The huge funds involved in conducting arbitration proceedings has, on several occasions, served as discouragement to many potential claimants who have, as a result, relaxed on pursuing their rights. This has led many jurisdictions seeking to establish themselves as leading international arbitration venues to enact provisions relating to third-party funding. Prominent amongst these jurisdictions are Hong Kong and Singapore. Although with a different approach, Nigeria is on her way to joining the league of jurisdictions legalising third-party funding with the New National Arbitration and Mediation Bill. This article discusses the current position in Nigeria on third-party funding and the possible future.
What is Third-Party Funding?
Third-party funding is an arrangement where a commercial fund finances the costs of proceedings in return for a share of any damages awarded. Usually, a party who is not involved in an arbitration, such as a hedge fund or special purpose litigation fund, provides funds to a party to that arbitration in exchange for an agreed return. Typically, the fund will cover the funded party’s legal fees and expenses incurred in the arbitration.
Third-party funding has various advantages to the potential claimant. Arbitration can be very expensive and unaffordable in which case third-party funding may well be the only option for a potential claimant with meritorious and substantial claims. In addition, risk management can be another advantage of a third-party funding. Claimants may have the funds to arbitrate but may wish to share some of the risks associated with costly arbitration and in return be prepared to give up a proportion of any recoveries to do so. Similarly, a third-party funding may help the parties arrive at an early settlement of dispute. Funders will usually conduct extensive due diligence to ascertain good claims. This objective analysis by the Funder may thus assist the case management strategy of the claimant thereby facilitating early settlement once the other party is made aware that the claim has the backing of a funder.
However, third-party funding is not without its shortcomings. More often than not, significant part of the amount recovered would usually go to the Funder. In addition, the funded party may lose some autonomy, a key feature of Arbitration (particularly when considering settlement) as funders may reserve the right of approval of the settlement.
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