Third-Party Funding in International Arbitration

Third-party funding is not new. Originally designed to support companies that did not have the financial means to pursue claims, its use has broadened and become a feature of the litigation landscape in various jurisdictions. Funders also look to international arbitration, attracted by the high-value claims, perceived finality of awards, and the favourable enforcement regime provided by the New York Convention and, in the context of investor-state arbitration, the ICSID Convention. 

Initially focused on investor-state arbitration, third-party funding is now common in international commercial arbitration also. However, unlike in litigation before national courts, where disputes are decided by state-appointed judges, the use of third-party funding in private arbitration, with party-appointed arbitrators, has given rise to certain ethical and procedural issues. 

In this Quickguide, we explain what third-party funding is, outline the process and practicalities of securing it, and then go on to discuss the particular issues it gives rise to in international arbitration. 

What is third-party funding?

Third-party funding is where someone not involved in an arbitration provides funds to one of the parties (usually the claimant) to pursue the proceedings, in exchange for an agreed return. Typically, the funding will cover the funded party's legal fees and other costs incurred in the arbitration. The funder may also agree to pay the other side's costs in the event that the funded party's claim is unsuccessful. The funder's return can be calculated in various ways, including as a multiple of the amount invested or as a percentage of amounts recovered by the funded party. Funding is usually on a non-recourse basis, meaning that if the funded party is unsuccessful in the arbitration, the funder loses its investment.

As the use of third-party funding has increased, so have the number and range of entities that are prepared to finance litigation and arbitration. In addition to specialised third-party funders, insurance companies, investment banks, hedge funds and even law firms have entered the market. 

As the market has developed, the range and sophistication of funding products and structures available has broadened. There is no one-size-fits-all approach and the brief description above is funding at its most basic. Third-party funding, or "litigation finance" as it is commonly referred to, has evolved beyond funding one-off cases. It is now used for a broader range of purposes, with the proceeds of the litigation or arbitration being used as collateral. Another recent trend is the development of portfolio funding, where funders provide a party engaged in a range of disputes with a funding package that covers a portfolio of cases, with returns calculated across it. 

When is third-party funding appropriate?

Recent innovations in the products available have made third-party funding appropriate in a greater range of situations . However, if looking to fund on a one-off case basis, the following is a useful preliminary checklist:

• Funders are unlikely to provide funding for cases that do not involve a claim (or counterclaim) for damages because funders' returns are usually linked to recoveries made.
• Funding an arbitration claim is a high risk investment, and funders will require a certain investment-to-quantum ratio. Unless they specialise in funding smaller claims, a third-party funder will generally only fund one-off cases where likely damages exceed US$10 million.
• Funders will expect good prospects of success to invest, and will require detailed information to undertake their own separate analysis of the claim and how it is being advanced.
• Funders will want to know if the target (i.e. the respondent) is able to meet the claim, costs and interest, and seek to understand its approach to defending the claims, as well as the likelihood of voluntary compliance with any award. Particularly where the respondent is a State, the funder will want to know what its payment record is in relation to arbitration awards, as well as understand where its assets are situated, as enforcement risk is a key concern.
• The seat of the arbitration is important as that will determine whether funding is permitted under local law.
• The place of enforcement will also be important, as the fact of funding may, in some jurisdictions, be used to raise public policy arguments to frustrate or deny enforcement.

Advantages and disadvantages of third-party funding

A potential claimant may approach a funder for various reasons:

• Necessity: Arbitration can be expensive. If a claimant does not have the means to pursue a meritorious claim, particularly if its opponent is well resourced, funding may well be its only option.
• Risk management: Claimants with the funds to arbitrate may still want to lay off some of the (inherently unpredictable) costs associated with arbitration and be prepared to give up a proportion of any recoveries to do so. It also enables a company to invest that money elsewhere. In addition, the funded party is relieved of costs pressures and cash-flow issues associated with the legal costs of the arbitration.
• Validation: Funders are only interested in good claims and their due diligence and own analysis of the strength of any claim prior to funding it may assist the claimant to shape its case strategy. This may also encourage early settlement once the other party is made aware that the claim has the backing of a funder.

However, there are also disadvantages to using third-party funding:

• Cost: A successful claimant will generally have to pay a significant proportion of damages recovered to the funder. While there is the potential for successful claimants to recover these funding costs from the respondent (discussed below), the decision on recoverability will always be fact dependent.
• Autonomy: Although funders are generally prohibited from exercising undue control or influence in an arbitration, inevitably there is some loss of autonomy on the part of the funded party. It will typically be required to keep the funder informed and consult it on all significant strategic decisions. This may come into sharp focus when considering settlement, as funders may reserve the right to approve any settlement.
• Disclosure: Increasingly, funded parties are required to disclose the fact of funding and the identity of the funder. Tribunals may sometimes then order further disclosures, for example, whether the funder has accepted liability for adverse costs awards. Disclosure of third-party funding arrangements may, in turn, trigger procedural applications, such as an application for security for its costs.
• Costs of seeking funding: Substantial costs can be incurred when packaging the case for presentation to a funder, or funders. These costs will be wasted if no funding is agreed. Even if successful, funders will not usually reimburse costs incurred before the funding arrangement is put in place.

Approaching a funder: practical tips

Finding a funder

The third-party funding market is expanding, with new funders entering all the time. When choosing a funder, it is important, among other things, to:

• ensure that a funder has sufficient capital to meet all liabilities that could arise in relation to the funded claims;
• enquire as to the source of capital and its adequacy to meet other commitments, as well as seeking confirmation that there is a management policy for ringfencing funds allocated for each claim and whether the fund has a defined period or sunset date;
• consider the experience of the funder in relation to the type of claim to be funded, as well as the funder's reputation in the market, as there is close collaboration between a funded party and the funder during the conduct of a claim; and
• confirm the funder's policy in relation to indemnities for adverse costs.¹

None of these considerations would typically give rise to concerns where dealing with a reputable funder, that has an established track record, including, for example, a member of the Association of Litigation Funders.² However, proper due diligence is always important and enquiries as to financial standing and reputation should be carried out, particularly if dealing with newer entrants to the market. 

Timing

While many parties will seek funding before commencing arbitration, there is no reason why a funder cannot be approached when an arbitration is ongoing. There may be various reasons for this. These include a change in the financial position or risk appetite of the party seeking funding, urgency to commencing arbitration which meant there was no time to secure funding in advance or an unexpected increase in the scale or cost of the arbitration proceedings. 

The process will be broadly the same but the party seeking funding and its counsel will have to manage it in tandem with the arbitration itself. Whether the funder would cover costs for work already undertaken in the proceedings will be a matter for commercial negotiation.

Packaging the claim

If you think you have a claim that is appropriate for funding, and just want a "preliminary feel" for whether a funder would be interested, most funders are prepared to have an initial, informal discussion. Typically, this would be on a no-names basis to enable the funder to give an indication of whether further discussions are merited. 

If the funder is interested, the next step will usually be to enter into a non-disclosure agreement to protect the confidentiality of discussions and the funder will carry out a conflict check.

After that, the party seeking funding will "package" the claim, so that the funder can carry out diligence, including a full assessment of the merits. Typically, a funder will require: 

• key documents and evidence, so that proper case analysis can be carried out;
• any legal advice and opinions given by the legal team and counsel, covering jurisdiction (where this may be in dispute), liability and quantum – the funder will need to be satisfied of the value of the claim;
• information on the respondent's position, including the financial viability of the respondent, location of any assets, and their attitude towards arbitration, although the funder will also investigate this independently, as it is crucial for them to be confident of recovery; and
• a detailed budget for the arbitration, including the number and cost of any expert witnesses likely to be required, and a timeline setting out the anticipated process up to the hearing. The funder will need to satisfy itself of the ratio of necessary investment to expected return.

The funder will then use the information conduct extensive due diligence in order to satisfy itself of the merits of funding the case. Timing will depend on complexity and whether the funder conducts the due diligence in-house or relies on external counsel. In exceptional cases, funding can be put in place in a number of days, but it will typically take at least a month. 

Calculating the funder's return

The funder's return, and the way it is calculated, will always be tailored to the particular case. Funders adopt different approaches to pricing and various factors will be taken into account, including the strength and value of the claim, the likely duration of the matter, the potential for settlement and the level of risk, including the likelihood of compliance with any award and the complexity of enforcing against the counterparty (should this be required). 

The return can be calculated in several ways, including as:

• a fixed percentage share of amounts recovered (typically 30 to 50 per cent);
• a multiple of either the amount invested or committed (usually a multiple of three or four); or
• a combination of both, based on the anticipated duration of the case.

The funder's share of the proceeds can also be staged depending on when success is achieved or by reference to the extent of the damages recovered. Funders are also continually developing new models. For example, some funders may be prepared to take an equity share in the claimant company (where the only asset is the claim). 

Third-party funding in arbitration is generally on a non-recourse basis. Effectively, this is "no win. no fee," meaning the funder accepts the risk that, if the funded party is unsuccessful in the arbitration, the funder loses its investment and receives nothing. This is why diligence on claims pre-funding is so important, and the ability of the respondent to pay an award will be of critical concern to the funder. Similarly, the funder will want to understand the likelihood of the other party satisfying an award voluntarily, as well as the potential to enforce the award against the other party's assets, if necessary.

Issues to consider when dealing with a funder

Privilege and confidentiality

A funder will need to be provided with confidential information as early as the "preliminary chat" stage. Therefore, it is sensible to enter into a non-disclosure agreement at this early stage. Funders will typically have standard in-house versions but these should be reviewed with your legal advisers.

Packaging a claim for third-party funders will invariably involve sending privileged documents and legal advice. Provided appropriate protections are put in place, however, the general view is that sending these confidential documents to a funder does not constitute a waiver of privilege. Ensuring that your legal advisers are involved at all stages may assist in relation to this. However, the rules of privilege in the relevant jurisdiction(s) should always be checked and communications made pursuant to a non-disclosure agreement, or an agreement that any documents are sent to the funder on a restricted waiver basis. 

For more on privilege under English law, see our Privilege Quickguide. 

Exclusivity

A funder will often request a period of exclusivity for due diligence and negotiations, to ensure that the party seeking funding is serious and not playing off multiple funders against each other. Typically, exclusivity will be required before the funder incurs the (often significant) costs of doing due diligence on a case. If a funder relies on external assistance to assess the merits of a claim, exclusivity may be required at an early stage. 

While understandable from the funder's perspective, exclusivity prevents the party seeking funding from engaging in discussions with other funders to get comparative offers. Moreover, there is no guarantee that, after diligence, the particular funder will make an acceptable funding offer, or indeed any offer at all. 

Caution should, therefore, be exercised before agreeing to exclusivity and the agreed period should not be overly long, taking account of the circumstances of the case and, where proceedings have not yet begun, any urgency around commencing arbitration (for example, due to limitation periods or the need for interim relief).

Settlement 

The decision on whether to settle a dispute, and on what terms, is rarely straightforward. The existence of a third-party funding arrangement can further alter the dynamics, because the interests of funded party and the funder are not always aligned. For example, the funded party may be willing to accept a substantially smaller amount than that claimed or, in lieu of a payment, to renegotiate the parties' commercial relationship on more favourable terms to settle. However, this will not necessarily be acceptable to the funder. 

The funding agreement will, at a minimum therefore, require that the funder be informed of, and consulted on, any settlement offers. However, particular jurisdictions' approaches towards funding may also determine the extent to which the funder can participate in settlement discussions or decision-making.

Settlement should be expressly addressed in the funding agreement and, in particular, the procedure by which any disagreement between the funded party and the funder on whether to settle will be resolved. For example, a funding agreement may specify that, if they cannot agree on whether to accept a settlement offer, a senior counsel or other third-party neutral will be engaged to act as a "tie breaker".

Reporting requirements

Most funders will adopt a "light touch" approach to their level of involvement in cases they fund. In common law jurisdictions, the funders will be conscious of the need to remain at arm's length. Otherwise, the arrangement could be found to be unenforceable. The civil law approach is more relaxed and funders may engage more. That said, funders will often have too many cases to be actively engaged day-to-day with any one of them. 

Most funders will, therefore, only require periodic reporting, often on a quarterly basis, or by reference to key stages or milestones in the arbitration. They will likely also require consultation on particular strategic decisions, such as the appointment of the tribunal or settlement (as discussed above).

Issues relevant to international arbitration

The nature of international arbitration, and in particular the mechanism for the appointment of arbitrators, raises several issues regarding third-party funding. 

As arbitrators are often selected by the parties, this gives rise to potential conflicts of interest where an arbitrator, or their colleagues or firm, have a relationship with a funder involved in the case. This in turn can give rise to other procedural and ethical issues. 

These have been debated at length. Consequently, the International Council for Commercial Arbitration, along with Queen Mary College at the University of London, set up a Task Force (ICCA-QMUL Task Force) to assess these concerns. Its report was published in 2018 (ICCA-QMUL Report).³

Conflicts of interest

Conflicts of interest may arise in a number of ways. These include, for example, repeat appointments of individual arbitrators in cases involving the same funder or where an arbitrator has a prior relationship with a funder that is funding a party in the arbitration. These are just two illustrative scenarios of the potential for conflicts to arise.

Various factors have added to the concern regarding the potential for conflicts of interest arising from third-party funding in arbitration and the increasing call for greater transparency. These include: 

• the increase in the number of funded arbitration claims;
• the relatively small number of funders focused on international arbitration;
• some senior practitioners who accept appointments as arbitrators also taking roles with funders, for example advising on diligence on potential claims to fund or taking positions on a funder's investment committee; and
• the relationship between funders and the law firms actively involved in international arbitration work.

Disclosure of the funding agreement

To address these concerns, the market has moved significantly in favour of requiring a funded party to disclose the existence of the funding arrangement and the identity of the funder, to ensure that proper conflicts check can be performed. This was the recommendation of the ICCA-QMUL Task Force, is strongly recommended by the Chartered Institute of Arbitrators (Ciarb)⁴ and also required by the International Bar Association's (IBA) Guidelines on Conflicts of Interest in International Arbitration.⁵

Whether there is a positive obligation on a party to disclose that it is in receipt of funding (and exactly what it must disclose) will depend on the law of the seat of arbitration and the applicable arbitration rules. Disclosure is required by law in several jurisdictions including Singapore, Hong Kong and Malaysia. 

In addition, the rules of many of the leading arbitration institutions now contain express disclosure requirements and empower the tribunal to order further disclosure where it considers this necessary in the circumstances. Although the precise requirements and powers of the tribunal vary, disclosure is required under the rules of institutions including the:

• Australian Centre for International Commercial Arbitration (ACICA);
• China International Economic and Trade Arbitration Commission (CIETAC);
• International Centre for Settlement of Investment Disputes (ICSID);
• International Court of Arbitration of the International Chamber of Commerce (ICC);
• Hong Kong International Arbitration Centre (HKIAC); and
• Singapore International Arbitration Centre (SIAC).

A funded party may also, on occasion elect to disclose funding voluntarily. Reasons for this might include a desire to head off an early stage potential issues that could arise down the line, should the fact of funding come to light later, or as a way to demonstrate the strength of its claim, given that the third party has determined it merits investment. This may encourage settlement. However, these potential benefits must be weighed against the possibility that disclosure could trigger interlocutory applications, including security for costs applications, in the arbitration. This is discussed further below.

Allocation of costs and security

Costs are, of course, closely associated and often discussed with third-party funding. This goes for both the allocation of costs in arbitrations involving funding and applications for security for costs by a respondent against a funded claimant.⁶

The existence of a funding arrangement could be a cause for concern for some respondents, as it may suggest that the claimant does not have sufficient resources to pursue the claim and, in the event that the claim is unsuccessful, will not be able to pay an adverse costs order (although, as noted above, there are various reasons why parties may seek funding, many of which are not driven by a lack of financial resources). Unless the funding agreement makes express provision for the payment of adverse costs, it is unlikely that a successful respondent will be able to proceed against the third-party funder.

However, the existence of a third-party funding arrangement will rarely be determinative of any security for costs application. The SIAC Rules 2025, for example, expressly state that the disclosure and existence of a third-party funding agreement is not, in and of itself, an indication as to the financial status of a party (Rule 38.5).

Similarly, the ICCA-QMUL Report sets out various findings regarding the factors that should be taken into account when addressing costs applications.⁷ In summary, it concluded that such applications for security for costs should, in the first instance, be determined on the basis of the applicable test (in the relevant arbitration rules, for example), without regard to the existence of any funding arrangement. The terms of any funding arrangement may be relevant if relied upon to establish whether the claimant or counterclaimant can meet any adverse costs award (including, in particular, the funder's termination rights). In the event that security turns out to have been unnecessary, the tribunal may hold the requesting party liable for the claimant's reasonable costs of posting such security.

On the allocation of costs by the tribunal, the ICCA-QMUL Task Force considered that third-party funding should not make a difference to decisions on how costs should be allocated at the conclusion of the arbitration. In particular, recovery of costs should not be denied on the basis that a party seeking costs is in receipt of funding. However, some institutional rules, including those of the HKIAC (2024) and SIAC (2025), provide that the tribunal may, among other factors, take into account any third-party funding agreement in apportioning costs. 

Recovery of costs of funding

The Task Force also looked at whether a successful funded party should be entitled to recover its funding costs (the return paid by the funded party to the funder). That will depend on the definition of recoverable costs in the applicable national legislation and/or applicable arbitration rules. Generally, this should be subject to the test of reasonableness and disclosure of details of such funding costs from the outset of, or during, the arbitration so that the other party can assess its exposure. Further, where the funded party has made a commercial decision to use funding as a means of allocating risk, it may be questioned whether the other party should then be liable for those costs.

The ICCA-QMUL approach is similar to that taken by the ICC in its report on decisions in costs in international arbitration published in December 2015.⁸ Recoverability of the costs of funding is discussed in Part VI. The ICC considered that there may be circumstances where it would be reasonable for the successful funded party to recover the costs of funding. 

This approach was followed in an English-seated ICC arbitration, where the arbitrator considered it both reasonable and in the interests of justice to award indemnity costs, including almost £2 million in funding costs. His costs award was upheld by the English Commercial Court.⁹ The judge held that the costs of funding fell within the category of "other costs" under the English Arbitration Act 1996, meaning that the arbitrator was entitled to award them. The underlying award was, however, made in relatively unusual circumstances. The arbitrator found that one party had deliberately set out to financially "cripple" the other, effectively leaving it with no choice but to resort to funding in order to access justice and pursue its claims. 

Another ICC decision awarding the successful claimant its costs of funding came to light in 2021, when the English courts again upheld the decision.¹⁰ Of note is the fact that the funding in that case was by way of a shareholder loan provided by a related entity and that the existence of funding was only disclosed during the submissions on costs. However, the tribunal considered that both the principle of having recourse to that type of funding and the level of funding costs were reasonable in the circumstances. 

Both decisions confirm that the cost of funding can, in principle, be included in the costs awarded to a successful party. Whether that will be appropriate will always be fact dependent and, while these decisions may encourage funded parties to seek to recover their funding costs, the reasonableness hurdle remains an important safeguard. 

Funder's liability for costs 

The other issue that has concerned many is whether a funder can be ordered to pay an adverse costs order. This flows from the concern that the existence of third-party funding may lead to an increase in the number of claims brought and, in particular, the number of investment treaty arbitration claims, where the potential upside for funders is considerable. With that in mind, some have queried whether funders should be accountable for costs if the funded party is unsuccessful (as is the case in domestic litigation in certain jurisdictions). However, the ICCA-QMUL Task Force considered that, absent an express power or submission by the funder itself, an arbitral tribunal lacks jurisdiction to issue a costs order against a third-party funder. 

When dealing with experienced and reputable funders, the issue of their liability for adverse costs is less likely to arise, as their funding agreements often deal with liability for adverse costs, or appropriate insurance is arranged to cover the funded party's liability for an adverse costs order. 

Maintenance and champerty 

Historically, in common law jurisdictions, the principles of "maintenance" and "champerty"¹¹ prevented the funding of litigation by third parties. The underlying justification for this was to avoid third parties profiting from litigation in which they had no legitimate interest, as there was concern that this would result in frivolous or vexatious claims. However, as part of the desire to improve access to justice, jurisdictions have adopted a more pragmatic approach to third-party funding. For example, both Hong Kong and Singapore have introduced legislation to permit and regulate its use in international arbitration. While England and Wales has not expressly addressed in legislation the use of third-party funding in arbitration, its use is widespread and accepted.