{"id":6911,"date":"2025-08-03T05:56:09","date_gmt":"2025-08-03T05:56:09","guid":{"rendered":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/?p=6911"},"modified":"2025-08-03T05:57:55","modified_gmt":"2025-08-03T05:57:55","slug":"third-party-funding-in-arbitration-boon-or-bane","status":"publish","type":"post","link":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/","title":{"rendered":"Third-Party Funding in Arbitration: Boon or Bane?"},"content":{"rendered":"\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Third-Party_Funding_in_ISDS\"><\/span>Third-Party Funding in ISDS<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Third-party funding (TPF) is changing the landscape of international arbitration, especially in Investor-State Dispute Settlement (ISDS). This practice, where outside investors finance legal actions in exchange for a share of any successful outcome, has ignited a fierce debate. While TPF undeniably opens the door to justice for claimants who might otherwise be unable to afford it, its largely unregulated status raises serious questions about the fairness and transparency of the ISDS framework.<\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #0c0c0c;color:#0c0c0c\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #0c0c0c;color:#0c0c0c\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Third-Party_Funding_in_ISDS\" >Third-Party Funding in ISDS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#TPF_as_a_Tool_for_Justice_%E2%80%93_A_Deeper_Dive\" >TPF as a Tool for Justice \u2013 A Deeper Dive<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#The_Challenges_to_Integrity_%E2%80%93_The_Dark_Side_of_TPF\" >The Challenges to Integrity \u2013 The Dark Side of TPF<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Conflicts_of_Interest\" >Conflicts of Interest<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Lack_of_Transparency\" >Lack of Transparency<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Financial_Burdens\" >Financial Burdens<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Ethical_Dilemmas\" >Ethical Dilemmas<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Ensuring_Fairness_Through_Regulation\" >Ensuring Fairness Through Regulation<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Mandatory_Disclosure\" >Mandatory Disclosure<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Security_for_Costs\" >Security for Costs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Supervisory_Oversight\" >Supervisory Oversight<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Professional_Ethics\" >Professional Ethics<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Academic_Perspectives_on_TPF_%E2%80%93_What_Scholars_Are_Saying\" >Academic Perspectives on TPF \u2013 What Scholars Are Saying<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.legalserviceindia.com\/Legal-Articles\/third-party-funding-in-arbitration-boon-or-bane\/#Conclusion_%E2%80%93_The_Future_of_TPF\" >Conclusion \u2013 The Future of TPF<\/a><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"TPF_as_a_Tool_for_Justice_%E2%80%93_A_Deeper_Dive\"><\/span>TPF as a Tool for Justice \u2013 A Deeper Dive<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>One of the most significant benefits of TPF is that it expands access to arbitration. It provides a financial lifeline for investors and developing nations that lack the resources to pursue legitimate claims against powerful state entities. By covering the high costs of legal proceedings, TPF helps create a more level playing field, turning abstract legal entitlements into concrete claims.<\/p>\n\n\n\n<p>Beyond just access, TPF can also improve the quality of the arbitration process itself. Because funders are motivated by profit, they only support cases with a strong chance of success. This rigorous vetting process helps weed out weak or baseless claims, which can streamline proceedings and prevent unnecessary legal actions.<\/p>\n\n\n\n<p>TPF also allows a broader range of claimants to bring cases, which ultimately enriches legal interpretation and helps shape international investment law. This influx of diverse cases contributes to a more robust body of jurisprudence.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Challenges_to_Integrity_%E2%80%93_The_Dark_Side_of_TPF\"><\/span>The Challenges to Integrity \u2013 The Dark Side of TPF<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>TPF also poses significant challenges to the integrity and fairness of ISDS. The most pressing concerns include:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conflicts_of_Interest\"><\/span>Conflicts of Interest<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Profit-driven funders may try to influence legal strategy, which can undermine a claimant&#8217;s autonomy. This &#8220;claim hijacking&#8221; can lead to settlements that prioritize the funder&#8217;s financial return over the claimant&#8217;s best interests.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Lack_of_Transparency\"><\/span>Lack of Transparency<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Undisclosed relationships between funders and arbitrators can compromise the impartiality of proceedings. The lack of clear disclosure rules makes it difficult to uncover these hidden ties, eroding trust in the arbitration process.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial_Burdens\"><\/span>Financial Burdens<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>TPF can impose unrecoverable costs on states, particularly when dealing with failed claims. Furthermore, funders often take a substantial share of any award, significantly reducing the compensation the claimant actually receives.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Ethical_Dilemmas\"><\/span>Ethical Dilemmas<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Lawyers involved in TPF cases may face conflicting loyalties, a problem made worse by the absence of a global ethical code. This ambiguity can blur the lines of who the lawyer is truly serving \u2013 the client or the funder.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Ensuring_Fairness_Through_Regulation\"><\/span>Ensuring Fairness Through Regulation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To leverage the benefits of TPF without compromising integrity, robust regulations are essential. Key measures include:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Mandatory_Disclosure\"><\/span>Mandatory Disclosure<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Funders should be required to disclose their identity, financial terms, and any influence they have on legal strategy. This allows tribunals to identify potential conflicts and ensure there is adequate coverage for costs.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Security_for_Costs\"><\/span>Security for Costs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Clear rules are needed to protect respondents by requiring funded litigants to provide security for costs. This measure helps ensure that states and other respondents are not left with unrecoverable expenses in the event of a failed claim.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Supervisory_Oversight\"><\/span>Supervisory Oversight<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>TPF entities should be registered, demonstrate solvency, and adhere to a strict set of ethical standards. This would introduce a layer of accountability and prevent unscrupulous actors from participating in the market.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Professional_Ethics\"><\/span>Professional Ethics<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Legal professional bodies must establish clear ethical guidelines for lawyers working on TPF-supported cases to ensure conflicts are managed and a lawyer&#8217;s duty to their client remains paramount. The Chartered Institute of Arbitrators has already published guidelines, but many scholars argue these lack effective enforcement mechanisms.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Academic_Perspectives_on_TPF_%E2%80%93_What_Scholars_Are_Saying\"><\/span>Academic Perspectives on TPF \u2013 What Scholars Are Saying<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Recent academic research (2023\u20132024) on TPF highlights key concerns and solutions. Scholars like Wehland, Gomez, and Puig advocate for uniform disclosure rules and robust regulation. The UNCTAD&#8217;s model law supports mandatory funder disclosure and ethical obligations, with Ranjan &amp; Anand emphasizing the need for tailored regulations to protect developing countries from power imbalances.<\/p>\n\n\n\n<p>Mounting concerns persist over the risk of &#8220;claim hijacking,&#8221; where a funder&#8217;s profit motive could dictate settlement decisions. Critics like Sornarajah also warn that TPF could turn ISDS into a speculative, economically-driven market, while Schreuer &amp; Reinisch question whether it erodes the parity between investors and states. Recommendations from scholars include mandatory bonding to address funders&#8217; limited liability and developing enforceable ethical guidelines.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion_%E2%80%93_The_Future_of_TPF\"><\/span>Conclusion \u2013 The Future of TPF<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>TPF presents a complex dilemma. While it undeniably expands access to justice, its lack of transparency and the profit-driven nature of funders raise serious concerns about fairness and potential conflicts of interest. Without comprehensive, globally enforceable regulations, there&#8217;s a significant risk that TPF could turn dispute resolution into a realm of speculative finance, eroding the very purpose of international investment arbitration.<\/p>\n\n\n\n<p>Clear guidelines are essential to ensure that TPF is applied responsibly and ethically. The call is clear: the integrity of the arbitration system must not be sacrificed for the sake of financial innovation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Third-Party Funding in ISDS Third-party funding (TPF) is changing the landscape of international arbitration, especially in Investor-State Dispute Settlement (ISDS). This practice, where outside investors finance legal actions in exchange for a share of any successful outcome, has ignited a fierce debate. While TPF undeniably opens the door to justice for claimants who might otherwise<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"two_page_speed":[],"_jetpack_memberships_contains_paid_content":false,"_joinchat":[],"footnotes":""},"categories":[13],"tags":[28],"class_list":{"0":"post-6911","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-arbitration-law","7":"tag-top-news"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/6911","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/comments?post=6911"}],"version-history":[{"count":0,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/posts\/6911\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/media?parent=6911"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/categories?post=6911"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalserviceindia.com\/Legal-Articles\/wp-json\/wp\/v2\/tags?post=6911"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}