Striking A Balance: Confidentiality And Disclosure In Third-Party Funding In International Commercial Arbitration

1. Introduction

Third-party funding ("TPF") has emerged as a pivotal mechanism in modern dispute resolution, particularly in international commercial arbitration. It allows claimants to pursue legal proceedings without bearing the financial risks associated with litigation or arbitration. Also referred to as dispute finance or litigation funding, TPF involves a third-party funder providing financial support to a litigant in exchange for a return contingent on the success of claims. Typically, the funded party is not liable for any repayment in the event of an unsuccessful claim. While TPF enhances access to justice and levels the playing field in high-stakes disputes, it also raises critical legal and ethical concerns, particularly in arbitration, where confidentiality, disclosure obligations, and enforcement challenges must be carefully navigated.

In the Indian context, TPF gained prominence from the Supreme Court's decision in Bar Council of India v. A.K. Balaji and Ors.¹, which clarified that TPF is not per se prohibited in India. This decision was pivotal, as it aligns with global trends wherein several jurisdictions and arbitral institutions have embraced TPF, establishing streamlined and regulated procedures. Despite this growing acceptance, concerns continue to exist most notably around the scope of disclosure and the maintenance of confidentiality. The Delhi High Court in Tomorrow Sales Agency Pvt. Ltd. v. SBS Holdings² emphasized that while TPF is essential for ensuring access to justice, transparency regarding funding arrangements is crucial for maintaining fairness in arbitration proceedings. Conversely, confidentiality presents a significant challenge within the TPF framework. While arbitral proceedings in India are generally confidential, funders require access to sensitive case information to assess the viability of their investment.

This article explores the dual challenges of maintaining confidentiality while ensuring adequate disclosure of third-party funding agreements ("TPF agreements") in international commercial arbitration, with specific reference to the Indian legal framework.

2. Balancing Confidentiality & Disclosures
3. 1. Burden of Disclosure on the Tribunal

With the proliferation of TPF, an arbitrator's independence and impartiality are under increased scrutiny. Arbitrators may have existing or prior relationships with funders, creating potential conflicts of interest. The interdependent relationships between funders, law firms, and arbitrators necessitate greater scrutiny regarding disclosure obligations.

Section 12 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), read with the Fifth Schedule, mandates arbitrators to disclose circumstances likely to give rise to justifiable doubts about their impartiality. This includes professional relationships with funders, such as prior advisory roles or repeated appointments in cases backed by the same funder. Particularly, Clause 13 of the Fifth Schedule under the Arbitration Act provides a ground giving rise to justifiable doubts as to the independence or impartiality of arbitrators if an arbitrator has a significant financial interest in a party or the outcome of a dispute.³ Similarly, Clause 19 specifically refers to the relationship of an arbitrator or an arbitrator's close family member with a third party having a financial interests in a party or the outcome.⁴ Thus, Section 12 read with the Fifth Schedule of the Arbitration Act implicitly place a duty of disclosure on an arbitral tribunal to assess potential conflicts of interest arising from associations with third-party funders. Such disclosures help mitigate perceived bias and maintain the integrity of arbitral proceedings.

Therefore, arbitrators must proactively examine whether their ties with funders, including indirect affiliations through law firms, could give rise to conflicts. This is because failure to disclose such associations may result in challenges under Section 34 of the Arbitration Act on grounds of material irregularity, falling under the purview of patent illegality.

2. Burden of Disclosure on the Funded Party

To the Tribunal: The funded party must disclose the existence of TPF arrangements to the tribunal to allow arbitrators to assess potential conflicts of interest under the Fifth Schedule of the Arbitration Act. If an arbitrator has prior professional dealings with the funder, such as serving in an advisory capacity, acting as counsel in a case backed by the same funder, or being repeatedly appointed in funder-backed arbitrations, there may be a reasonable apprehension of bias. The critical issue is whether disclosure of the funder's identity alone suffices or if the full agreement must be disclosed. Arguably, limited disclosure (i.e., the funder's identity and financial interest) may be sufficient to evaluate conflicts.

To the Opposite Party: Transparency in TPF arrangements is equally important for the opposing party to assess cost recovery risks and seek security-for-costs⁵, if necessary. In international practice, tribunals are reluctant to grant such orders unless a real risk of non-payment is shown. While the presence of TPF may suggest impecuniosity, it should not be the sole factor. Tactical disadvantages may also include the inability to seek timely procedural safeguards or misjudging the financial capacity of the counterparty. For instance, if a funded party loses the arbitration, the opposing party may seek to recover costs. However, if the funding arrangement has not been disclosed, the non-funded party may later challenge the enforceability of the award, arguing that the tribunal failed to consider relevant financial interests that may have influenced the proceedings. Thus, putting the opposing party at a disadvantage, unable to accurately and timely assess the risks of proceeding with arbitration.

3. Non-Disclosure of TPF Arrangements leading to Enforcement Issues

Another significant legal concern arising from non-disclosure of TPF arrangements is the enforcement of arbitral awards, particularly in relation to adverse costs orders. Since funders are not parties to the arbitration agreements, they cannot be directly bound by the arbitral award. The tribunal's jurisdiction is confined to the disputing parties, limiting its authority to impose obligations on external funders. This stands in contrast to litigation, where courts have broader powers to hold funders accountable for costs under specific circumstances after the amendments to Order XXV, Rule 1 of the Code of Civil Procedure, 1908.⁶

This limitation poses challenges when a funded claimant loses and lacks the means to satisfy adverse costs. The Delhi High Court in Tomorrow Sales Agency⁷ affirmed that unless a funder is expressly made party to the arbitration agreement, it cannot be held liable for such costs. This demonstrates the need for early disclosure of TPF arrangements to assess financial risks and avoid enforcement complications.

Nevertheless, funders may still be indirectly bound by their contractual obligations under the TPF arrangements. However, the enforcement of such contractual claims would depend on the specific terms of the TPF Agreements and the governing law applicable to the agreement.

4. Confidentiality under Section 42A

Section 42A of the Arbitration Act mandates confidentiality in all arbitral proceedings, barring disclosures except wherever necessary as per law for the implementation and enforcement of awards. The section contains a non-obstante clause, suggesting that it overrides other general provisions. However, the scope and exact import of this provision on TPF remains unclear. The question, whether the phrase "confidentiality of all arbitral proceedings" constitutes pleadings and documents, still remains open for discussion. Notably, the Competition Commission of India, in Re: Proceedings against Amazon.com NV Investment Holdings LLC⁸ opined that disclosure of pleadings by any person/institution with outsiders is violative of the provisions of Section 42A.

Thus, to navigate this, the following safeguards may be employed:

• Redacted Agreements: Funded parties may submit redacted versions of TPF agreements to tribunals, ensuring that commercially sensitive terms remain confidential while disclosing the funder's identity.
• Confidentiality Undertakings: Funders can sign non-disclosure agreements (NDAs) to align with Section 42A, ensuring access to necessary information without breaching confidentiality obligations.
• Limited Scope of Disclosure: Instead of requiring disclosure of the full terms of funding, tribunals can mandate disclosure only of the funder's identity and its role in the proceedings, ensuring that critical financial relationships are transparent without excessive exposure of case strategy.

3. Global Perspective: Trends in Other Jurisdictions

The global rise of TPF in arbitration has led several jurisdictions to establish regulatory frameworks that balance the interests of funders, parties, and tribunals. While some jurisdictions have actively encouraged TPF by introducing structured disclosure requirements, others have imposed restrictions to prevent conflicts of interest and potential abuse of the funding mechanism.

Hong Kong and Singapore: These jurisdictions have adopted a "light touch" approach, requiring disclosure of the existence of TPF arrangements while keeping funders at arm's length from day-to-day proceedings.⁹ Hong Kong International Arbitration Centre ("HKIAC") Administered Arbitration Rules, 2024¹⁰ mandate disclosure of funding agreements, ensuring transparency without compromising confidentiality excessively. These jurisdictions mandate limited disclosure of TPF arrangements, focusing on the existence of funding rather than detailed terms.

United States: In the United States, TPF is largely unregulated at the federal level, with individual states adopting varying approaches. While commercial litigation funding is widely accepted, some states impose restrictions on contingency-based funding models. The lack of uniform regulations has led to growing calls for transparency requirements, particularly in investor-state arbitration, where the role of funders is increasingly scrutinized.¹¹

European Union: The European Union has witnessed a growing debate on the need for a harmonized regulatory framework for TPF. The European Parliament's 2022 report recommended stricter oversight of funders, including mandatory licensing, disclosure obligations, and ethical guidelines to prevent conflicts of interest.¹² Certain EU member states, such as Germany and France, impose specific conditions on TPF Agreements, particularly concerning funders' control over proceedings and profit-sharing arrangements.¹³

In countries like Portugal and Sweden, information shared with funders is not regarded as confidential, making it discoverable in legal proceedings.¹⁴ This approach contrasts with jurisdictions like Russia and Brazil, where sensitive information can be shared with funders under implied consent while maintaining its "secrecy" status.¹⁵

United Kingdom: The United Kingdom has historically permitted TPF in litigation and arbitration, with judicial precedents shaping the principles governing such arrangements. The landmark decision in Arkin v. Borchard Lines Ltd.¹⁶ established the "Arkin cap," which limits a funder's liability for adverse costs to the extent of its financial contribution to the case. While the UK lacks specific statutory provisions regulating TPF in arbitration, self-regulatory mechanisms, such as the Code of Conduct for Litigation Funders¹⁷, provide ethical guidelines, including disclosure requirements, for funders operating in the region.

Institutional Rules: Several leading arbitral institutions have responded to the growing prevalence of TPF by incorporating disclosure obligations within their rules. The International Chamber of Commerce ("ICC") introduced Rule 11(7) in its 2021 Arbitration Rules,¹⁸ requiring parties to disclose the existence and identity of a funder if it has an economic interest in the outcome of the arbitration. The Singapore International Arbitration Centre ("SIAC") was one of the first arbitral institutions to grant tribunals explicit powers to order the disclosure of TPF Agreements. In fact, the recent 2025 revision of the SIAC Rules¹⁹ strengthens this approach by mandating full disclosure of TPF Agreements, ensuring greater transparency in arbitral proceedings.

1. Conclusion

Despite TPF gaining prominence in Indian arbitration, striking a balance between disclosure and confidentiality remains a critical challenge. To ensure a fair and efficient arbitral process, tribunals must adopt an approach that harmonizes transparency with confidentiality in accordance with Section 12, Section 42A and the Fifth Schedule of the Arbitration Act. This can be achieved through early procedural directions mandating limited disclosure to the extent of existence of funding and the identity of the funder for conflict checks, while permitting redaction of commercially sensitive terms. Arbitrators should provide periodic declarations of independence as new disclosures arise, and funders should be required to sign confidentiality undertakings to prevent misuse of information. Where necessary, sensitive disclosures can be made through in-camera hearings or confidential annexes. These calibrated measures will strengthen the integrity of the arbitral process without compromising its confidential nature.

Additionally, ensuring clarity in the contractual terms of TPF agreements is vital to mitigate enforcement risks and ensure transparency in cost allocation. Looking ahead, India should seek to integrate TPF more formally into its arbitration framework by adopting standardized disclosure norms inspired by international best practices. For example, rule similar to Rule 11(7) of the ICC Arbitration Rules can be introduced, requiring disclosure of a funder's identity and economic interest. Tribunals should also be empowered to seek additional information where warranted, while safeguarding sensitive content through redactions. Furthermore, India may consider instituting a code of conduct for funders, akin to the UK's Association of Litigation Funders' Code to establish ethical and financial standards. These reforms would not only balance transparency and confidentiality but also promote consistency, predictability, and trust in TPF supported arbitrations.

As India aspires to position itself as a global arbitration hub, the development of a robust and well-defined regulatory framework for TPF will be instrumental in attracting foreign investment and reinforcing confidence in the country's dispute resolution mechanisms. A coherent approach to disclosure and confidentiality will ensure that TPF strengthens the legitimacy and efficiency of arbitration in India.

Footnotes

1 Bar Council of India v. AK Balaji & Ors., (2018) 5 SCC 379.

2 Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. & Ors., 2023 SCC OnLine Del 3191.

3 Clause 13, The Fifth Schedule, The Arbitration and Conciliation Act, 1996.

4 Clause 19, The Fifth Schedule, The Arbitration and Conciliation Act, 1996.

5 CIArb Guideline on Applications for Security for Costs (Article 2) (29 November 2016); ICCA Reports No. 4: Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, ICCA Reports Series, Volume 4 – Chapter 6 (April 2018).

6 Hiroo Advani and Chaiti Desai, Third Party Funding, 2021 SCC OnLine Blog Exp. 45, SCC Times, (https://www.scconline.com/blog/post/2021/04/20/third-party-funding/); see also Bombay High Court Notification No. P 0102/77 dated 05.09.1983 (Amendment).

7 Tomorrow Sales Agency, supra note 2.

8 Re: Proceedings against Amazon.com NV Investment Holdings LLC under Sections 43A, 44 and 45 of the Competition Act, 2002 (17.12.2021 - CCI) : MANU/CO/0069/2021, https://cci.gov.in/images/caseorders/en/1652794603.pdf

9 Kaira Pinheiro & Dishay Chitalia, Third-Party Funding In International Arbitration: Devising A Legal Framework For India, 14 NUJS L. Rev. 2 (2021), http://nujslawreview.org/wp-content/uploads/2021/10/14.2-Pinheiro-Chitalia-2.pdf ("Third Party Funding - NUJS"); see also Oliver Gayner & Susanna Khouri, Singapore and Hong Kong: International Arbitration Meets Third Party Funding, Vol. 40(3), Art. 13, Fordham International Law Journal, 1037 (2017).

10 Art. 44 of Hong Kong International Arbitration Centre Administered Arbitration Rules, 2024

11 Report by the IBA Arbitration Subcommittee on Investment Treaty Arbitration; Consistency, efficiency and transparency in investment treaty arbitration, IBA, Nov. 2018, https://uncitral.un.org/sites/uncitral.un.org/files/investment_treaty_report_2018_full.pdf.

12 European Parliament, European Parliament resolution of 13 September 2022 with recommendations to the Commission on Responsible private funding of litigation (2020/2130(INL), 13 Sept. 2022, https://www.europarl.europa.eu/doceo/document/TA-9-2022-0308_EN.html?utm_source=chatgpt.com.

13 Di Francesca Locatelli, Challenges and Comparative Perspectives on Third-Party Litigation Funding, Judicium Il Processo Civile in Italia E in Europa, 01 Jul. 2024; https://www.judicium.it/challenges-and-comparative-perspectives-on-third-party-litigation-funding/#_ftn5.

14 Third Party Funding – NUJS, supra note 9.

15 Third Party Funding – NUJS, supra note 9.

16 Arkin v. Borchard Lines Ltd., [2005] EWCA Civ 655.

17 Association of Litigation Funders of England and Wales, Code of Conduct, ALF, https://associationoflitigationfunders.com/code-of-conduct/.

18 ICC Arbitration Rules 2021, R. 11 (7), https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/rules-procedure/2021-arbitration-rules/#block-accordion-11.

19 SIAC Rules, 2025, R. 38 (https://siac.org.sg/siac-rules-2025).

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