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

1
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

2
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

DEVELOPMENTS IN INTERNATIONAL COMMERCIAL ARBITRATION

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

THIRD PARTY FUNDING IN COMMERCIAL ARBITRATION

ENFORCEMENT OF THIRD PARTY AGREEMENTS

CONCLUSION AND RECOMMENDATIONS

BIBLIOGRAPHY

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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.

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

4
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).

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

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

SCOPE OF THE STUDY

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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
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.

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 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
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

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.

8
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
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

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)

9
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 natur7e 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.
The question of whether Third Party Funding practices is opposed to Public Policy to Indian
Legal System, was decided in 1876 by the Privy Council in Ram Coomar Condoo v Chandra
Canto Mukerjee8, revolving judicial tide in favour of outside funding mechanism and stated
that the common law statutes of champerty and maintenance were specifically designed for

6
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.
7
Sri Raja Vatsavaya Venkata Subhadeayyamma Jagapati Bahadur Garu v Sri Poosapati
Venkatapati Raju Garu & Ors AIR 1924 PC 162, (1924) LW 298, 1924 SCC OnLine PC 22;
8
(1876-77) 4 IA 23,1876 SCC OnLine PC 19.

10
England, to prevent the perverse practice of judicial officers oppressing the King’s subjects
by maintaining vexatious suits or purchasing rights in litigation. More importantly, it was
held that “these laws were of a special character and the British statutes relating to them were
inapplicable in India. It recognized that an agreement to supply funds to carry on an action as
consideration for a share of the proceeds arising out of such action would not per se be
opposed to public policy”. Providing access to justice to impecunious parties clearly appeared
to weigh with the Privy Council, and contracts in the nature of litigation funding by a third
party were treated at par with other contracts. Other decisions have also reaffirmed that the
doctrines of champerty and maintenance are not applicable in India, and that champertous
contracts can be struck down only if the object is contrary to public policy 9. The position
since then has remained uniform10, viz. an agreement between a disputant and a third party to
finance the cost of litigation in consideration for a share of the proceeds arising out of said
litigation, was not per se illegal and could not be declared void on grounds of champerty and
maintenance as these doctrines were not applicable to India and that third party funding
agreements do in fact provide access to justice 11. Such agreements would be tested on the
anvil of equity, reasonableness, and legality of the object behind the contracts, and
unconscionable terms would be hit by s 23 of the Indian Contract Act 1872. In the absence of
express prohibitions on champerty and maintenance in India, objection to such contracts
remained centred on public policy considerations12.
The permissibility of Third Party Litigation in India is seen in the rules of civil procedure
made by various High Courts in the country which expressly recognize litigation financing

10
Lala Ram Swarup v The Court of Wards (1940) 42 Bom LR 307 where the rule in Ram
Coomar Coondoo was crystallised; Rattan Chand Hira Chand v Askar Nawaz Jung (Dead) by
LRs & Ors (1991) 3 SCC 67
11
Kishen Lal Bhoomik v Pearee Soondree & Ors 1852 Sudder Dewanny Adawlut (SDA)
394-397 [Case No. 137 of 1850 decided on 13 May 1852], where the court sought to bring
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. The court did however 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 recognised, such agreements do in fact provide access to justice.
12
Pannalal Gendalal & Anr v Thansingh Appaji & Anr AIR 1952 Nag 195. Campbells (n 15)
examined the position under common law jurisdictions including India, and the decision of
the Privy Council in Ram Coomar Coondoo (n 23).

11
and make provisions for security for costs in such cases 13. In fact, a constitutional bench of
the Supreme Court of India has acknowledged that the doctrines of Champerty and
maintenance are not applicable in India, and that ‘there is nothing morally wrong, nothing to
shock the conscience, nothing against public policy and public morals’ in such transactions as
long as lawyers are not involved by way of contingency fee structures14.
MEANING OF THIRD PARTY FUNDING:

Third-party funding (“tpf”) or litigation financing is the “mechanism or process through

which parties to arbitration proceedings can finance their claims through the help of an
15
external funder” or may be called investor. Third-party funders assume the role of a
financier by providing the cash required by a claimant in order to pursue a claim through the
arbitral process, in exchange for a percentage or share of the potentially lucrative final
arbitral award. In recent years international commercial arbitration has witnessed a
remarkable increase in the participation of third-party funders in arbitral proceedings, raising
questions regarding the genuineness of tpf in international arbitral proceedings. Nowadays
more and more claimants are seeking to take advantage of external funding, “either because
they lack the necessary funds to commence arbitration proceedings or because they want to
maintain cash-flow and offset the risk of an uncertain outcome or to save valuable corporate
time-management is another aspect to tpf”.
Originally, there were only two traditional types of third party funding provisions. In the first
type, the third party funder makes an agreement to finance the legal expenses of the claimant
or respondent in a case in exchange for a portion of the claimant’s awarded amount, if the
claimant wins, or a predetermined payment from the respondent. In the second type, a third
party funder makes an agreement to finance a
Law firm’s single case or portfolio of cases in exchange for a negotiated rate of return. In
both types of traditional third-party funding, the third party funder remains a separate legal
entity from both the funded party and the law firm. Therefore, the traditional third party

13
The Code of Civil Procedure 1908: Order XXV Rule 1 Allahabad, Andhra and Madras,
Madhya Pradesh, Orissa High Court amendments; Order XXV Rule 3 Bombay, Dadra and
Nagar Haveli, Goa, Daman and Diu, and Madhya Pradesh High Court amendments
14
In the matter of Mr. ‘G’, a Senior Advocate of the Supreme Court AIR 1954 SC 557.
15
Stavros Brekoulakis, “The Impact of Third Party Funding on Allocation for Costs and
Security for Costs Applications: The ICCA-Queen Mary Task Force Report”, Queen Mary
University of London, (February 2016).

12
funding transaction is often depicted as a triangle with the three corners representing the
party, attorney and funder. “formal” claimant-side tpf modern tpf typically involves the
provision of non-recourse financing to cover all or part of the costs and disbursements
necessary for pursuing a claim (such as legal fees, expert fees, arbitrator and administrative
costs and, in some cases, even operating costs to support the existence of the claimant entity
so that the claim may be pursued), in exchange for a financial interest in any favourable
award that issues from the claim

THIRD PARTY FUNDING IN COMMERCIAL ARBITRATION

Third party funders for arbitrations, may agree to finance all or a portion of one party’s legal
costs for a given international arbitration. A third party funder typically earns an agreed
percentage of any award or a success fee, or a combination of the two, in the event of a
successful case. Should the case fail, the funder loses its investment and is not entitled to
payment. Clients who are not represented by counsel will generally be turned away by third
party funders, as most third party funders require a legal memorandum analysing
jurisdictional issues, the merits of the case and quantum issues, prior to even agreeing to
perform due diligence on a claim. Some leading arbitration law firms, such as Aceris Law,
can assist clients seeking third party funding for international arbitration at no cost. While
third party funding raises issues concerning confidentiality, legal privilege, disclosure,
conflicts of interests, cost issues and the attorney-client relationship, third party funding plays
an important role in many arbitrations today and is widely accepted both for commercial and
investment arbitrations. Third party funding permits greater access to justice for claimants,
permitting meritorious claims to proceed that could not otherwise be pursued for purely
financial reasons. It also levels the playing field so that cases will not be resolved on the basis
of unequal economic resources or risk preference. Even for claimants with sufficient funds,
third party funding is sometimes used to take the costs of litigation or arbitration off of the
company’s balance sheet, or to outsource these costs and financial risks. The terms of
litigation funding agreements between funders and clients typically set out the agreed conduct
of each party, the payoffs to the funder, the circumstances and conditions in which the funder
can exit the case, and the reporting and updating requirements of the funder, lawyers and
client

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Arbitration in the Settlement of International Trade Disputes When barriers to international
trade are discussed, those that are usually thought of are high tariffs, customs red tape,
foreign exchange controls, trade discriminations, restrictive cartel practices, and other
regulations and curbs, governmental and private, which add to the normal difficulties of trade
among nations. Commercial disputes between traders are rarely thought of as a barrier to
international trade expansion. And yet, a great many medium-sized and small companies find
themselves in trouble when they have disagreements with their customers or their sources of
supply in other countries of the world and must think in terms of law suits or losses or both.
Larger companies are not as adversely affected by the expenses resulting from disputes with
companies in other countries of the world as they can better afford to prosecute in courts of
law and go through the series of appeals until a decision comes down from the highest court
of the land. Or, because of their great prestige, position and wealth they can frequently
compel favourable settlement of a dispute.
Commercial disputes that end in courts of law are always costly and usually bitter. Cases
frequently drag through the courts for many years, and the ultimate winner of the lawsuit
finds that he is out of pocket more than the amount of the judgment in his [87] favour. Courts
tend to favour their own nationals and thereby further animosity is created between peoples
of different countries who grow suspicious of the kind of deal that they will get from foreign
nationals. There is no body of international commercial law, and the courts of different
countries have interpreted the rights and liabilities of buyers and sellers differently. Public
attention resulting from cases being aired in courts has frequently added to the friction
between disputants and has thereby created enough animosity to end business relationships.

Trade Agreements – The Indian Perspective In a meeting held on “September 10, 2019, at
Bangkok in Thailand, India and the group of ten members of Association of Southeast Asian
Nations (ASEAN) have decided to initiate the review of the ASEAN-India Trade in Goods
Agreement that has been in operation since January 2010”. The main objective of the
proposed review is to make the agreement more user-friendly, simple, and trade facilitative
for businesses. It is an important development for India as there has been a growing concern
indifferent quarters including the industry that the benefits for India have been very limited

14
from the Free Trade Agreements (FTAs) that the country has signed and implemented so far,
including that with the ASEAN. It is imperative to note that India has viewed FTAs as an
important tool to enhance its trade and investment, and signed a number of trade agreements
with various countries or groups. In fact, India is one among top countries in Asia with the
maximum number of FTAs either in operation or under negotiation or proposed. “According
to the Asian Development Bank Institute, as of now, India has 42 trade agreements (including
preferential agreements) either in effect or signed or under negotiation or proposed. Out of
this, 13 are in effect, one is signed but not yet implemented, 16 under negotiation and 12 are
proposed/under consultation or study. Most of India’s existing FTAs are with Asian countries
which are quite different from each other in terms of the level of their economic
development.”
At the time when India is negotiating FTAs with a number of countries/groups, “including
the mega Regional Comprehensive Economic Partnership (RCEP), and has decided to
commence the review of India-ASEAN FTA, it is pertinent to examine the progress of trade
between India and its key FTA partners. The major FTAs that India has signed and
implemented so far include South Asia Free Trade Agreement (SAFTA), India-ASEAN
Comprehensive Economic Cooperation Agreement (CECA), IndiaKorea Comprehensive
Economic Partnership Agreement (CEPA) and India-Japan CEPA”.

THIRD PARTY FUNDING AGREEMENTS

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:
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
Enterprise16 Ireland and the Attorney General 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.

16
[2017] IESC 27

15
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 Republic17, 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”. 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.

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.

JUDICIAL RESPONSES ON THIRD PARTY FUNDING

Third party funding (TPF) enables financial assistance to a claimant, for the purposes of
litigation, by an unrelated third party to the suit. Commercial funding is the most popular in
TPF as a dispute resolution mechanism in International Commercial Arbitration. In cases of
commercial funding, the litigation funder expects a certain percentage of profit or a success
fee upon the conclusion of the litigation. There is no specific law governing TPF in India
although Sec. 35 of CPC mentioned about power of courts by asking the financer to become a
party and deposits the costs in the court. However, reading the judicial precedents along with
certain legal provisions, it can be inferred that the practice of Third Party Litigation Funding
(TPLF) is not prohibited under Indian law. This paper studies the development of the concept
of judicial attitudes and responses regarding TPLF, and the potential for its practice in India,
with a special focus on public policy. Drawing on the experiences of other jurisdictions, the
paper provides certain recommendations that could guide the policy regulating the practice of

17
(ICSID Case No. ARB/07/8)

16
TPF in India. The paper also argues that maximum advantage of this practice can be derived
if a relationship of trust is created between the third party funders and the claimants.

Third party litigation funding (“TPLF”) is the financial support for litigation, provided by a
person or an entity that is not a party to the litigation and having no direct interest in the
outcome18. In return, the third party funder expects a certain predetermined payment or a
success fee, from any monetary relief that the plaintiff might be awarded by way of decree,
from a Court or an out of Court settlement. Third party litigation funding is mainly offered to
the plaintiff, but a defendant with a substantial counterclaim may also try to avail it.
Traditionally, the sources of such funding would include contingency fees by lawyers19, non-
recourse loans20, recourse loans, and liability insurance. However, the new TPLF paradigm
involves an unrelated third party who invests in the litigation. This new paradigm is similar to
liability insurance, in that, they both “transfer the risks associated with civil litigation”,
“encourage lawsuits, influence settlement terms, have payers inter-meddling in litigation,
etc.” In the United States, tort liability insurance has been borne by insurers since the late
1800s. TPLF on the other hand, is a relatively new endeavour.

There are two main types of TPLF i.e. “pure funding” and “commercial funding”. In case of
pure funding, the funders are motivated to financially support the claim of a party, if they
identify the case of the party to be genuine in nature 21. The funders are not required to pay the
costs of the successful unfunded party. On the other hand, in the case of commercial funding,
the funders exercise substantial control over the litigation process. The motivating factor in
this form of funding is the potential to make profit or derive benefit from the investment. In
the case of Dymocks Franchise Systems (NSW) Pty. Ltd 22, Lord Brown defined commercial
18
David Abrams & Daniel L. Chen, A Market for Justice: A First Empirical Look at Third
Party Litigation Funding, 15 U. PA. J. BUS. L.1075, 1083 (2013).
19
3 In non-recourse loans, the lender can only attach the collateral, not the borrower’s
personal assets, if the loan is not repaid. See, Loan, Black’s Law Dictionary 1020 (9 ed.
2009).
20
Hamilton v Al Fayed [2003] QB 1175.
21
In non-recourse loans, the lender can only attach the collateral, not the borrower’s personal
assets, if the loan is not repaid. See, Loan, Black’s Law Dictionary 1020 (9 ed. 2009).
22
Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] 1 WLR 2807.

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funding as: “Where, the non-party not merely funds the proceedings but substantially also
controls or at any rate is to benefit from them, justice will ordinarily require that, if the
proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not
so much facilitating access to justice by the party funded as himself gaining access to justice
for his own purposes. He himself is ‘the real party’ to the litigation, a concept repeatedly
invoked throughout the jurisprudence”.
They are only facilitating access to justice for the concerned party. However, in the case of
commercial funding, the funders are facilitating their profits/business by exercising
substantial control. However, compared to pure funding, the past decade has seen a rapid
growth in commercial funding by investment firms. Some of the well-established commercial
funding markets include Australia, England, United States of America, and Canada. The
potential of commercial funding is still in its nascent stages in India.
Jeremy Bentham has demonstrated back in 1843 the reasoning behind maintenance and
champerty, he stated: "A mischief, in those times it seems but too common, though a
mischief not to be cured by such laws, was, that a man would buy a weak claim, in hopes that
power might convert it into a strong one, and that the sword of a baron, stalking into court
with a rabble of retainers at his feet, might strike terror into the eyes of a judge upon the
bench23."

PUBLIC POLICY ON DISPUTE RESOLUTION, ACCESS TO JUSTICE, AND FUNDING

OF LITIGATION:

As a result of the extensive analysis by Jackson LJ and the subsequent government reforms
litigation funding is now possible in England and Wale to access to justice. The rules of
public policy which would normally not be stated in concise of official documents, can be
identified through Jackson Reports especially when it coupled with the associated analyses of
what policy should be in the government’s consultation documents. Here it summarises the
policy as follows:
1. “Provision of access to justice is an important constitutional and fundamental right.
However, the principle requires some basic to the qualifications.
2. Claims with good merits/intension should be encouraged, but the principle of ‘access to
justice’ does not stretch to encouraging claims with poor merits. There is limited tolerance for

23
BENTHAM Jeremy, Defense of usury, op.cit., p. 36.

18
speculative litigation aimed at testing the boundaries of the law which can be considered as
against to public policy, although some exceptional cases that clarify uncertainties in the law
but with to that wide practical affect are permitted. Parliament is the major forum for
addressing reform of the law rather than the courts.
3. Public funding such as legal aid services for civil litigation is very limited and unable to
provide maximum benefits to all the needed claimant. This is why private funding sources
should be encouraged. The most favoured funding method is BTE, followed by DBAs, CFAs
and commercial litigation funding. The Jackson Costs Review, which the government have
adopted, stated that the policy should be that a ‘mixed economy’ of different forms and
sources of funding is required.

CONCLUSIONS AND RECOMMENDATIONS

A revolution in national policy: The rules on funding and costs of litigation are being
transformed in India with implementation of most of decisions passed from the judiciary. The
policy favours a ‘mixed economy’ of methods of funding with adoption of the principle that
fees can be deducted from recoveries but there has been no analysis of which methods may
be preferable for which types of case or of what problems may occur. The situation calls for
careful ongoing research
There are various different models for litigation funding in different jurisdictions. The
traditional prohibitions on third party funding have fallen in many common law countries and
never existed in many civil law jurisdictions. Whereas in India the traditional prohibition
never implemented in Indian legal policies.
It cannot be ignored that TPF could aid access to justice for parties who would not otherwise
be able to afford it. If India truly wishes to be a serious contender in international arbitrations
she must make it expedient for litigants to have access to funds.

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