Third-Party Funding in Arbitration

Context: Third-party funding in Arbitration should be explored, with sufficient caution, to expedite access to justice.

Third-Party Funding in Arbitration/Litigation Funding

• It is the process in which someone who is not involved in an arbitration provides funds to a party to that arbitration in exchange for an agreed return.
• This practice is widely used in commercial arbitration, as this process improves access to justice by providing advance funding & support for the expensive, lengthy litigation process.
• Historically, this form of funding was prohibited under doctrines of maintenance & champerty

Present Scenario

• Now, the rules have been relaxed in various jurisdictions including the UK, the US, Canada and Australia as more focus is on access to justice.
• In India, “non-lawyer third-party funding” is lawfully admissible, i.e. where there is no personal interest of the participating advocate.
• The practice of 3rd party funding must become prevalent in India as it will not only open access to the court system but also businesses to manage their litigation position in a better way.

The debate around third party funding

• The main area of concern is the disclosure of the type of funding.
• We can learn from Hong Kong Inspirational Arbitration Centre Rules. The rules stipulate that when a funding agreement is concluded, the funded party must notify the other party. After that, the arbitral tribunal or emergency arbitrator in writing of the fact that a financing agreement has been concluded, along with the identity of 3rd party sponsor.

Road Ahead

• We have seen organizations come up like the Indian Association for Litigation finance. So, India should explore third-party funding, keeping in view it increases access to justice.

Additional Information

Difference Between Arbitration and Litigation

• Litigation implies a method in which dispute between two parties is resolved by going court, for the judgement. However, due to the rigidity and high cost involved in the litigation process, there are instances when parties go to arbitration. 
• Arbitration is a method of settling a dispute between parties wherein an independent person, selected by the parties mutually to decide the case.