Third-Party Funding And Security For Costs Under The Arbitration And Mediation Act 2023: Striking The Balance Between Access To Justice And Respondent Protection

I. Introduction

Third-party funding (TPF) has become an increasingly significant feature of international arbitration, driven by the rising costs of resolving complex commercial disputes and the growing maturity of the funding industry. Recognising this development, Nigeria's Arbitration and Mediation Act 2023 (AMA) expressly permits third-party funding in arbitrations seated in Nigeria by abolishing the common law torts of maintenance and champerty in this context and introducing a statutory disclosure regime. In doing so, Nigeria joins a small but growing number of jurisdictions, including Singapore and Hong Kong, that have enacted legislation governing third-party funding in arbitration.

While the AMA establishes the legal foundation for TPF, it also raises important questions about the adequacy of Nigeria's regulatory framework. Does the Act provide sufficient safeguards to address issues such as disclosure, conflicts of interest, and security for costs, or does its relatively limited framework leave significant gaps to be addressed through arbitral practice and future legislative reform?

This article examines the legal framework governing third-party funding under the AMA, evaluates its practical implications for arbitrators, practitioners, and commercial parties, and considers whether the Act strikes an appropriate balance between promoting access to commercial justice and preserving the integrity and fairness of the arbitral process.

II. Why Businesses Want Funding

The increasing cost and duration of commercial arbitration have made third-party funding (TPF) an attractive financing option for many businesses. Beyond easing financial pressure, TPF serves three key commercial objectives.

First, it preserves cash flow by allowing claimants to pursue meritorious claims without diverting capital from core business operations. This is particularly valuable for businesses whose financial position has already been weakened by the dispute giving rise to the arbitration.

Secondly, TPF facilitates risk management by transferring some or all of the financial risk of the proceedings to a professional funder. For many businesses, this transforms potentially significant legal expenditure into a more predictable and manageable commercial cost.

Thirdly, TPF enhances access to commercial justice by enabling parties with viable claims to pursue arbitration against better-resourced opponents. The decision in Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd Pvt Ltd [2016] EWHC 2361 (Comm) illustrates how external funding can prevent financial pressure from forcing a claimant to abandon a meritorious claim.

These commercial benefits explain why the AMA recognises third-party funding. They also underscore the importance of ensuring that the use of TPF does not compromise the fairness and integrity of the arbitral process, particularly in relation to disclosure, conflicts of interest, and security for costs.

III. The Real Challenges

1. Mandatory Disclosure of Funders

The AMA requires a funded party to disclose the existence of the funding arrangement, together with the identity of the funder, to the tribunal, the other parties, and, where applicable, the arbitral institution. While this promotes transparency, the disclosure regime is deliberately limited. It does not require disclosure of the funding agreement itself, the funder's level of control over the proceedings, or whether the funder has agreed to satisfy an adverse costs order.

This limited approach raises practical concerns. First, the AMA does not prescribe any consequence for non-disclosure, leaving tribunals to rely on their general case-management powers or adverse costs orders where a funding arrangement is concealed. Secondly, the Act provides no guidance on the extent of information required beyond the funder's identity, making disclosure susceptible to becoming a procedural formality rather than a meaningful safeguard against conflicts of interest.

The challenge becomes more apparent when viewed against international best practice. The 2024 International Bar Association (IBA) Guidelines on Conflicts of Interest recognise that a funder with a direct economic interest or significant influence over the proceedings may effectively be treated as bearing the identity of the funded party. Identifying such conflicts, however, requires more than the disclosure of a funder's name and address. Without sufficient information to assess the nature of the funder's involvement, tribunals may struggle to determine whether a real or apparent conflict exists.

Accordingly, while section 62 establishes an important foundation for transparency, its effectiveness will ultimately depend on how tribunals and arbitral institutions develop practical guidance around the scope and consequences of disclosure.

2. Conflicts of Interest: Arbitrator–Funder Relationships

The principal objective of disclosure is to safeguard the independence and impartiality of the arbitral tribunal. However, the AMA contains no specific framework governing conflicts of interest involving third-party funders, leaving tribunals to rely largely on international soft law, particularly the 2024 IBA Guidelines on Conflicts of Interest.

In practice, this omission is significant. As the arbitration community in Nigeria remains relatively small, arbitrators may have existing professional or financial relationships with a funder without being aware that the funder is involved in a particular dispute. If such a relationship comes to light only after an award has been rendered, it may expose the award to challenge and undermine confidence in the arbitral process.

The risk is compounded by the AMA's disclosure regime, which permits disclosure after arbitral proceedings have commenced. By contrast, institutional rules such as the Arbitration Rules of the Singapore International Arbitration Centre (SIAC) Rules 2025 provide mechanisms to address funding arrangements that create conflicts after the tribunal has been constituted. The absence of comparable provisions under the AMA leaves Nigerian tribunals to resolve such issues through their general procedural powers, potentially resulting in inconsistent approaches.

3. Security for Costs Applications

Security for costs is perhaps the clearest illustration of the balance the AMA seeks to strike between promoting access to commercial justice and protecting respondents from unrecoverable costs. Section 62(3) permits a tribunal, in determining an application for security for costs, to consider whether a third-party funder has undertaken to satisfy any adverse costs order.

The provision rightly recognises that the existence of third-party funding does not, without more, establish a claimant's inability to meet an adverse costs award. Businesses often obtain funding for commercial reasons such as preserving liquidity or managing litigation risk, rather than because they lack financial resources. At the same time, respondents have a legitimate interest in knowing whether an adverse costs order will be recoverable if they successfully defend the claim.

The difficulty, however, is that the AMA provides little guidance on how tribunals should determine such applications. It does not prescribe the factors to be considered or the weight to be attached to a funder's willingness to satisfy an adverse costs order. Consequently, Nigerian tribunals will likely continue to rely on international best practice, including the Chartered Institute of Arbitrators’ Guidelines, which favour a case-by-case assessment and caution against treating third-party funding, without more, as a basis for ordering security for costs.

While the AMA establishes an important procedural safeguard, greater guidance would promote consistency and reduce uncertainty in the exercise of the tribunal's discretion.

4. Confidentiality and Legal Privilege

Third-party funding inevitably requires a claimant to disclose confidential and, in some cases, legally privileged information to a prospective funder during the due diligence process. While this is essential for the funder to assess the merits of the claim, it raises important questions about confidentiality and privilege.

The AMA does not address whether such disclosure affects legal professional privilege or creates any exception to the confidentiality of arbitral proceedings. This contrasts with jurisdictions such as Hong Kong, whose legislation expressly permits disclosure of confidential arbitration information for the purpose of obtaining funding while preserving confidentiality.

The absence of similar provisions under the AMA creates uncertainty, particularly where disputes arise over the extent of a funder's obligations or where parties seek disclosure of the funding agreement during applications relating to costs. Until judicial guidance or legislative reform emerges, parties will largely have to rely on carefully drafted confidentiality provisions within their funding agreements to protect sensitive information.

5. Control of Settlement Decisions

Third-party funding agreements often give funders some degree of influence over major strategic decisions, particularly whether to accept or reject a settlement offer. While such provisions are commercially understandable, they raise important questions about party autonomy and the extent of a funder's involvement in the arbitral process.

The AMA is silent on this issue. It neither limits the degree of control a funder may exercise nor requires parties to disclose whether a funder has any influence over settlement decisions. This omission is significant because a funder exercising substantial control may no longer be viewed as a passive financier, but as a party with a direct interest in the outcome of the dispute. Such circumstances may give rise to conflicts of interest and, in appropriate cases, expose the funder to costs-related consequences.

Other jurisdictions have adopted a more structured approach. For example, Hong Kong's Code of Practice requires funding agreements to address the extent of the funder's involvement and discourages funders from taking control of arbitral proceedings. The absence of comparable guidance under the AMA leaves Nigerian practitioners without a clear benchmark when negotiating or reviewing funding agreements.

6. Adverse Costs Awards Against Impecunious Parties and Non-Party Funders

One of the most significant practical limitations of third-party funding is that an arbitral tribunal generally lacks jurisdiction to make an adverse costs order against a funder who is not a party to the arbitration agreement. Consequently, where a funded claimant is unable to satisfy a costs award, a successful respondent may have no direct recourse against the funder.

Although courts in jurisdictions such as England have, in appropriate cases, imposed non-party costs orders against commercial funders, those powers arise from the courts' statutory jurisdiction and do not readily extend to arbitral tribunals. The same limitation applies under the AMA.

Section 62(3) of AMA partially addresses this concern by allowing the tribunal to consider whether a funder has undertaken to satisfy an adverse costs order when determining an application for security for costs. However, the provision does not empower the tribunal to make a costs order directly against the funder or convert such an undertaking into an enforceable obligation.

Accordingly, security for costs remains the principal mechanism available to Nigerian tribunals to protect respondents against the risk of an impecunious funded claimant. While this reflects the consensual nature of arbitration rather than a deficiency unique to the AMA, it nevertheless highlights the practical limits of the current framework.

IV. Comparative Insight

Nigeria’s position is best understood by reference to the two jurisdictions it consciously followed, Singapore and Hong Kong, and by contrast with England, whose case law and institutional practice, together with that of the ICC, still shape much Nigerian arbitral thinking.

Singapore

Singapore recognises third-party funding through legislation but complements this with professional conduct rules and institutional safeguards. Unlike the AMA, Singapore imposes disclosure obligations on legal practitioners, restricts funding to qualifying funders, and empowers tribunals under the SIAC Rules 2025 to address conflicts arising from funding arrangements. These additional safeguards provide greater certainty while preserving the commercial benefits of third-party funding.

Hong Kong

Hong Kong adopts a more comprehensive regulatory approach. In addition to recognising third-party funding, its statutory Code of Practice addresses issues such as confidentiality, conflicts of interest, capital adequacy, and the permissible level of funder involvement. This demonstrates that legal recognition alone is insufficient; an effective framework also requires practical guidance for parties, tribunals, and funders.

England

England has largely allowed third-party funding to evolve through judicial decisions rather than legislation. Cases such as Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd confirm that funding costs may, in appropriate circumstances, be recoverable in arbitration, while Excalibur Ventures LLC v Texas Keystone Inc illustrates the courts' willingness to impose costs liability on commercial funders in litigation. Although these principles cannot be transplanted directly into arbitration, they demonstrate how judicial practice has addressed issues that remain unresolved under the AMA.

Compared with these jurisdictions, the AMA successfully establishes the legal foundation for third-party funding but adopts a relatively light approach to regulation. While this promotes flexibility, it leaves important issues including disclosure, conflicts of interest, confidentiality, and security for costs, to be addressed through arbitral practice rather than clear statutory or institutional guidance. As third-party funding becomes more common in Nigerian arbitration, developing such guidance will be essential to ensuring both commercial certainty and confidence in the arbitral process.

V. Recommendations

While the AMA establishes a sound legal foundation for third-party funding, its effectiveness would be strengthened through targeted institutional and professional reforms rather than extensive legislative amendment.

First, Nigerian arbitral institutions should develop detailed guidance on disclosure obligations, drawing on the SIAC Rules and Practice Notes. Such guidance should clarify the scope of disclosure, address the consequences of non-disclosure, and provide mechanisms for managing conflicts arising from funding arrangements.

Secondly, tribunals should adopt a structured approach to applications for security for costs, guided by international best practices such as the CIArb Guidelines. This would promote greater consistency while ensuring that third-party funding is not treated, without more, as evidence of a claimant's inability to satisfy an adverse costs award.

Thirdly, the Nigerian Bar Association should consider developing professional guidance for counsel involved in third-party funding arrangements, particularly regarding disclosure obligations and conflicts of interest.

Finally, Nigerian arbitral institutions should issue best-practice guidance on confidentiality, privilege, and the permissible extent of funder involvement in arbitral proceedings. Such guidance would provide much-needed clarity while allowing the regulatory framework to evolve alongside international best practice.

VI. Conclusion

The Arbitration and Mediation Act 2023 marks a significant step forward in the development of arbitration in Nigeria by providing clear statutory recognition of third-party funding. In doing so, it enhances access to commercial justice and reinforces Nigeria's ambition to position itself as a leading seat for international arbitration in Africa.

However, legal recognition alone is not sufficient to ensure an effective funding regime. As this article has shown, important questions relating to disclosure, conflicts of interest, security for costs, confidentiality, and funder influence remain largely unaddressed by the AMA. These issues are increasingly regulated through legislation, institutional rules, and professional guidance in more developed jurisdictions.

The challenge for Nigeria is therefore no longer whether third-party funding should be permitted, but how it should be governed. While the AMA provides the necessary legal foundation, its long-term success will depend on the development of clear procedural safeguards that promote transparency, protect the integrity of the arbitral process, and maintain confidence among parties, tribunals, and funders alike.

Table of Authorities

1. Legislation

Arbitration and Mediation Act 2023 (Nigeria), ss 1(6), 28, 50(1), 61, 62, 91

Civil Law Act (Cap 43, 1999 Rev Ed) (Singapore), ss 5A–5B

Civil Law (Third-Party Funding) Regulations 2017 (Singapore)

Legal Profession Act (Cap 161, 2020 Rev Ed) (Singapore), s 107

Legal Profession (Professional Conduct) Rules 2015 (Singapore), rr 49A–49B

Arbitration Ordinance (Cap 609) (Hong Kong), Part 10A (ss 98E–98W)

Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Hong Kong)

Arbitration Act 1996 (UK), ss 59(1)(c), 63, 68

2. Cases

Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm)

Tenke Fungurume Mining SA v Katanga Contracting Services SAS [2021] EWHC 3301 (Comm)

Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144

Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43

3. Institutional Rules, Codes and Guidelines

ICC Rules of Arbitration 2021, art 11(7)

ICC, Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration (1 January 2021)

LCIA Arbitration Rules 2020

SIAC Rules 2025 (7th edn), rr 38, 48–49

SIAC, Practice Note on Arbitrator Conduct in Cases Involving External Funding (SIAC PN-01/17, 31 March 2017)

HKIAC Administered Arbitration Rules 2024

Code of Practice for Third Party Funding of Arbitration (Hong Kong, 7 December 2018)

International Bar Association, IBA Guidelines on Conflicts of Interest in International Arbitration (2024), General Standards 6–7

Chartered Institute of Arbitrators, International Arbitration Practice Guideline: Applications for Security for Costs (2015)

Chartered Institute of Arbitrators, Guideline on Third-Party Funding in Arbitration (2025)

Law Society of Singapore, Guidance Note 10.1.1 on Third-Party Funding (2017)

International Council for Commercial Arbitration and Queen Mary University of London, Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (ICCA Reports No 4, April 2018)

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