The Rise of Third-Party Funding: A Worldwide Look

In recent times, significant developments in Nigeria, India, and China underscore the growing prominence of third-party funding (aka litigation funding). These developments mark a significant shift in how litigation funding is gaining worldwide prominence and becoming a dynamic asset class, worth exploring.

Claimants worldwide are increasingly turning to third-party funding (TPF) to finance their legal battles. Aiming for a more cost-effective approach to pursuing justice. This trend has led various jurisdictions to grapple with the challenges and opportunities presented by TPF. In May 2023, Nigeria passed legislation expressly permitting third party funding. While in India, the High Court of Delhi ruled that funders wouldn’t be liable for adverse costs if they weren’t parties to the litigation’s agreement or proceedings. Similarly, in China, courts issued rulings both upholding and invalidating TPF arrangements.

Nigeria’s Move

Nigeria took a big step forward by passing the Arbitration and Mediation Act in May 2023. This law changed how arbitration works in Nigeria by allowing third-party funding, which was previously not allowed. Now, third-party funding can be used in arbitrations held in Nigeria and related court proceedings. With this change, Nigeria becomes the third place, after Singapore and Hong Kong, to make such a move. Morevoer, this undoubtedly opens the door for more cases to be funded in legal disputes.

India’s Legal Landscape

In India, the High Court of Delhi’s 2023 ruling in Tomorrow Sales Agency Private Limited v SBS Holdings underscored the importance of third-party funding in ensuring access to justice. The court held that funders couldn’t be held liable for adverse costs unless they were party to the arbitration agreement or proceedings. This decision reflects India’s growing acceptance of TPF. But, also its commitment to promoting arbitration as a preferred method of dispute resolution.

The decision overturned an earlier ruling that had worried about funders being held responsible. It stressed the basic idea that all parties must agree in legal matters, saying that funders should only be held accountable if they actively took part in the process. This ruling helps clear up some doubts about third-party funding in India and supports its role in making justice more accessible.

China’s Mixed Signals

In China, third party funding witnessed contrasting developments as courts navigated its legality. Decisions from various courts highlighted the evolving approach to TPF and the factors considered in assessing its validity.

In some cases, courts approved third-party funding (TPF) in arbitration, saying that parties have the right to choose their funders. However, in a different situation involving litigation, a court ruled that a TPF agreement was invalid because it went against public policy. This decision sparked worries about funders having too much control and potential conflicts of interest, showing how complex it is to regulate TPF in China.

Looking Ahead

The different reactions from Nigeria, India, and China regarding third-party funding (TPF) highlight how arbitration practices are changing worldwide. Nigeria has accepted TPF by passing laws, while India and China have handled TPF issues through court decisions. These changes show that third-party funding is becoming more important in arbitration globally. Emphasising the importance of ongoing scrutiny by regulators and courts to ensure it’s used fairly and effectively.