Arbitration is one of the best ways to settle disputes without going to court. It has gained wide acceptance, and most disputes in the commercial world and across jurisdictions have been sorted out without the law courts’ involvement. However, while there are many benefits of arbitration and its proceedings, one crucial aspect is the funding of its proceedings.
Funding in arbitration is one area that has received widespread attention internationally, and the reason is not farfetched. However, some laws and permissions on how funding can be performed in arbitrations have naturally raised high brows and largely divided practitioners to polar sides.
Naturally, parties involved in disputes are the primary funders in pushing their pleas and claims. However, in a situation where at least one of the parties cannot fund its case, many jurisdictions allow third-party funders to provide funds to such party if the funder believes that the party in need of assistance has a good case.

When considering Comparative approaches to funding arbitration, third-party or Third-party litigation funding is one of the most polarized arbitration funding methods with as many supporters as its detractors. In some states, the Angel saves the day for a disputing party short on funds and is considered by institutions to help level the playing field in the course of resolving the dispute. In other states like China, it is generally considered a criminal activity except in extreme cases like insolvency.
Third-Party Funding
Third-party funding in arbitration has been around for decades, but with the emergence of the Covid-19 pandemic in 2019 and its effects in the grinding of economies throughout 2020, the need and demand for external arbitration funding have grown much higher than ever.
As it stands, litigation firms have been actively involved in cases of helping parties with insufficient funds go through for a price. The price that comes with being funded is that there is a win-win situation for the funder and the funded after a successful claim. Before this article goes any further, a comprehensive explanation of what third party funding in arbitration means and when it is possible.
A third-party funder in dispute resolution is an external party that is generally not involved in the case but offers to help one of the active parties in the dispute with enough funds to see the case through. The funder remuneration for funding will be a payback on capital and an agreed addition if the part comes out successful in the dispute with monetary gains. A funder is typically called an Arbitration or litigation funder, and they usually cover some or 100% of the cost of the party it is backing.
Third-party funders are usually professional arbitration funding institutions, and the party they provide funds for is usually the claimant. The claimant is the party that, if issued the arbitration award, gets the benefits of a claim. However, there is a catch. The claimant must have a strong case, and how strong a case is, is ultimately decided by the funders. Apart from a strong case, the claimant must have a substantial monetary reward if it wins the dispute. If there is no financial benefit, TPF will not fund it.
Also, after providing funds for the claimants, some funders go as far as providing expert service to improve the claimant’s chance of success, but they do not ultimately make final decisions. At least, that is how it is on paper.
In states where it is accepted, Third-party funding by law is operated on a zero-liability or non-recourse basis. That means that if the claimant has a dispute go its way, the funder will recover its capital and an additional rate agreed with the claimant. This rate could be up to three or four times the normal capital. Or an agreed percentage, if the cash returned is up to £10 million. However, If the claimant loses the dispute, then it will be free of all costs provided by the funder.
Third-party funding has its benefits, risks, and disadvantages, and these have led to both support and backlash on the act, with a lot of questions unanswered.
Questions Surrounding Third-Party Funding in Arbitration
In jurisdictions that practice common law like Australia, United Kindom, and the United States, Third Part funding is an important part of Dispute resolution. For countries that practice Civil Law, like Austria, Germany, and Switzerland, TPF is extremely limited and is not the first thing that comes to mind.
Matthew Knowles, one of the partners and stakeholders at Harbour Litigation Funding (a TPF institution), while speaking in the Third session of the CDR’s Autumn Arbitration Symposium, admitted that the Perception about the third party is far more negative than the actual facts about it. He stated that there is no exploitation of any kind, and it is all about helping a claimant push its case for a reward.
Knowles stated that his firm would only engage in funding a case with a 50% chance of coming out successful. He stated that the expertise of the Claimant team also plays a huge role, and if they are not skilled to his institution requirement, they would have to withdraw.
Knowles acknowledgment is pretty much how it goes with most countries with common laws, but for areas like Asia, Third-Party Funding is seen as perceived and ruled out as a crime of tort. There are very few cases where TPF was allowed, but it is too spread across timelines to be considered tangible.1
Conclusion
Comparative approaches to funding arbitration are a field that has triggered diverse opinions across jurisdictions especially due to Third-party funding, which some states support and some criminalizes. TPF is a major part of Commercial dispute resolution and International Arbitration.
If you are an institution or individual with a dispute and need funding, third-party funding is one area to consider. However, you must get expert advice to ensure that you are going about everything the right way as that will save you a lot of stress and make things clearer.
Rattsakuten is an arbitration firm that focuses on arbitration and dispute resolution with sensitive leaning such as TPF involvement. With its set of highly skilled professionals and innovative approaches to cases, this firm ensures that you get the best services. You can reach the firm via call by clicking the link.
About Rattsakuten
Rattsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals.