THIRD-PARTY FUNDING IN INTERNATIONAL COMMERCIAL

ARBITRATION: LEGAL AND ETHICAL IMPLICATIONS IN

INDIA

Submitted by
Venu Gopal U
(190401427076)
X Semester
Batch 2018-24

Under Supervision of
Prof. Vishal

Alliance School of Law

Alliance University, Bangalore

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ABSTRACT:

Third-party funding (TPF) has emerged as a significant aspect of both international

commercial arbitration and investment arbitration, reshaping the landscape of dispute
resolution globally. This paper explores the legal and practical implications of TPF in the
context of international arbitration, with a particular focus on recent developments in
jurisdictions such as Singapore, Hong Kong, and China. Additionally, it examines the
potential benefits and challenges of integrating TPF into the Indian legal framework,
considering its impact on access to justice and the efficiency of dispute resolution
mechanisms.

The research delves into the historical context of TPF, tracing its evolution from being
considered contrary to public policy to its acceptance and regulation in various legal systems
worldwide. It discusses the regulatory frameworks established by jurisdictions like Singapore
and Hong Kong to govern TPF in arbitration proceedings, highlighting provisions for
disclosure and transparency.

Furthermore, the paper analyses the ethical considerations surrounding TPF, addressing
concerns related to conflicts of interest, party autonomy, and impartiality. It explores the role
of TPF in promoting access to justice, particularly in light of recent challenges such as
reductions in legal aid budgets and the financial strains imposed by the COVID-19 pandemic.

Drawing on insights from international arbitration practice and legal scholarship, the research
emphasizes the potential of TPF to enhance the effectiveness and efficiency of dispute
resolution mechanisms in India. By examining global trends and best practices, the paper
aims to inform policymakers and practitioners about the opportunities and challenges
associated with embracing TPF in the Indian context, ultimately contributing to the
advancement of the country's position as a leading hub for international commercial
arbitration.

In conclusion, this paper underscores the importance of considering TPF as a valuable tool
for promoting access to justice and facilitating the resolution of complex international

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disputes, while also advocating for the adoption of appropriate regulatory measures to
safeguard the integrity and fairness of the arbitration process

CHAPTERS

1. INTRODUCTION

1.1. Introduction
1.2. Statement of Problem
1.3. Literature Review
1.4. Research Questions
1.5. Hypothesis
1.6. Scope of the Study
1.7. Objective of the Study
1.8. Research Methodology

2. DEVELOPMENTS IN INTERNATIONAL COMMERCIAL ARBITRATION

AND THE CONCEPTUAL FRAMEWORK OF THIRD-PARTY FUNDING IN
DISPUTE RESOLUTION MECHANISMS

3. RELIGIOUS AND POLITICAL CONDITIONS AND PROBLEMS

3.1 Economic Conditions and Problems

3.2 Social Problems and Conditions

3.3 Health Conditions and Problems

4.4 Educational Conditions and Problems

4. JUDICIAL APPROACH

5. FAILURE OF INDIAN AUTHORITIES IN PREVENTING ILLEGAL SAND

MINES

5.1. SUGGESTION AND REMEDIES

6. CONCLUSION

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 7. BIBLIOGRAPHY

INTRODUCTION

Over the course of the last ten years, dispute finance, also known as litigation funding or,
more popularly, Third Party finance (TPF), has become increasingly prominent in
international litigation and commercial arbitration. Despite its high risk, TPF is no longer
limited to common law jurisdictions. In actuality, the International Bar Association (IBA)
was among the first groups to address TPF. "If one of the parties is a legal entity, any legal or
physical person having a controlling influence on the legal entity, or a direct economic
interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration,..."
the 2014 IBA Guidelines mention third-party funders in their General Standard 6(b) for
assessing conflicts of interest.
contains a mention of third-party funders: "Any legal or physical person having a controlling
influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party
for, the award to be rendered in the arbitration, may be considered to bear the identity of such
party, if one of the parties is a legal entity." A definition is given in the explanation of
General Standard 6(b), along with some other information: "For these purposes, any
individual or organisation that is providing financial support or other material assistance to
the case's prosecution or defence and that has a direct financial stake in, or a duty to
reimburse a party for, the decision to be made in the case is referred to as a third-party funder
or insurer.

Also this finds it challenging to pursue his case in light of the recent reduction in the Legal
Aid Budget and the financial difficulties India is facing as a result of COVID-19. As per Lord
Woolf's Access to Justice Report, the cost of pursuing justice often exceeds the claim value,
and legal aid is inaccessible to the middle class.

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India, being one of the progressive economies is perceived to have much affinity with the
Principles of the Common Law system and to date encourages the nugatory approach in
approving the TPF mechanism in International Commercial Arbitration Proceedings, though
Part – II of the Arbitration & Conciliation (Amendment) Act, 2015 has been aligned with
necessary modifications at par with global practices in International Commercial Arbitration
with the piecemeal attention to TPF which is now becoming the global practice. The present
space in this discussion has been used to analyze the changing dimension of legal frameworks
across the developed nations, especially, TPF practice in International Commercial
Arbitration Dispute Resolution mechanism and the prospective benefits as India has focused
in citing it to a leading hub in global landscape of International Commercial Arbitration
Dispute Resolution Centres.

STATEMENT 0F PROBLEM
The research problem proposes that it is now time for India to publicly open its doors to
dispute finance in international commercial arbitration, as third-party funding mechanisms
are becoming increasingly important globally in enabling parties to access justice.

LITERATURE REVIEW
 Oliver Gayner; Susanna Khouri, Singapore and Hong Kong: International
Arbitration Meets Third Party Funding, 40 HEINONLINE 1033 (2017).

This article's authors have done a great job of illuminating how funding evolved, first in
Australia and then in England and Wales. The authors of this research have also
addressed the impact of the TPF mechanism in international arbitration as well as the
reactions from courts and regulatory organisations. The authors then looked at the
proposed legislation in Hong Kong and Singapore and determined the primary issues with
funding arbitration in those countries.

 Maria Choi, Third-Party Funders in International Arbitration: A Case for Protecting

Communication Made in Order to Finance Arbitration, 29 Geo. J. Legal Ethics 883
(2016).

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The author of this paper has examined how third-party funding affects international
arbitration practice, with a focus on evidentiary privileges. The author has examined how the
IBA's revised Guideline on Conflicts of Interest addresses the issue of third-party funding and
how no such agreement has been reached for evidentiary privilege. Throughout the research,
the author has provided an overview of the general background of the ethical implications
presented by third-party funding, including conflicts of interest and evidentiary privileges.
Subsequently, the writer expounded upon the consequences of third-party funding on the
privileges and examined the common interest concept as it has been interpreted and
implemented in US legal precedents.
 C. BOGART, “Third party funding in international arbitration”, Burford Capital 22
January 2013.

In this research paper the author has divided his work of research into two parts. The first part
of this research has engaged in appealing the framework of TPF by discussing and analysing
different definitions and by comparing TPF to other funding mechanisms. Subsequently the
author has analysed the brief history of TPF practice for to better understanding of the
compelling reasons for the recent growth of this phenomenon. The second part of this
research has devoted to identifying and analysing the issues needing to be addressed in order
to buttress the growth of TPF.

RESEARCH QUESTIONS

1) What reforms in the legal frameworks of India would be contributory to TPFpractice

in promoting International Commercial Arbitration in India?
2) What mechanism of TPF in ICA Dispute Resolution in Indian Legal System would
foster India as favoured hub for ICA Dispute Resolution?
3) Whether TPF practice in ICA Dispute Resolution mechanism will lessen the
fundamental Policies of Law of India or not?

HYPOTHESIS

Third Party Fund practices in International Commercial Arbitration Dispute Resolution in

Indian Legal System would promote India as favoured hub for Inetrnational Commercial
Arbitration Dispute Resolution. Third Party Fund practice in Inetrnational Commercial

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Arbitration Dispute Resolution mechanism will lessen the fundamental Policies of Law of
India

SCOPE OF THE STUDY

The Classical theory of ‘maintenance and champerty’ and ‘public policy’ consideration has
long shaped legal discourse, aiming to maintain the integrity of the legal system. However,
the evolution of litigation funding in developed countries and ASEAN nations such as the
US, Canada, Australia, England and Wales, Singapore, and Hong Kong has challenged these
traditional notions. This development has significantly impacted arbitration by providing
parties with financial resources to pursue claims that they might otherwise be unable to
afford. The role of third-party funding (TPF) has thus become crucial, necessitating a careful
balance between facilitating access to justice and preserving the integrity of the legal process.
In India, judicial attitudes and responses to TPF and public policy considerations have been
evolving, reflecting the need to adapt to changing legal landscapes. As India grapples with
enhancing access to justice and improving its dispute resolution mechanisms, there is a
growing recognition of the need for funding mechanisms. However, the suitability of the TPF
process in India remains a subject of debate, requiring a nuanced understanding of its
implications for the Indian legal system and its alignment with broader access to justice
policies.

RESEARCH OBJECTIVES

 To examine the suitability of the mechanism of Third Party Fund practice in the
Indian Legal system to maintain global legal order of transnational commercial
dispute resolution in International Commercial Arbitration
 To ascertain the grounds of increasing practices of TPF mechanism in International
Commercial Arbitration in various developed countries;
 Understanding the practices in the International Commercial Arbitration mechanism
will lessen the fundamental policies of the Law of India or nor

RESEARCH METHODOLOGY

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The research method used to draft this research paper is Doctrinal Research Method. In this
research paper mostly, secondary sources were used like online articles, blog and online
journal, news articles and legal writing.

DEVELOPMENTS IN INTERNATIONAL COMMERCIAL

ARBITRATION AND THE CONCEPTUAL FRAMEWORK OF THIRD-
PARTY FUNDING IN DISPUTE RESOLUTION MECHANISMS

In international commercial arbitration, third party funding is becoming a more popular and
viable option for financing disputes. Though it is still in its early phases, analysts think that
“whether Third Party Funding regulated or not, and the practice of Third Party Funding in
arbitration cases is a growth that is here to stay”1.
Increasing cross-border commercial transactions and India’s progressive move towards
sustaining economic growth through liberalization of trade and commerce has reduced the
country as a valuable trading partner hence scopes of rising of cross-border commercial
disputes, required to be resolved following the globally accepted practices and if through
international commercial arbitration, whether seated within or outside India, in that event
Third Party Funding is becoming one current practice.
Before the formal codification of contract law recorded cases of Third Party Litigation
Funding agreements, or pactum de quota litis2 in India dated back to the 1800s, is not
1
Endicott, Giraldo-Carrillo, and Kalicki, ‘Third-Party Funding in Arbitration: Innovation and
Limits in SelfRegulation (Part 2 of 2)’ (Kluwer Arbitration, 14 March 2012)
https://arbitrationblog.kluwerarbitration.com/2012/03/14/third-party-funding-in-arbitration-
innovations-and-limits-in-self-regulation-part-2-of-2/
2
An agreement by which a creditor of a sum difficult to recover, promises a portion, for
example, onethird, to the person who will undertake to recover it. In general, attorneys will
abstain from, making such a contract, yet it is not unlawful. https://legal-
dictionary.thefreedictionary.com/pactum+de+quota+litis.
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possible due to lack proper records of any such litigation relating to nor any specific
legislations on it in India. And again, after assuming the sovereign function of India the
English legal principles and practices were installed into the Indian legal system during the
colonial era where the local practices or local laws were absent, silent and suffered from
ambiguity, thus, the limitations on Champerty and Maintenance were alleged to be applicable
to litigation funding as it was not an accepted and recognized legal principle in U.K.
However, conflicting decisions were passed by the judiciary over time, which led to
ambiguity regarding the applicability of this doctrine of such contracts. 3 But the judicial
opinions in India regarding the applicability of champerty and maintenance in litigation has
oscillated between extreme positions. As per the decision passed by Justice Peel J in 1825 in
a case held that the English prohibitions on champerty and maintenance did not apply to
India.4
In the case Grose & Anr v Amirtamayi Das 5 on the 29th February 1836 Ramtanu Chandra
died, leaving five sons who continued for some time to live in joint enjoyment of the paternal
estate. On the 25th October 1847 Madhusudan Chandra, one of these sons, also died leaving
Bamasundari his widow then 11 years old. There was no other widow and Bamasundari was
childless, but be left besides an only daughter, Amirtamayi, the plaintiff in this suit, his child
by another wife who had predeceased him. After his death the surviving brothers retained the
enjoyment and use of the whole estate. At length disagreement arose between them and
Bamasundari. During this interval Bamasundari made certain claims on the brothers in
respect of her husband's share in the family property. On the 4th April of that year she
entered into an agreement with the defendant Charles Grose by which, after reciting the
material facts as to the condition of the family and of the property, and as to the nature of her
claim, and stating that she was unable from poverty to prosecute that claim, she assigned to
him all which she might be entitled to recover and receive from the estate of Ramtanu in right
of her deceased husband, together with all interest and accumulations which had accrued or
might thereafter accrue thereon, and all benefit and advantage to be bad or derived from the

3
See, M P Jain, ‘The Law of Contract Before its Codification’ (1972) Journal of the Indian
law Institute, Special Issue: Laws of Evidence and Contract 178
4
Ibid at 188.
5
Grose & Anr v Amirtamayi Das, (1869) 4 Beng LR 1 [decided on 29 April 1869 by the
erstwhile High Court at Fort William, West Bengal (now, the Calcutta High Court) in its
Original Jurisdiction (Civil)

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suit about to be instituted, and she appointed Charles Grose her attorney to institute and carry
on any suit or suits in her name for the purpose of recovering her right and share in this
property; and it was then agreed that of the property which might be recovered, Grose should
in the first place retain one moiety for his own absolute use and benefit by way of
remuneration and reward for his trouble and labor in the conduct and management of the
contemplated suits and proceedings, and as to the remaining moiety, that he should repay
himself all such sums as be might from time to time have advanced and paid for the
maintenance of Bamasundari, with interest at the rate of 12 per cent. per annum, and also all
such sums and costs as be might from time to time have advanced or been put to in carrying
on and managing the suits, with 12 per cent. per annum interest, and should pay over the
residue to Bamasundari herself. Although this agreement does not make mention of any
existing suit brought by Bamasundari, Grose in his evidence before me stated that such a suit
was existing at the time of the agreement, but was almost immediately afterwards withdrawn.
Where Justice Phear J, after observing upon the comprehensive review on English and Indian
legal system on the subject, concluded that “laws declaring Champerty and Maintenance
unlawful would be applicable to the Presidency Towns, and such agreements would be void
on grounds of public policy”.
In the case of Kishen Lal Bhoomik v Pearee Soondree & Ors 6, where the court brought
clarity to the matter by holding that “an arrangement of the nature of Champerty is not of
itself illegal or void as it is not consistent with justice to dismiss a claim, because the claimant
has some difficulty in meeting the expense of asserting that claim by way of a third-party
funding agreement”. However, the court did clarify that it would not enforce agreements in
the nature of wagering contracts. Third-party funding agreements would not be barred due to
this condition as, even the court recognized; such agreements do in favour of providing
access to justice.

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Al, Seemasmiti Pattjoshi Et Al. Seemasmiti Pattjoshi Et. “Third Party Funding for
Litigation in Dispute Resolution Mechanism and Its Recent Developments in
International Commercial Arbitration.” International Journal of Mechanical and
Production Engineering Research and Development 10, no. 3 (January 1, 2020):
1153–64. https://doi.org/10.24247/imperdjun2020100.

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