Third-party funding is an arrangement where an outside funder pays some or all of a party's legal costs in an arbitration in exchange for a share of any amount recovered. If the claim fails, the funder typically loses its investment.
The Arbitration and Conciliation Act, 1996 does not expressly regulate third-party funding, and India does not yet have a comprehensive statutory framework for it. Courts have, however, generally recognised that funding by persons who are not lawyers is not prohibited in itself. Advocates in India are barred by professional conduct rules from funding litigation or taking a share of the result.
Funding can be valuable for businesses with strong claims but limited cash — for example, a contractor with a large claim against a public body, or a company whose finances are stretched by the very dispute it wants to pursue.
Funded parties should think about disclosure. Tribunals increasingly expect parties to disclose the existence of funding, so that arbitrators can check for conflicts of interest with the funder. Funding can also be relevant to applications for security for costs.
Funding agreements should be reviewed carefully: the funder's share, the funder's control over settlement decisions, what happens if the case settles early, and whether the funder covers adverse costs if the claim fails.