20 December 2019

Third Party Funding In International Arbitration: An Indian Perspective

PSL Advocates and Solicitors


PSL Advocates and Solicitors
With increasing cross-border transactions international commercial and investment arbitrations have also increased concurrently. Though
India Litigation, Mediation & Arbitration
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This note gives an Indian perspective into third party funding in international arbitration.


With increasing cross-border transactions international commercial and investment arbitrations have also increased concurrently. Though, arbitration is the more efficient and time saving procedure (as compared to litigation in domestic jurisdictions) the exorbitant costs attached with it cannot be ignored. The concept of third party funding agreements has helped financially weaker claimants to successfully pursue their legitimate interests without putting their businesses at economical risk. With the advent of third party funding there are various legal issues which have arisen in different jurisdictions. These issues mainly revolve around the aspect of enforcement of an award, where the claimant had been funded by the third party, and the validity of the third party funding agreements. An arbitration award, where a third party funding agreement is present, can be challenged on the basis that it is violative of the public policy of the country it is sought to be executed in. Furthermore, the third party agreement in itself can be invalid in some jurisdictions, therefore a funder may face recovery issues in such jurisdictions. It should be noted that most pro- arbitration jurisdictions have actively allowed for third party funding agreements either by introduction of new legislations and/or rules and regulations. This note encompasses issues which might arise in the execution of an arbitration award where a third party funding agreement is present and the legitimacy of the agreement itself. To understand the specific legal issues which would arise in the aforementioned situations it is necessary to understand the existing legal scenario internationally regarding third party funding agreements.

Approximately a decade ago the English and Australian courts had recognized the legitimacy of the third party funding agreements. In England the turning point came with the Court of Appeal's decision in Arkin v Borchard Lines Ltd1 where it described commercial funders as groups who "...provide help to those seeking access to justice which they could not otherwise afford". The next year the Australian High Court recognised the legitimacy of funding arrangements in the Campbell's Cash and Carry Pty Ltd v Fostif Pty Ltd2 . On 10 January 2017, the Singapore Parliament passed the Civil Law (Amendment) Act (Bill No. 38/2016), which was bought into force in March 20173. The Act amends Singapore law to permit third-party funding for international arbitration and related court proceedings under certain conditions, with further regulations prescribing specific eligibility requirements for funders. Until then, third-party funding was prohibited in Singapore and currently, the funding of State Court litigation is still restricted. Similarly, Hong Kong has approved third-party funding of arbitrations seated in Hong Kong by adopting the Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 on 14 June 20174. This development is similar to the amendment of the law of Singapore, in the sense that the new national legislation aims at regulating previously prohibited third-party funding in international arbitration.

It is clear that in pro-arbitration jurisdictions there is an acceptance of the practice of third party funding. Due to several countries allowing third party funding by way of specific national legislations it has become a widely accepted practice in international arbitration. This helps for the facilitation of more arbitrations as businesses can pursue legitimate claims without hampering their economic needs necessary to conduct business.

Indian Scenario

The concept of third party funding is statutorily recognized in civil suits under the Civil Code of Procedure in states such as Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh. This consent to third-party funding can be adduced from the Civil Procedure Code 1908, which governs civil court procedure in India. Order XXV Rule 1 of the code (as amended by Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh) provides that the courts have the power to secure costs for litigation by asking the financier to become a party and depositing the costs in court.

Order XXV of the Civil Procedure Code was amended for Maharashtra by Bombay High Court Notification P 0102/77, dated September 5 1983.

It reads as follows:

"3. (1) Where any plaintiff has for the purpose of being financed in the suit transferred or agreed to transfer any share or interest in the property in the suit to a person who is not already a party to the suit, the Court may order such person to be made a plaintiff to the suit if he consents, and may either of its own motion or on the application of any defendant order such person, within a time to be fixed by it, to give security for the payment of all costs incurred and likely to be incurred by any defendant. In the event of such security not being furnished within the time fixed, the Court may make an order dismissing the suit so far as his right to, or interest in the property in suit is concerned, or declaring that he shall be debarred from claiming any right to or interest in the property in suit...."

This same amendment has been adopted by Gujarat and Madhya Pradesh. Allahabad has added only Rule 2 of Order XXV, which states that costs may be secured from the third-party funding of litigation. Therefore, the concept of third party funding is not alien to the Indian Jurisprudence. But it should be noted that there is no law expressly allowing or barring third party funding in arbitrations seated in India.

The Arbitration and Conciliation Act, 1996 makes no mention of third party funding. The presence of a third party funding clauses in specific state amended Civil Procedure Code cannot adduce the legality of a similar clause in arbitrations. Therefore, any possible third party funding agreement would depend on it being a valid contract under the Indian Contract Act, 1872.

This answer has been addressed by the Supreme Court in the matter of G, A Senior Advocate5.The Supreme Court had ruled that a champerty contract in which the returns are contingent on the success of the case is not per se illegal, except in cases where an advocate is an party6.

There can be further challenges in Indian jurisprudence when a third party has funded the claims while executing the arbitration award. As of date, there are no cases which have discussed the validity of an award which has been obtained by third party funding. In a recent Execution Petition filed before the Hyderabad High Court7, the respondents have sought to oppose the execution of the arbitral award made by Sir Phillip Otton in a London seated arbitration subject to the International Chamber of Commerce (ICC) rules. One of the grounds for challenge are that the petitioners had entered into a third-party funding agreement, and that execution should not be permitted as the funding agreement is champertous in nature and therefore, against the public policy of India. The matter is sub-judice and the decision of the High Court would give clarity to the legitimacy of third party funding agreements and its impact on the execution of an award.

Lastly, it should be noted that if an arbitration is being funded by a third party and it is seated in India or if the funder is in India then the provisions of the Foreign Exchange Management Act 1999 ('FEMA') would be attracted. FEMA classifies all transactions involving foreign exchange and/or non- residents into two primary categories – current and capital account transactions8. Since FEMA does not explicitly classify third-party funding as either a current or capital account transaction, it is uncertain as to how such funds would interact with the regulatory regime, especially since both these transactions are viewed very differently under FEMA rules and regulations9. Therefore, this note does not detail the applicability of FEMA to third party funding agreements.

Different scenarios which may arise in enforcing arbitral awards where the claimant has been funded by a third party

The enforcement of third party funding agreements, and the arbitration awards where a third party had funded the claimant, can differ depending on where the award or the third party funding agreement are being enforced. Some of these circumstances are:

1. The seat of arbitration: If an award has to be enforced at the seat of the arbitration then the said enforceability would depend on the seat of arbitration and its laws regarding the legality of the third party funding agreement. The decision by the Irish Supreme Court in the Persona Digital Telephony Limited & Sigma Wireless Networks Limited v The Minister for Public Enterprise, Ireland and the Attorney General 10 clearly illustrated the fact such agreements can said to be violative of a country's public policy. The Irish Supreme Court had held that due to the presence of a third party funding agreement the arbitration award violated the public policy of Ireland and therefore the award was liable to be set aside.

But at the same time it should be noted that international arbitration has an increasing trend of accepting the trend of third party funding. The tribunal in Giovanni Alemanni v. The Argentine Republic11, Decision on Jurisdiction and Admissibility, 17 November 2014, opined as follows: "the practice [of third-party funding] is by now so well established both within many national jurisdictions and within international investment arbitration that it offers no grounds in itself for objection." A number of important risks related to the recognition and enforcement of funded arbitral awards were raised by Ben Knowles and Paul Baker in "Enforcing a funded award in an anti-funding environment"12. Focus in the article was directed on enforcement of awards rendered in arbitrations involving third-party funders in countries where funding is impermissible. It cannot be ruled out that courts in such countries develop a tendency to refuse enforcement of funded awards. As for countries bound by the New York Convention, the question ought to be raised whether such an action would even be allowed. The authors of the mentioned article emphasize the valid point that signatory countries may not refuse enforcement of arbitral awards, save upon a few narrow grounds. The only potentially applicable ground that could merit such refusal of enforcement is public policy, and it remains to be seen whether any of the countries engaging in skepticism towards third-party funding will develop any case law in this regard.

Therefore, it can be inferred that there is no uniform opinion on whether the execution of an arbitration award can be challenged in a jurisdiction on the basis of the third party funding agreement. There are decisions in favour of allowing the executions of the awards on the basis of the New York Convention and this decisions have found favour with the leading academicians of the field. But, as the above cited Irish Supreme Court case has illustrated, a country can also deny the execution of an award on the sole reason that the award was obtained by way of third party funding. Even though such decisions may discourage a funder, the international trend is clearly indicative of the fact that the third party funding agreements would soon be a widely accepted and legitimate practice.

2. Third party funding agreements entered into where the claimant resides: In this scenario a claimant enters into a third party funding agreement and this agreement would be legally valid in the jurisdiction the claimant resides at. But would this agreement be legally valid when the award is being enforced in a different jurisdiction? In a recent decision by the English Court in Essar Oilfields Services Limited v Norscot Rig Management PVT Limited13, the claimant was allowed to recover legal costs where it was funded by a third party. The Scottish company had entered into a third party funding agreement to fund the arbitration against Essar. The arbitral tribunal had upheld the validity of this agreement and this was upheld by the English Court while enforcing the award. Therefore, by way of this example, it can be safely assumed that the validity of the third party funding agreement at the claimant's location lends credibility to the validity of the agreement. At the same time it needs to be highlighted that the English Courts are increasingly adopting a pro arbitration stance. Therefore, the validity of the award would depend on the approach adopted by the court executing the arbitration award.

3. Validity of the third party funding agreement and the arbitration award at the place of execution: After a bare perusal of the above cited judgments and academic literature it can be stated that the place where the arbitration award has to be executed should be a jurisdiction where third party funding agreements are legally accepted. A third party funding agreement can be legally sound where it was entered into but an award can be set aside by the executing court if that jurisdiction does not recognize third party funding agreements. The leading academicians and international arbitration awards have opined that interpretation of the New York Convention should be the only guiding factor when executing such awards. A narrow interpretation should allow for such awards to be passed without courts applying their national laws restricting third party funding agreements.


The execution of an award, where a third party funding agreement is present, is usually dependent on the legitimacy of such agreements in that jurisdiction. In instances like the decision by the Irish Supreme Court, a third party funding agreement can be held to be violative of national laws. But, decisions by the English, Australian and Singaporean courts have shown that irrespective of where the third party funding agreement was entered into the courts would allow for the execution of the award. From the perspective of a funder, whose sole aim is to recover its investment, the countries which have specific laws (Hong Kong and Singapore) or the countries where third party funding has been a widely accepted practice (England and Australia) are the ideal jurisdictions to participate in arbitrations. Even though there are no specific laws in India which bar or allow for third party funding agreement, there are state amended CPC provisions, which allow for third party funding in litigation. Therefore, an arbitration award which has been obtained due to third party funding cannot be termed as violative of the public policy of India. The validity of such agreements would be tested by the fact of the validity of the arbitration award. When the arbitral award has been successfully executed that is when the funder would be able to recover its investment in the arbitration.


1. [2005] EWCA Civ 665

2. (2006) 229 ALR 58



5. (1955) 1 SCR 490

6.Rule 20, Bar Council of India's Standards of Professional Conduct and Etiquette, Chapter II, Part VI, Bar Council of India Rules 1975 (read with Section 49(1)(c) of the Advocate's Act 1961, read with the proviso thereto)

7. EXEP/2/2017 Hyderabad High Court (Unreported). An Execution Petition ('the EP') was filed by Norscot Rig Management Pvt Ltd ('the Petitioner') to execute the Final Award dated 30 November 2016 against Essar Oilfields Services Limited ('the Respondent') passed by Sir Phillip Otton in London. One of the major components of the Final Award is the legal costs for finalising cost of third-party funding and the interest on legal cost of this third-party funding. The English High Court allowed the Petitioner to recover funding costs in addition to other costs and damages. See, [2016] EWHC 2361 (Comm).

8. Foreign Exchange Management Act 1999, sections 5 and 6.

9. Dilip K Sheth, Treatise on FEMA: Law and Practice (Snow White Publishers 2012) 29.

10 [2017] IESC 27.

11. ICSID Case No. ARB/07/8 at page 128

12.Global Arbitration Review, "Enforcing a funded award in an anti-funding environment" (19 August 2017)

13. [2016] EWHC 2361 (Comm)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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