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What is third-party funding?

In this step we consider what third-party funding means and in which countries it is prohibited.
In short, a party unconnected to the arbitration (the third party) provides funding to one of the parties involved in return for a certain amount or percentage once the dispute is settled. The third party may be a natural or legal person. Currently, a range of organisations acts as third-party funders: investment banks, hedge funds, insurance companies, private equity firms and in some instances, law firms (although this is a reasonably rare eventuality. In Hong Kong lawyers and law firms are not permitted to provide third-party funding where they are acting for a party or likely to or are a former party to arbitration).

The funding will typically cover the party’s fees (legal fees, administrative fees and expenses), but depending on the funding agreement, it may also provide security for the other party’s costs and its costs. The funder will be paid once the award has been settled in the favour of the party. The funding fee can take a number of forms: a percentage of the proceeds, a fixed amount, a multiple of the funding or a combination of all these.

Within the ASEAN +6 region, third-party funding is still developing, however it is permitted for both arbitration and litigation in Australia and, since 2017, in Singapore and Hong Kong. On 31 August 2017, CIETAC also released its Guidelines on Third Party Funding in Arbitration.

Gitanjali Bajaj, Ernest Yang and Queenie Chan, ‘Third-party funding in the Asia-Pacific region’ Asia-Pacific Arbitration Review 2021 49, sets out the position in respect of the other States in the region is set out in the table below.

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International Arbitration: Process and Procedure

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