Third Party Funding, often referred to as TPF, has moved from the periphery of international arbitration to a position of practical relevance for corporates and in-house legal teams. What was once viewed as a niche mechanism used in distressed claims is now increasingly part of mainstream dispute strategy, particularly in high-value commercial arbitrations.
For general counsels and business decision-makers, the conversation around third-party funding is no longer limited to whether it is permissible. The more pressing questions today relate to when it makes strategic sense, how it affects cost and risk allocation, what disclosure obligations arise, and how it influences procedural dynamics within arbitration.
This article examines the evolving role of third-party funding in commercial arbitration and outlines the key strategic considerations that corporates and counsel should evaluate before opting for funded proceedings.
What Is Third-Party Funding in Arbitration
At its core, third-party funding involves a non-party financier agreeing to fund some or all of the costs of an arbitration in exchange for a share of any eventual recovery. These costs typically include legal fees, tribunal fees, expert witnesses’ costs, pre-deposit and adverse-cost order.
The funding arrangement is usually non-recourse. If the claim fails, the funder absorbs the loss. If the claim succeeds, the funder receives a pre-agreed return, often structured as a percentage of the award or a multiple of the capital invested (percentage based model or a multiple based model).
In practice, funders conduct detailed due diligence before committing capital. This includes reviewing the merits of the claim, jurisdictional issues, enforceability prospects, quantum analysis, and the financial standing of the respondent.
Why Third-Party Funding Is Gaining Traction in Arbitration
Several factors have contributed to the growing acceptance of third-party funding in arbitration.
First, the cost of arbitration has increased steadily, particularly in complex, multi-year disputes involving extensive documentary records and expert evidence. For many corporates, even meritorious claims must compete internally for capital allocation.
Second, arbitration is increasingly viewed through a risk management lens rather than purely a legal one. Third-party funding allows claimants to shift downside risk while preserving balance sheet liquidity.
Third, developments in arbitral rules and judicial attitudes across major arbitration hubs have reduced uncertainty around the permissibility of funding arrangements. This has encouraged both funders and users to engage more openly with the concept.
Key Strategic Considerations for Corporates and GCs in 2026
Cost and Risk Allocation
One of the primary attractions of third-party funding is the ability to transfer financial risk. However, this comes at a price. Funders typically target claims with strong merits and significant quantum, as their return must justify the capital deployed.
From a strategic perspective, the question is not merely whether funding reduces upfront cost, but whether the trade-off between retained recovery and risk mitigation aligns with the company’s broader objectives. In some cases, self-funding may still be preferable, particularly where the dispute has strategic or precedent-setting value beyond monetary recovery.
Control and Decision-Making
Funding agreements often include provisions that allow the funder a degree of visibility into the conduct of the arbitration. While reputable funders do not seek to control strategy, their commercial interests inevitably influence discussions around settlement, procedural efficiency, and case pacing.
General counsels should carefully assess how decision-making authority is structured under a funding arrangement, particularly in relation to settlement thresholds and termination rights.
Disclosure and Conflict Issues
Disclosure of third-party funding has become an increasingly important issue in arbitration.
Many arbitral institutions now require disclosure of the existence of funding arrangements to address potential conflicts of interest involving arbitrators. This does not typically require disclosure of commercial terms, but it does introduce additional procedural considerations early in the arbitration.
Failure to address disclosure properly may result in challenges to arbitrators or procedural objections that distract from the substantive merits of the dispute. From a risk management perspective, early and accurate disclosure is generally preferable to a reactive disclosure later in the proceedings. Also, many a times, a TPF who is interested in the outcome of the dispute may be conflicted and verification of such conflicts is important to ensure that, post the award, the award is not jeopardized and/or unenforceability becomes an issue.
Impact on Procedural Strategy
The presence of a third-party funder can subtly influence procedural strategy.
Funded claims are often subjected to closer scrutiny at early stages, including jurisdictional challenges, conflict of interest and security for costs applications. Respondents may argue that the presence of a funder indicates financial distress or seek security on that basis, even where such arguments are ultimately unsuccessful.
Claimants should therefore anticipate these tactics and factor them into their overall dispute strategy. This includes assessing how funding may affect timelines, costs, and tribunal perceptions.
Third-Party Funding and Settlement Dynamics
Settlement dynamics can also be affected by third-party funding.
On the one hand, funding can strengthen a claimant’s negotiating position by reducing financial pressure to settle early. On the other hand, the funder’s return expectations may complicate settlement discussions, particularly where commercial resolution falls below the funder’s investment threshold.
Clear alignment between the claimant, counsel, and funder at the outset is essential to avoid friction at later stages of the dispute.
Regulatory and Jurisdictional Sensitivities
While third-party funding is increasingly accepted, its treatment varies across jurisdictions. Some jurisdictions impose regulatory requirements on funders, while others have evolving jurisprudence on issues such as champerty, cost recovery, and enforceability.
For disputes with cross-border elements, it is important to consider how funding arrangements may be viewed at the seat of arbitration and at the enforcement stage. These considerations should form part of the initial strategic assessment, rather than being addressed reactively.
Commercial Decision Framework for Using Third-Party Funding
Beyond the legal permissibility of third-party funding, the more important question for many businesses is whether funding makes commercial sense in the context of cash flow, risk appetite, and overall dispute strategy.
From a commercial perspective, one of the first considerations is capital allocation. Even where a company has the financial capacity to fund an arbitration internally, tying up capital in a long-running dispute can carry a significant opportunity cost. Funding may allow businesses to preserve liquidity for operational or growth priorities, particularly in disputes with extended timelines or uncertain outcomes.
Risk distribution is another key factor. Funding can convert a portion of litigation risk into a predictable cost, which may be attractive where downside exposure is material or difficult to quantify. At the same time, businesses must assess whether sharing a portion of any upside aligns with their broader commercial objectives.
Equally important is settlement flexibility. Funding arrangements may influence when and how settlement discussions take place. In some cases, economic thresholds or return expectations can affect the willingness to pursue early, commercially sensible resolutions. These dynamics should be understood clearly at the outset.
Finally, businesses should consider reputational and relationship implications. The presence of a funder can sometimes harden positions or extend proceedings, which may not align with longer-term commercial relationships or market perception.
TPF Guidelines
The increasing use of third-party funding in arbitration has led to the development of soft-law guidelines aimed at providing structure and consistency in the management of funded proceedings.
The Chartered Institute of Arbitrators (CIArb) has issued guidelines addressing third-party funding in international arbitration, with a focus on disclosure, conflicts of interest, and procedural integrity. These guidelines emphasise early disclosure of the existence of funding arrangements to allow tribunals to assess potential conflicts and manage proceedings transparently, while stopping short of mandating disclosure of the commercial terms of funding agreements.
Similarly, the International Bar Association (IBA) has addressed third-party funding through its Guidelines on Conflicts of Interest in International Arbitration. The IBA Guidelines treat funders as equivalent to parties for the purpose of conflict analysis, recognising that funders may have a direct economic interest in the outcome of proceedings. This approach reinforces the need for disclosure of the funder’s identity at an early stage of the arbitration.
Together, these guidelines provide practical reference points for tribunals and parties when dealing with funded arbitrations. While they do not create binding obligations, they are increasingly relied upon to shape procedural orders, disclosure timelines, and cost-related decisions. For parties considering third-party funding, familiarity with these guidelines is essential to anticipate procedural expectations and avoid avoidable challenges during the arbitration.
Concluding Observations
In practice, third-party funding works best when it is treated as a strategic tool rather than a default solution, evaluated alongside commercial priorities rather than purely legal considerations.
However, funding is not a one-size-fits-all solution. Decisions around third-party funding require careful evaluation of legal merits, financial implications, procedural risks, conflict of interest and long-term business objectives. In practice, the most effective outcomes are achieved when funding considerations are integrated early into the overall dispute strategy rather than treated as an afterthought.
