Evolution and Issues of Third-Party Funding in International Arbitration

Third-party funding (TPF), also known as Third Party Litigation Funding (TPLF), has evolved from a niche practice into a transformative force in international arbitration, enabling access to justice while testing procedural norms. Third party funding is when any entity provides capital to cover the costs of arbitration in exchange for a portion of the final arbitration award if the ruling is in the claimants favor. The evolving, and increasing, use of this practice produces  ethical concerns as it creates potential for conflicts of interest and possibility of unfair advantages for one party. This article analyses the regulatory challenges posed by TPF’s rapid growth, evaluates emerging transparency frameworks, and proposes reforms to balance innovation with procedural integrity.

The Expanding TPF Market

Third party funding plays a crucial role by providing financial support to countries, organisations, and some industries without the resources to pursue or defend a claim in arbitration on the international scale. The demand and use of TPF has increased significantly in the past decade. TPF usage surged from twenty-eight percent of cases in 2015 to thirty-seven percent by 2018. This is attributed to the increase in arbitration costs and commercial considerations for organisations expanding globally.

Approximately two hundred cases are funded annually post-2019. The industry is worth $18.2 billion worldwide, with more than half being spent in the United States – contributing to social inflation and the rise in jury awards. Specialised founders, most notably Burford Capital and Omni Bridgeway, dominate the multi-billion dollar market, providing claimants with access to considerable capital. The appeal of this participation in international arbitration comes from the operational framework. A common model involves the funder receiving a predetermined percentage, often between 20-40% of awards, and offers portfolio diversification as funders can spread their risk across multiple claims. Claimants are motivated by risk mitigation in high stakes disputes, access to justice, and off-balance sheet solutions. It is clear there exists benefits for both parties between the claimant and the funders, however, TPF presents several transparency challenges.

Regulatory Challenges – Transparency & Conflict

Core risks of international Third-Party Funding include opacity and cost liability. Non-disclosure of funding agreements risk “founder-driven” litigation and conflicts of interest. Prior relationships between funders and parties or arbitrators can create undisclosed conflicts of interest, leading to challenges to arbitrator appointments.

Further, tribunals increasingly weigh funders’ liability for adverse costs. In Essar Oilfields v. Norscot, the Court of Justice in England upheld an arbitration award that allowed Norscot to recover costs of third-party litigation funding from Essar. This decision clarified that “other costs” could include TPF and therefore be awarded to the claimant as well. The regulatory challenges create difficulties for full transparency on relationships and conflicts between interests and motivations. Another significant challenge is jurisdictional fragmentation. Separate jurisdictions withhold different mandates on disclosures. For instance, England and Singapore require disclosures while the US lacks consistency in its rulings. At a state level, US states like Indiana and West Virginia are making notable strides to bring transparency to the industry. This lack of uniformity creates complications when it comes to establishing a fully transparent and non-bias court process.

Institutional Responses – Disclosure & Ethics

Reform is then needed to address these issues. In response to the muddied politics of disclosures, several frameworks have emerged to mitigate these risks. SIAC Rules 2025 (Rule 38) addresses the issue of disclosures, mandating post-Tribunal disclosures of TPF agreements and founder identities. The purpose of Rule 38 is to assist arbitrators in complying with their duty of disclosure, preserve the integrity of proceedings, and enable tribunals to consider TPF agreements in cost apportionment.

Cost apportionment refers to how expenses are divided among parties. Rule 38’s requirement for disclosure of third-party funding (TPF) arrangements enables tribunals to make informed decisions when allocating these costs. This transparency aids in mitigating cost liability by allowing arbitrators to consider funding arrangements when determining security for costs and final cost distribution, preventing potential abuse of the system while ensuring fair treatment for legitimately funded claims.

Another noteworthy development is the Chartered Institute of Arbitrators (CIArb) released a Guideline on the Use of AI in Arbitration (2025) that advocates ethical safeguards when it comes to impartiality, data privacy and encouraging inclusive practices when using AI. These frameworks are designed to set precedents of transparency, clarity, and accountability.

Further, court proceedings are evolving to require more extensive qualifications for TPF. In Garcia Armas v. Venezuela, the tribunal held that a claimant’s reliance on third-party funding may indicate insufficient funds and increase the risk of non-payment of costs. Since the funding agreement did not guarantee payment of adverse costs, the tribunal shifted the burden onto the claimants to prove their ability to cover such costs. This established a precedent linking security-for-costs orders to the funder’s solvency and highlighted the tribunal’s role in scrutinising funding arrangements when assessing cost liability. By the tribunals, standards the claimants should bear the burden to demonstrate their ability to comply with potential adverse awards. This case was a landmark decision in the role that TPF plays in international arbitration. Such progress highlights the modern adaptations to meet a growing and previously unchecked industry.

The Way Forward – Harmonising Proposals

Third Party Funding is going to become a more standardised practice as judicial proceedings escalate to the global stage in an increasingly interconnected world. The solutions going forwards are not solutions at all, more model standards that require enforcement and meet the industry at the moment. The ICCA-Queen Mary Task Force has issued draft reports addressing the issues of cross-border enforcement of cost awards and disclosure clauses. These drafts address several key concerns like disclosure and conflict of interest, cost awards, and cross border enforcement. The goal of the drafts is to provide sufficient information for conflict assessment while avoiding undue burdens on the arbitration process. Moving forward, recommendations can include adopting best practices such as the inclusion of capital adequacy requirements (CAR) and conflict-screening protocols for funders.

There is a growing movement toward the creation of specialized rules and harmonised standards for TPF across arbitration in disruptions and justifications. Regulatory interest intensifies as national governments and arbitration institutions consider implementing stricter frameworks to manage conflicts of interest. The rise of AI in legal proceedings also offers a unique opportunity to reexamine digital asset disputes, further complicating the future of TPF. This evolution may require funders and parties to adapt funding agreements and disclosure practices to address unique risks and evolving regulatory challenges.

Conclusion

Third Party Funding has become an integral part of the international arbitration landscape, offering new opportunities for access to justice and risk management. However, its rapid growth raises complex questions about transparency, conflicts of interest, and the need for continued and effective regulation. The current response is one that aims to meet the industry where it is rather than adapt for the changing times. Continuing practices of transparency, accountability, and proper disclosure is the minimum for conducting reform in Third-Party Funding. New legislature and enforcement capabilities are the challenge of the future and all attention should be directed forward.