. In the United States, third-party funders have financed mass consumer arbitration campaigns — filing thousands of individual arbitration claims against corporate defendants simultaneously, leveraging filing fee and administrative cost asymmetries. While Indian consumer arbitration is not yet at this scale, the Online Dispute Resolution ecosystem is developing rapidly, and the potential for funded mass consumer arbitration against e-commerce and fintech platforms is real.
Comparative and International Perspective
The regulatory spectrum runs from prohibition (Saudi Arabia, Bahrain in certain contexts) through permissive silence (India, most civil law jurisdictions) to regulated legality (Singapore, Hong Kong, the Netherlands). Australia represents the most developed regulatory framework, where litigation funders are required to hold an Australian Financial Services Licence and are subject to oversight by ASIC as managed investment schemes.
The ICSID Secretariat’s 2022 Discussion Paper on third-party funding in investor-state arbitration proposed disclosure obligations, arbitrator conflict-check procedures, and the possibility of cost-bond requirements to protect respondent states against funded claimants who may be judgment-proof. These proposals reflect a growing consensus that institutional silence is no longer tenable.
The Queen Mary University/White & Case International Arbitration Survey 2021 found that over 70 percent of respondents supported mandatory disclosure of third-party funding arrangements to arbitral tribunals, while a majority also supported disclosure of the funding amount and return ratio — suggesting that the practitioner community has moved ahead of most regulatory frameworks.
Practical and Policy Implications
For India as an emerging arbitration seat, the absence of a regulatory framework for third-party funding creates both opportunity and risk. The opportunity is that India could position itself as a jurisdiction that facilitates access-to-justice through legitimate funding arrangements — particularly for MSMEs and mid-market companies that cannot absorb the cost of international commercial arbitration against well-resourced counterparties. The risk is that regulatory silence will attract practices that undermine arbitral integrity, particularly in investor-state disputes where foreign-funded claimants challenge Indian regulatory measures.
For arbitrators, the practical implication is that declarations of independence must go beyond the standard IBA Guidelines checklist to specifically address funder relationships. Institutions should consider requiring arbitrators to confirm, at appointment and throughout proceedings, that they have no relationship with any known third-party funder in the matter.
Suggestions and Reforms
India should enact a standalone regulatory framework for third-party funding in arbitration, modelled on Singapore’s approach but adapted to Indian market conditions. This framework should require parties to disclose the existence of a funding arrangement within 30 days of its execution or the commencement of proceedings, whichever is earlier, along with the funder’s identity and the general structure of the return obligation. The Act should specify that non-disclosure is a ground for challenge of the arbitral award on public policy grounds under Section 34.
The framework should also address control rights — specifically prohibiting contractual provisions that give funders absolute veto power over settlement, while preserving legitimate financial protection clauses such as minimum return thresholds.
The Law Commission should study the Australian model for licensing litigation funders and consider whether a similar prudential oversight regime would be appropriate for large-scale arbitration funding in India.
Conclusion
Third-party funding in arbitration is not a niche practitioner concern — it is an industry that is reshaping access to justice, altering power dynamics between claimants and respondents, and creating structural conflicts that existing disclosure frameworks are not equipped to manage. India’s legislative silence is becoming a liability for its arbitration ecosystem. A well-designed regulatory response — one that encourages legitimate access-to-justice funding while imposing robust disclosure and conflict-management obligations — would strengthen India’s credibility as an arbitration hub at precisely the moment when that credibility matters most.
