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The financing of arbitration has traditionally been the sole responsibility of the parties directly involved in the dispute. However, the growing complexity and cost of arbitral proceedings have given rise to an alternative mechanism known as third-party funding (TPF)1. This arrangement allows an independent entity, usually a professional funder, to finance all or part of a party's arbitration costs in exchange for a share of any award or settlement. Globally, TPF has transformed access to justice and enhanced the viability of arbitration as a dispute resolution mechanism.
In Nigeria, TPF has only recently gained legislative recognition. The enactment of the Arbitration and Mediation Act 2023 (AMA 2023) expressly allows parties to access TPF, thereby breaking away from the historical constraints of maintenance and champerty doctrines. This development positions Nigeria in line with global best practices but also raises questions about regulation, disclosure, ethical risks, and the future of arbitration funding in the country.
The Legal Framework for Third-Party Funding in Nigeria
Prior to 2023, third-party funding in Nigeria was more or less off-limits. The old common law doctrines of maintenance and champerty, which were inherited from England, stood firmly in the way. These rules were meant to stop outsiders from meddling in disputes they had no stake in, especially for profit. The fear was that allowing third parties to fund cases in exchange for a share of the winnings could fuel speculative or even dishonest litigation.2
Over the years, Nigerian courts stuck closely to this position. In cases like MR. JOHN OLOKO V. MR. SUNDAY AWOKO UBE3 and MR. KESSINGTON EGBOR, JP. & ANOR V. MR. PETER O. OGBEBOR4, the courts made it clear that any agreement where someone financed a case for a cut of the outcome was champertous and unenforceable. Those decisions were made in the context of court proceedings, but the same logic applied to arbitration. In short, if you were not directly involved in the dispute, you couldn't legally fund it.
That changed dramatically with the Arbitration and Mediation Act 2023 (AMA 2023). The Act represents a clear break from the past and signals Nigeria's readiness to modernize its arbitration landscape. For the first time, Nigerian law now recognizes and allows third-party funding in arbitrations seated in Nigeria. Section 61 of the Act is the real game-changer. It abolishes the old torts of maintenance and champerty:
"The torts of maintenance and champerty, including being a common barrator, do not apply in relation to Third-Party Funding of arbitration, and this section applies to arbitrations seated in Nigeria and to arbitration-related proceedings in any court within Nigeria".
Section 52(1) goes a step further by listing the costs of obtaining third-party funding as part of the overall arbitration costs that a tribunal can award:
(1)The arbitral tribunal shall have the power, upon the application of a party, to order any claiming or counterclaiming party to provide security for the legal or other costs of any other party by way of deposit or bank guarantee, or in any other manner and upon the terms as the arbitral tribunal considers appropriate.
(2)The terms under subsection (1) may include the provision by that other party of a cross indemnity, itself secured in a manner as the arbitral tribunal considers appropriate, for costs and losses incurred by the claimant or counterclaimant in providing security.
(3)The amount of any costs and losses payable under a cross-indemnity under subsection (1) may be determined by the arbitral tribunal in one or more awards.
(4)In the event that a claiming or counter-claiming party does not comply with any order to provide security under this section, the arbitral tribunal may stay that party's claims or counterclaims or dismiss them in an award.
And Section 62 adds a layer of transparency, requiring any party that benefits from TPF to notify the other side, the tribunal, and (if applicable) the arbitral institution about who the funder is5.
Taken together, these provisions finally give Nigeria a legal foundation for third-party funding. They also align the country with other modern arbitration hubs like Singapore, Hong Kong, and England jurisdictions that have moved from prohibition to regulation. Singapore and Hong Kong introduced similar reforms years ago, pairing legal recognition with disclosure and ethical safeguards6. England, meanwhile, allows TPF through self-regulation, with funders operating under a voluntary code of conduct.
For Nigerian practitioners and arbitration users, this development is a welcome relief. It opens new possibilities for parties who have strong cases but limited resources, and it makes Nigeria a more attractive venue for international disputes. Still, the framework is new and will take time to mature. The Act doesn't yet spell out everything—issues like confidentiality, recovery of funding costs, or a funder's responsibility for adverse costs are still grey areas.
That's where institutions like the Lagos Court of Arbitration (LCA) and the Nigerian Institute of Chartered Arbitrators (NICArb) can play a big role. As practice evolves, they're well-placed to issue practical guidelines that balance innovation with integrity. The goal isn't just to open the door to funding but to make sure it works fairly, transparently, and sustainably in the Nigerian context.
Prospects of Third-Party Funding in Nigeria
The introduction of third-party funding presents significant opportunities:
i. Access to Justice: Many businesses and individuals with valid claims simply cannot afford the costs of arbitration. Third-party funding helps bridge that gap, ensuring that the ability to pursue justice isn't determined solely by financial means. This is particularly relevant in commercial disputes, construction contracts, and investment arbitration, where costs can be substantial.
ii.Boosting Arbitration Practice: As more investors and businesses become aware that funding options exist under a clear legal framework, they're more likely to choose Nigeria as a venue for resolving disputes. This aligns with ongoing efforts to position Lagos and Abuja as regional arbitration centers capable of competing with established hubs in Africa and beyond.
iii. Market Development: Third-Party Funders don't just provide money; they also introduce new layers of due diligence, case assessment, and risk management. A funder will typically evaluate the merits of a claim before committing funds, which can help filter out weak or speculative cases and improve the overall quality of disputes that reach arbitration.
iv. Risk Management: Third-Party Funders typically perform rigorous due diligence before financing a claim. This screening process discourages frivolous claims and may enhance efficiency.
Risks and Challenges
Despite its promise, third-party funding is not without risks:
i. Disclosure and Transparency: While Section 62 of the AMA 2023 requires funded parties to disclose their funder's identity, it doesn't specify how much detail should be shared. Too little disclosure could hide potential conflicts of interest, for instance, if a funder is linked to one of the arbitrators. Too much disclosure, on the other hand, could compromise confidentiality or strategic information about the claim.
ii. Costs and Recovery7: The question of whether tribunals may award funding costs as part of arbitral costs remains unsettled. International practice is uneven, and Nigerian law will need to evolve.
iii. Conflicts of Interest: Arbitration often involves a small and interconnected community of lawyers, arbitrators, and experts. The introduction of commercial funders adds another layer of relationships that can complicate proceedings. For example, an arbitrator might have previously acted as counsel in another case funded by the same financier, or a funder may have an ongoing commercial relationship with one of the law firms in the arbitration. These overlaps could raise questions about impartiality and independence, even if unintentional8.
iv. Ethical Concerns: Critics argue that once an external financier becomes involved, the funded party may lose some degree of autonomy, especially if the funder starts to influence key decisions such as whether to accept a settlement or proceed to a final award. Most professional funders maintain that they do not interfere with legal strategy or decision-making, and reputable funding agreements explicitly preserve the claimant's independence. However, in practice, tensions can arise. A funder who stands to recover only if the claim succeeds will naturally want to have a say in how the case is managed.
v. Enforcement Risks: If a funded claim fails, the liability for adverse costs may become contentious, particularly if funders are not required to provide security.
Comparative Lessons and the Way Forward
Nigeria's entry into the third-party funding space offers a chance to learn from others. Singapore and Hong Kong started small. First, recognizing funding, then gradually layering in disclosure rules, funder registration, and ethical safeguards. England's experience shows the benefits of self-regulation, where funders adhere to voluntary standards rather than rigid statutory controls9.
For Nigeria, the best approach may lie somewhere in between: enough structure to ensure accountability, but with room for the market to grow organically. Arbitral institutions can take the lead by developing model disclosure forms, guidelines on conflicts of interest, and recommendations on cost allocation.
The government and arbitration community should also consider educating practitioners and funders through workshops and policy dialogues10. The aim should be to build confidence in Nigeria's arbitration system as a credible, transparent environment for third-party funding.
Conclusion
Third-party funding represents a bold new chapter for arbitration in Nigeria. The Arbitration and Mediation Act 2023 (AMA 2023) didn't just legalize funding; it opened the door for more equitable access to justice and a more competitive arbitration environment. The prospects are significant: greater inclusion, better case quality, and a stronger arbitration market overall.
Still, success will depend on how stakeholders like funders, lawyers, arbitrators, and institutions handle the next phase. The goal isn't just to attract funders, but to ensure that funding serves justice, not just profit. If Nigeria can strike that balance, it will not only modernize its arbitration practice but also set a model for other African jurisdictions exploring the same path.
Footnotes
1. . https://www.ibanet.org/third-party-funding-Nigeria-arb-proceedings
2. https://www.aluko-oyebode.com/insights/third-party-funding-nigeria-arbitration/
3. [2001] 1 NWLR (pt 729) 161.
4. [2015] LPELR 24902 (CA), 14, paras A–D
5. https://www.whitecase.com/insight-alert/new-arbitration-regime-comes-force-nigeria
8. https://www.ibanet.org/third-party-funding-Nigeria-arb-proceedings
9. https://www.ciarb.org/media/xbbegf1e/guidelines-on-third-party-funding_-published-final.pdf
10. https://www.templars-law.com/app/uploads/2024/10/Market-Insights-.pdf
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