THE RISE OF THIRD PARTY FUNDING: ETHICAL IMPLICATIONS AND DISCLOSURE OBLIGATIONS IN COMMERCIAL LITIGATION

INTRODUCTION.

Third-party funding is a non-recourse arrangement in which an independent capital provider finances commercial litigation or arbitration costs in exchange for a share of any recovery, with no repayment due if the claim fails. It has developed into a multi-billion-dollar market that allows corporate claimants to pursue meritorious claims without committing their own capital, while offering funders returns largely uncorrelated with traditional assets.

Third-party funding enhances access to justice by enabling corporate claimants to prosecute meritorious yet capital-intensive commercial claims without deploying their own resources. Operating on a non-recourse basis, it transfers the financial risk of complex litigation to specialized funders, thereby levelling the playing field against better-resourced opponents and permitting the pursuit of claims that might otherwise be abandoned on grounds of cost.

Outside investors who pay for a lawsuit might try to influence how the case is run or when to settle, because they want to protect their money. This can create conflicts with what is best for the person or company bringing the claim. Often, the other side and the court don’t even know a funder is involved. Clear rules requiring disclosure of funding arrangements, plus sensible regulations, are needed to keep the process fair and prevent abuse while still allowing useful funding to continue.

LEGAL FRAMEWORK AND DEVELOPMENT OF THIRD-PARTY FUNDING.

Historically, the common-law doctrines of maintenance and champerty placed restrictions on third-party involvement in litigation. Maintenance refers to the improper financing or support of another person’s legal proceedings without a legitimate interest, while champerty arises where such support is provided in exchange for a share of the proceeds of the action. These doctrines were intended to prevent abuse of court processes, undue interference with litigation and the commercial exploitation of legal disputes. Consequently, third-party funding was traditionally viewed as contrary to public policy and, in certain circumstances, unlawful.

The Arbitration and Mediation Act 2023, through sections 61 and 62, marks a significant departure from this traditional position by recognizing third-party funding in arbitration. Section 61 excludes the application of maintenance and champerty to third-party funding of arbitration seated in Nigeria and related court proceedings, while section 62 requires disclosure of the funders name and address to the opposing party, arbitral tribunal and, where applicable, the arbitral institution. In comparison, the United Kingdom permits litigation funding subject to public policy considerations and industry self-regulation, while Singapore allows it in specified proceedings, subject to statutory requirements. Unlike these jurisdictions, Nigeria’s express statutory framework remains largely confined to arbitration and related court proceedings.

ETHICAL IMPLICATIONS AND DISCLOSURE OBLIGATIONS.

Third-party litigation funding raises ethical concerns, particularly where the interests of the funder differ from those of the litigant or legal practitioner. While the funder may be primarily concerned with recovering its investment, the litigant’s interest lies in obtaining a favourable outcome. This may create disagreements over litigation strategy, settlement or the continuation of proceedings. It is therefore important that funders do not exercise undue control over proceedings or compromise the professional independence of legal practitioners.

Confidentiality and legal professional privilege are also important considerations. In assessing a case for funding, a funder may require access to pleadings, legal opinions and other sensitive client information. Disclosing such materials without adequate safeguards may compromise the client’s interests and raise questions about the protection of privileged communications. Appropriate confidentiality arrangements should therefore be established before such information is shared.

Disclosure is equally necessary to promote transparency and procedural fairness. Under section 62 of the Nigerian Arbitration and Mediation Act 2023, a funded party must disclose the funder’s name and address to the opposing party, arbitral tribunal and, where applicable, the arbitral institution. Although the provision does not expressly require disclosure of the entire funding agreement, identifying the funder enables the tribunal to assess potential conflicts of interest and safeguard the integrity of the proceedings.

RECOMMENDATION

Nigeria needs a clear regulatory framework for third-party litigation funding that extends beyond arbitration to other court proceedings. Such a framework should require parties to disclose the identity of their funders and relevant terms of the funding arrangements where necessary to identify potential conflicts of interest. It should also set clear limits on the extent of a funders involvement in litigation strategy, legal representation and settlement decisions to ensure that legal practitioners retain their professional independence.

There should also be adequate protection for client confidentiality and legal professional privilege when information is shared with funders. In addition, appropriate regulatory and accountability measures should be introduced to ensure that funders operate responsibly and transparently. These reforms would help prevent abuse, protect litigants and provide greater certainty for the development of third-party litigation funding in Nigeria.

CONCLUSION.

Third-party litigation funding has become an important feature of modern commercial dispute resolution, providing parties with greater access to justice by easing the financial burden of litigation. However, its growing acceptance must be accompanied by adequate safeguards to address conflicts of interest, protect professional independence and preserve confidentiality. Although the Arbitration and Mediation Act 2023 provides a framework for funding in arbitration, further regulatory reforms are necessary to ensure transparency, accountability and the proper administration of justice in Nigeria.

This article is for information purposes only. Please seek expert guidance for your specific matters.

For expert guidance on arbitration, litigation, and dispute resolution matters, please contact our specialized team in the Litigation & Dispute Resolution Practice , Part of our full-service offering across Lagos, Abuja, and Abakaliki. Please contact our partner Hans Offia on [email protected]

REFERENCES.

Association of Litigation Funders of England and Wales, Code of Conduct for Litigation Funders (2011) > https://www.judiciary.uk/wp-content/uploads/JCO/Documents/CJC/Publications/CJC+papers/Code+of+Conduct+for+Litigation+Funders+(November+2011).pdf?utm_source

Civil Law Act 1909 (Singapore), sections 5A and 5B, dealing with maintenance, champerty and third-party funding.

Civil Law (Third-Party Funding) Regulations 2017 (Singapore), particularly regulations 3 and 4, prescribing eligible proceedings and qualifying funder requirements.

Criminal Law Act 1967, sections 13 and 14, abolishing the torts and criminal offences of maintenance and champerty while preserving public policy considerations.

Federal Republic of Nigeria, Arbitration and Mediation Act 2023, particularly sections 61 and 62.

International Council for Commercial Arbitration, Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (ICCA Reports No 4, April 2018), Chapters 4 and 5, particularly pp 93–96 and 113–117 > https://cdn.arbitration-icca.org/s3fs-public/document/media_document/Third-Party-Funding-Report%20.pdf?utm_source

International Bar Association, Guidelines on Conflicts of Interest in International Arbitration (2024), General Standard 6 > https://www.ibanet.org/resources?utm_source

Keating Chambers, Arbitration and Mediation Act 2023 – Nigeria, commentary on the introduction and regulation of third-party funding.

Thomson Reuters Practical Law – Third-Party Litigation Financing in the US (Practice Note / 2025 Journal version) and Third-Party Litigation Financing: Ethical Issues for Attorneys.

United States Government Accountability Office (GAO) – Third-Party Litigation Financing: Market Characteristics, Data, and Trends (GAO-23-105210, publicly released January 2023)> https://www.gao.gov/products/gao-23-105210