This article has been authored by Ms. Eleena Eapen, a 4th year B.B.A., LL.B. (Hons.) student at Symbiosis Law School in Pune and Mr. Vansh Tayal, a 4th year B.B.A., LL.B. (Hons.) student at Symbiosis Law School in Pune
Introduction
Third-party funding (“TPF”) in international arbitration provides a controversial yet revolutionary means of transforming dispute resolution for the benefit of truly deserving claims brought by financially needy parties. TPF involves a third party, commonly a boutique investment firm, underwriting a party’s legal costs to acquire an agreed share of the award or settlement. While it democratizes justice and alleviates monetary pressure, TPF raises serious ethical and procedural concerns about conflicts of interest, transparency, and the integrity of arbitral processes.
Historically, common law jurisdictions resisted TPF under the doctrines of champerty and maintenance, which prohibited third-party involvement for profit. Even with the globalization of arbitration and rising litigation costs, jurisdictions like Hong Kong and Singapore have been steadily legitimizing and regulating TPF, each adopting a different approach to oversight.
The ethical conundrums, particularly in the circumstances of disclosure obligations: whether the parties must disclose their funding arrangements to tribunals and opponents and how far funders can go in influencing the strategy, settlement or even the choice of arbitrators, are still crucial. What is worse is the lack of uniform rules across various arbitral institutions, which indeed opens the floodgates for further inconsistencies that will never achieve procedural fairness in addition to undermining the enforceability of the award.
In India, arbitration under the Arbitration and Conciliation Act, 1996 (“The Act”), is steadily gaining grounds, yet there exists no explicit regulatory framework for TPF. Section 42A of the 2019 amendment dealt with confidentiality but completely ignored TPF, leaving the tribunal in every instance to grapple with the ethical quandaries on its own. This article examines the ethical and regulatory implications of TPF, advocating a balanced regime requiring disclosure of the identity of the funder to protect the right to a fair trial while maintaining the confidentiality of arbitration proceedings and thus promoting India’s agenda in arbitration.
Analysis
The advent of third-party funding in international arbitration radiates much more than mere legal innovation; it brings with it an ethical nuance. While, on the one hand, it is a wonderful boon in access to justice, it also brings new challenges, all of which impinge upon the very essence of fairness, transparency, and neutrality in arbitral proceedings. To explain completely the effects of TPF, this analysis proceeds into the fourfold critical parameters of arbitrator impartiality, holiness of the attorney-client privilege, mandatory disclosure as a tool of regulation, and various regulatory approaches by jurisdiction. Such considerations present varying but interdependent ethical challenges; hence, an emphasis on the developing debate as to how the competing interests may be best weighed.
Impact of Third-Party Funding on Arbitrator Impartiality
The involvement of third-party funders in arbitration creates significant risks of conflict of interests, particularly in connection with arbitrator impartiality. The IBA Guidelines on Conflicts of Interest (2014) address the issue by categorizing funders as entities having a ‘direct economic interest’ under General Standard 6(b), thus necessitating the disclosure of arbitrators’ past relationships with the funders. This is essential since hidden ties, such as repeat appointments by the same funder (an Orange List scenario), could justify doubt about an arbitrator’s neutrality. An example of these fears is the case Essar Oilfields v. Norscot Rig Management, where the tribunal awarded costs to a funded party that included the funder’s premium, raising suspicions about how much influence a funder had over procedural decisions. In the absence of the mandatory disclosure, these conflicts threaten the very society of the case itself, and the enforcement of awards under Article V(1)(d) of the New York Convention (due to improper tribunal constitution).
Preserving Attorney-Client Privilege and Ethical Challenges in TPF Arbitrations
TPF also subjects the principles of attorney-client privilege to examination, as much as the ethical standards imposed on those practicing in the field. During due diligence, divulging case-related confidential information may inadvertently lead to the loss of privilege and place sensitive information in the public domain by discovery. Additionally, funders may impose contracts on their funding agreements whereby they retain undue influence over major issues such as settlement or the appointment of arbitrators. Even though ABA Model Rule 1.2(a) would require that the lawyer promote the client’s interests, funders’ financial power might act as a smokescreen for such responsibilities. For example, a funder’s demand for pursuing high-risk litigation for better returns may directly contradict the client’s best interests. Such dynamics create a need for clearly defined ethical parameters that will prevent funders from co-opting the independence of legal representation.
Balancing Disclosure and Confidentiality in TPF
Mandatory disclosure supporters believe the practice prevents hidden conflicts and corresponds with the IBA Guidelines and institutional rules like Hong Kong International Arbitration Centre (“Article 44”) and Rule 38 of the SIAC Rules 2025 requiring disclosure of a funder’s identity. Transparency permits an early review by a tribunal and adversarial parties of potential bias, hence ensuring procedural integrity. Conversely, opponents highlight confidentiality concerns, holding that the funding terms can disclose a party’s financial status or settlement expectations against the interests of such a party in negotiations. A better way would reveal only the name of the funder – but not the financial terms of the contract – to reduce these risks but ensure fairness. Disclosure in advance to the tribunal and the other party would show this balance, such as in Oxus Gold v. Uzbekistan.
Comparative Approaches to TPF in the International Arbitration
Since the historic Essar case, Third-Party Funding (TPF) has been an international commercial arbitration phenomenon, thereby necessitating jurisdictions to take a frontal view of its implications. Singapore and Hong Kong are at the forefront of this evolution, each further broadening the boundaries of TPF in their arbitration usage.
In March 2017, Singapore revised its Civil Law Act and inserted Sections 5A and 5B to allow for TPF in international arbitration subject to certain restrictions. Hong Kong followed suit in June 2017 by amending its legislation on arbitration and mediation to allow for TPF in arbitration cases through the enactment of Part 10A of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, thereby permitting third-party funding (TPF) in arbitration proceedings. These developments are particularly important because a survey revealed that, in 2015, Hong Kong and Singapore were rated third and fourth, respectively, in preference for venues for international arbitration. The two regions differ, however, in the definition of acceptable funders: Singapore allows mostly commercial funders in its definition, while Hong Kong takes a much broader interpretation, covering any party without a personal interest in the arbitration.
Other jurisdictions like Canada take a more complex view, allowing for the disclosure of funder identities only in particular trade agreements such as Article 8.26 of Canada-European Union Comprehensive Economic and Trade Agreement (CETA”) and Article G-23 of Canada-Chile Free Trade Agreement (“CCFTA”), whereas Article 24 of the Argentina-United Arab Emirates Agreement for the Reciprocal Promotion and Protection of Investments prohibits TPF from its dispute resolution mechanisms altogether on the basis of alleged risks posed by external funding.
Recent commentators have stated that one should be transparent about regulatory frameworks as to whether funding fees are legitimate costs of arbitration. Rule 14 of the ICSID 2022 Arbitration Rules proposes a wide definition for TPF disclosure but not recovery of funding fee – an indication that some consider could be harmful to state parties in investor-state arbitrations. The strengthening of TPF in a jurisdiction opens avenues for claims previously thought impossible to pursue, particularly in investor-state disputes. Thus, not all parties may prefer arbitration seats like Singapore or Hong Kong to avoid TPF-related ambiguities.
Going forward, Hong Kong, Singapore, Australia, and Ireland will need to change their laws to ensure that TPF does not create an undesirable impact on arbitral practice. This includes rules on the recoverability of the TPF premium and success fees since commercial parties should anticipate modifying the relevant contractual provisions to reduce unexpected third-party funding costs’ liabilities.
Relevance to India’s Arbitration Agenda
Singapore and Hong Kong proved to be early movers in the codification of third-party funding, while India’s arbitration ecosystem stands at a critical crossroads. Without a funding regime in place under the Arbitration and Conciliation Act, 1996, Indian tribunals and practitioners see themselves caught up in uncertainty in matters of disclosure, confidentiality and funding recoverability. With India striving to emerge as a preferred seat of international dispute, a calibrated disclosure regime that requires only the identity of funders to be revealed would ensure procedural integrity in the proceeding and send a message to global users that India supports transparent, fair, and modern arbitration.
Recent reforms show that India is actively aligning its laws with international standards and aiming to become a premier arbitration forum. For example, in Tomorrow Sales Agency v. SBS Holdings the Delhi High Court’s resoundingly acknowledged the viability of third-party funding’ and explicitly urged the government to formulate rules on funding transparency and disclosure. A 2017 High-Level Committee on arbitration reform likewise noted that adopting a structured funding regime would ‘give a boost to arbitration in India’. Requiring only the funder’s identity to be disclosed – while keeping contractual terms confidential – would therefore align India with global best practices and enhance procedural fairness. Such balanced disclosure rules, combined with India’s recent legislative modernization, would strengthen international confidence in its dispute-resolution system. By reassuring parties that proceedings remain impartial and costs are managed, transparent funding regulations complement India’s broader arbitration reforms. They signal to international claimants and respondents that India is committed to both fairness and efficiency, thereby reinforcing its appeal as a neutral and modern arbitration venue and achieving India’s objective of becoming a regional arbitration hub.
Conclusion
Third-party funding thus acts as a catalyst in international arbitration, bringing improved access to justice for litigants with insufficient means to pursue their claims. However, increasing occurrences of TPF also bring in advanced sets of ethical and procedural questions where impartiality, transparency, and funders’ interference with the arbitral proceedings arise. The analysis underlines the need for a proper regulatory framework that should mandate the disclosure of funder identities, enhance transparency, and protect the confidentiality of any funding agreements.
Compared with other jurisdictions, including Hong Kong and Singapore, the need for establishing and adopting common rules for TPF at the international arbitration landscape has been accentuated. The imposition of disclosure obligations,consistently, will grant ethical insight into the practice of TPF and encourage fairness and enforceability of arbitration awards.
As the international arbitration sphere continues to evolve in its responses to contemporary complexity in disputes, cooperation toward refining the regulatory frameworks and establishing clear guidelines protecting all interested parties is an option that can positively be reinforced for TPF as a meaningful contributor toward just outcomes for all concerned without infringing on the values of impartiality and procedural integrity.