Arbitration is a process wherein a disagreement is agreed upon by the parties and then submitted to one or more Arbitrators who render a legally enforceable judgment[i]. By selecting arbitration, the parties forego going to court and instead choose a private dispute settlement process. By agreement of the parties, a disagreement is presented to one or more Arbitrators who render a legally binding decision on the dispute[ii].

Arbitration is becoming a more popular alternative dispute settlement method in Nigeria. The main legislation that controls arbitration in Nigeria is the Arbitration and Mediation Act 2023 (AMA) which repealed the Laws of the Federation of Nigeria 2004’s Arbitration and Conciliation Act (ACA) Cap A18[iii].

Subject to some restrictions under the AMA, parties are normally allowed to select the arbitrators they want[iv]. The AMA offers procedures for the appointment by a court or arbitration organization in the event that the parties are unable to reach an agreement regarding the Arbitrators’ selection.

Arbitration proceedings can be expensive, especially when dealing with complicated business issues that need high professional fees, expert witness costs, and administrative expenditures[v]. When parties do not have the money to pay for the expenses themselves, third-party funding gives them access to the financial resources they need to prosecute their claims successfully.

In arbitration, “third-party funding” describes a scenario in which one of the parties to the arbitration agreement typically the Claimant secures funding from a third party to pay for all or part of the costs related to the arbitration process[vi]. This outside party, referred to as a third-party funder, usually contributes money in exchange for a portion of the earnings should the arbitration be successful.

The Arbitration and Mediation Act, 2023 (AMA) has brought third-party finance (“TPF”) to Nigerian arbitration as a contemporary way to control expenses and expand access to arbitral remedies. Parties are now given the chance in section 61 of the Arbitration and Mediation Act (AMA) by stating that:

“The torts of maintenance and champerty, including being a common barrator, do not apply in relation to Third-Party Funding of arbitration and this section applies to arbitrations seated in Nigeria and to arbitration-related proceedings in any court within Nigeria.”[vii]

The Act has eliminated the application of the maintenance and champerty requirements to arbitration that is funded in part by a third party. This implies that those who contribute money to arbitration proceedings may do so without fear of legal repercussions[viii]. These guidelines also extend to any associated court action in Nigeria as well as the arbitration procedure itself. 

Funding from third parties might be utilized as a component of a larger business plan, particularly when the result of the arbitration could have a big financial impact on one of the parties. Securing finance allows the parties to focus on their primary business operations and utilize their financial resources more strategically, with the funder taking on the financial risks related to the arbitration. Third-party funding is becoming more popular as people and companies realize its advantages especially when it comes to commercial disputes, where arbitration is the favored means of settlement[ix]. In contrast to countries such as the US or the UK, where third-party funding is more widely used, its application in Nigeria is still developing. Third-party funding has the potential to improve access to justice in Nigeria’s varied economic environment by allowing parties with justifiable claims but little financial means to seek arbitration. This is in line with larger initiatives to advance justice and equality under the law.

WHY THIRD-PARTY FUNDING?

As its name implies, third-party funding is also known as litigation finance, which is the process by which a non-party to an arbitration agrees to give money to a party in exchange for a sanctioned return[x]. Usually, the money takes care of the funded party’s arbitration-related costs and solicitor bills. The purpose of third-party funding is to assist companies that lack the resources to bring lawsuits. It has recently grown to be a crucial component of arbitration due to the significant rise in fundraising activities over the previous few years. It now includes international commercial arbitration, having originally concentrated on investor-state arbitration[xi]. Below are the reasons third-party funding might be advantageous to parties:

  1. Access to financial sponsorship: For parties facing the high expenses of arbitration, third-party funding provides a lifeline. Even the most determined plaintiffs may become discouraged by the financial obstacles of such litigation. Potential claimants find their path to justice unimpeded by financial restraints when third-party donors are willing to supply the necessary funds. This change encourages a more inclusive arbitration procedure and increases the likelihood of redress.
  • Skilled Evaluation:  Getting support from an outside funding source is about more than simply money. Funders assess each claim in-depth to make sure it has a strong foundation. Claimants gain from this examination. When a funder supports them, they feel more certain about the validity of their claim. Furthermore, the thorough evaluation adds another level of quality assurance, resulting in more competent and trustworthy arbitration proceedings.
  • A significant strength of the Case: Securing cash from outside parties alone increases the possibility of a case. Funders tend to choose cases with a high chance of victory, therefore their involvement usually indicates the strength of a claim. This recommendation fulfills two functions to wits. It gives claimants validation as well as raises their spirits and It represents a legitimate challenge to the other side, which could lead to more cooperative negotiating positions.

Funding may be a claimant’s sole choice if they lack the resources to pursue a meritorious claim. Claimants who have the financial means to arbitrate may wish to reduce the risk associated with pricey arbitration and, consequently, the inherent unpredictability of expenses, and they may be willing to give up a share of any recoveries in order to achieve this. It also allows a company to use that money for other investments. Furthermore, the funded party is released from financial strain and cash flow problems associated with the arbitration’s legal fees.

There are however some reasons why third-party funding might not be the best option in an Arbitral proceeding and a few of them are listed below:

  1. High Financial Burden of Third-Side Funding: In the event that a side prevails in court, third-party funders usually get their original investment back in addition to a sizeable portion of the damages granted. The total amount of compensation that the claimant receives may be significantly decreased by this arrangement. In addition, the party may be subject to further financial obligations in the event that the arbitration results are unfavorable.
  • Possible Conflicts of Interest: Agreements with other parties for finance may give rise to conflicts of interest that are not always obvious. The optimization of funders’ returns may lead to conclusions that are not in the best interests of the parties involved, so casting doubt on the impartiality and fairness of the arbitration process.
  • Problems with Privilege and Confidentiality: It is difficult to communicate information with donors because of the broad variations in the regulations governing privilege and secrecy. To safeguard sensitive material, parties must bargain non-disclosure or confidentiality agreements with funding. In order to reduce risks, parties must carefully determine whether details are essential to disclose even when sharing information is required to secure finance.
  • Risk of Improper Influence on Processes: There is a chance that the arbitration processes will be unfairly influenced if third-party financiers are involved. Funders having a direct financial stake in the result could become involved and complicate negotiations, postpone settlement talks, and create other difficulties. Furthermore, under the terms of the funding arrangement, funders may abruptly stop their support therefore endangering the party’s ability to proceed with the arbitration. Limiting the funder’s influence throughout the processes and establishing clear procedures for the withdrawal of support are crucial steps in preventing these problems.


In conclusion, third-party funding in arbitration is generally seen as a welcome procedure that can improve access to justice and facilitate the resolution of disputes, especially in the context of commercial arbitration, even though it is still relatively new in Nigeria when compared to more established jurisdictions. The expansion and acceptance of third-party funding in Nigerian arbitration in our opinion should be further supported by ongoing awareness-raising, education, and the creation of best practices.


[i] Nwaobi, E.A., 2022. The existence of a valid arbitration agreement is a prerequisite for arbitration. Int. J. Law8(2), pp.144-149.

[ii] Morgan v. Sundance, Inc., 142 S. Ct. 1708, 596 U.S. 411, 212 L. Ed. 2d 753 (2022).

[iii] Kekere, A.I. and Matthew, G., 2024. A CRITIQUE OF THE CONCEPT OF LIMITATION PERIOD UNDER THE ARBITRATION AND MEDIATION ACT, 2023. Redeemer’s University Nigeria Faculty of Law Journal (RUNLAWJ)7(1).

[iv] NWAKOBY, I., ORAEGBUNAM, I.K. and NWABACHILI, C.O., 2023. THE REGULATORY AND IMPLEMENTATION REGIME FOR MULTI-DOOR COURTHOUSE SYSTEM FOR RESOLUTION OF DISPUTES IN NIGERIA. LAW AND SOCIAL JUSTICE REVIEW4(3).

[v] Bottini, G., Titi, C., Aznar, F.P., Chaisse, J., Jovanovic, M. and Sola, O.P., 2020. Excessive costs and recoverability of costs awards in investment arbitration. The Journal of World Investment & Trade21(2-3), pp.251-299.

[vi] Gilbert, S., 2022. Third-Party Funding of Arbitration in Nigeria; Prospects, Challenges and Lessons from Singapore and Hong Kong. Rivers State University Journal of Public Law.

[vii] Arbitration and Mediation Act 2023

[viii] Section 61 AMA 2023

[ix] Oyebanji, A., Omotunde, A. and Abifarin, O., 2023. Exploring the Nexus between Corporate Governance and Alternative Dispute Resolution in Nigeria. Open J. Legal Stud.6, p.17.

[x] Onibokun, A. and Sodipo, B., 2024. An evaluation of third-party funding in commercial arbitration. Journal of Sustainable Development Law and Policy (The)15(1), pp.263-285.

[xi] Kayalı, D., 2023. Third-Party Funding in Investment Arbitration: How to Define and Disclose It. ICSID Review-Foreign Investment Law Journal38(1), pp.113-139.

Written bOlufe Popoola and Grace Eniyandunmo for The Trusted Advisors

Email us: [email protected]

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