Third party funding in international arbitration
Abritration is the most efficient and time saving process but the excessive costs attached with it cannot be neglected. Concept of third party funding means when a third random party comes into the agreement with the two parties to fund the arbitration procedure and help the financially weaker claimants to successfuly achieve their legal interests ; without rising their personal assets.
But this process is not widely accepted by the countries as it contrasts their national public policy.There are two issues faced by the parties where third party funding agreements takes place.
- An arbitration award can be challenged by the court where the third party funding agreement is present , stating that it violates the public policy of the country.
- The third party funding agreement can be volative in the own sense in some jurisdiction where courts do not accept this procedure. This might create problem for the funder to record his financial aids.
Scenario of this concept in different countries
It is noted that many countries with well established judicial system have adopted this procedure or amended their legislations with new order supporting third party funding .
New to study the specific legal issues which would arise in the above mentioned issues it is necessary to understand the existing legal situation of nations regarding third party funding agreements .
A decade ago , English Courts had recognised the importance of third party funding and made it legitimate . The turning part came when the Supreme Court in Arkin V Borchard lines Ltd . described commerical funders as group who provide help to those seeking justice which they cannot due to lack of financial crisis.
The country also recognised the value of third party funding and gave it legitimacy .
On 10th jan ,2017 the Singapore parliament passed a civil law act which come into force in March 2017 . This has allowed Singapore to use third party funding in international arbitration. But at present it is forbidden in domestic courts of Singapore.
The concept of third party funding is recognised in few states of India. Like in Maharashtra , Gujarat, Madhya Pradesh and Uttar Pradesh. Order 25 rule 1 of CPC provides that courts of the above mentioned states have the power to secure cost for litigation by asking the financer to become a party and depositing the cost .
The rule of third party funding is not new to Indian judicial system but still it lacks proper implementation all over India . There is no mention of third party in Arbitration and Concillation act . In international arbitration agreements where third party funding is required the rules of FEMA are used .
Following are the situations which arise in imparting arbitral award where the claimant has been funded by a third party.
- The seat of arbitration - It depends from country to country whether they accept third party funding or not. There is no uniform decision on this. Many times New York courts have allowed third party funding but Irish courts have always denied.
- Third party funding agreements where claimants resides - If the third party agreement is entered into where the claimant resides then it is valid . But what if the award is enforced in a different jurisdiction ? Then , also the claimant has right to recover the costs . But this depends upon the approach of individual court .
- Validity of third party funding agreement and the award at the place of execution- A third party funding agreement can be entered into at any place where the claimant reside no matter whether jurisdiction is there or not . When it comes to award it shall be given where the jurisdiction allows a third party funder.
Hence the execution of award, where the third party funding agreement is present is usually dependent on the legitimacy of such agreements in that jurisdiction . And in the case of India the arbitration award which is obtained due to third party funding cannot be set as violative of public policy of India as order 25 rule 1 provides the third party funding in litigation.