Third party funding has tremendously become favored in international arbitration since parties, irrespective of their financial status have been challenged by the excessive costs of international arbitration proceedings. Today by utilizing from third party funding, parties whether or not they are in financial distress are looking for funders to cover the cost of their arbitration procedure.

Basically, third party funding or financing may be defined as where someone who is not involved in an arbitration procedure provides funds to a party to that arbitration in exchange for an agreed return.[1] Generally, this funding covers party’s legal fees and expenses arising from arbitration. As an exception to typical practice of third party funding, the funder may also agree to pay both parties’ costs if the funded party is so ordered, and provide security for the opponent's costs. 

Funder and funded parties may agree upon the benefit of funders in return. Funders who have provided financial security may receive a certain percentage of final awarded compensation, a fixed fee or a mechanism which covers the both. [2] Thus, funding may result in the issuance of equity or debt instruments, transfer of a claim to the funder, funder gaining control over the party and dispute strategy and management. [3] However, even if the funder involves in some arbitration procedures such as appointment of arbitrators and choosing the lawyers; the funder does not become a party to the arbitration.

Advantages and Disadvantages

A potential claimant in arbitration may seek a third-party funder for various reasons such as: (i) necessity, (ii) risk management and (iii) validation. Third party financing may be necessary when the arbitration is too expensive and parties to a dispute may not afford the whole amount of aroused procedural costs. It enables parties to initiate their meritorious claims without any financial concern. However, funding over cases stemming from unmeritorious claims are less. Even so, third party funders conduct due diligence on each case, weighing the merits of the parties’ respective claims and recovery before deciding on funding and making an offer. So that, parties even benefit from this further analysis on the merits of their case.[4] This objective analysis conducted by potential funders may assist the claimants to shape their case strategy and may also encourage early settlement.[5]

Third party funders are also attracted by international arbitration proceedings since the bill of litigation in arbitration is expensive and the trial process is considerably speedy than national jurisdictions. Besides, some procedural issues in arbitration such as collection of evidence, require lower costs and the result in arbitration is more predictable than state judiciary. [6]These have paved the way for growth of professional funders actively advertise and market their services for funding international arbitration proceedings.

On the other hand, there are disadvantages to using third party funding. A successful claimant will generally have to pay a significant proportion of recoveries to the funder. Despite the fact that third party funders are prohibited from taking undue control in stages of arbitration, funded parties may lose their autonomy, in particular when considering settlement as funders may reserve the right of approval of the settlement. [7]

Lastly, doubts may arise as to the impartiality of arbitrators when an arbitrator of a dispute, where a third party funders exist, acts as counsel to another party in another dispute; funded by the same third party. So, third party funder may endanger the impartiality of the proceedings in different scenarios.[8]

Security for Costs

As use of third-party funding by parties in international arbitration practice is getting more common, certain procedural problems occur. One of those problems relates to security for costs. The question arises should the arbitrators order security for costs upon the request of a party where the other party is benefiting from third party funder.

Security for costs in international arbitration proceedings is defined as a provisional measure requested by the respondent to guarantee that legal fees imposed against him/her shall be paid by the opponent, in case a decision is brought in favor of the respondent at the end of the proceedings. [9]

In the doctrine, there are different views regarding the impacts of third-party funding to the decision of arbitrators against security for costs. One of those views claims that existence of a third party funder in an arbitration proceeding should not be taken into account when deciding upon security for costs. Such view is based on the large discretion of arbitrators to rule upon the distribution of legal fees at the end of the proceedings and generally in practice, arbitrators do not take into account the third party funders when deciding on this matter.

As opposed, another view in the doctrine claims that arbitrators should take into account the agreement signed between parties and third party funders when deciding on security for costs. Supporters of this view further claim that if the funded party does not have sources to initiate arbitration proceedings without the shoulder of a third party funder; ruling on security for costs shall be the only resort thus, regulations regarding disclosure of certain provisions of third party funding agreements shall be made in both international arbitration rules and national arbitration laws.  Consequently, in light of the arguments cited, it is recommended for the parties in an arbitration proceeding where the opponent party is using third party funding to request for security for costs in the beginning of the procedure. 

To conclude, number of professional third party funders and range of institutions which are willing to finance arbitration are increasing rapidly. Insurance companies, investment banks, hedge funds and law firms have already entered this market. In this perspective, third party funding is a fast growing industry and will certainly continue to play an extensive role in international arbitration proceedings in the near future.

[1] Third party funding in international arbitration,


[2] Egemenoğlu, E. (2014) Third Party Funding in International Invesment Arbitration, Egemenoğlu Newsletter, p.54-55.

[3] Çelikboya, L. (2015) Third Party Funders in Arbitration (Access:

[4] Norton Rose Fulbright, International Arbitration Report, 2017, Issue 7.


[5] Third party funding in international arbitration,


[6] Efeçınar, C. (2018) Uluslararası Tahkimde Üçüncü Kişi Finansmanının Masraflar için Teminat Gösterilmesi Kararının Verilmesine Etkileri, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi, Cilt 20, Sayı 2, syf. 33-62.

[7] Third party funding in international arbitration,


[8] Çelikboya, L. (2015) Third Party Funders in Arbitration (Access:

[9] Efeçınar, C. (2018) Uluslararası Tahkimde Üçüncü Kişi Finansmanının Masraflar için Teminat Gösterilmesi Kararının Verilmesine Etkileri, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi, Cilt 20, Sayı 2, syf. 33-62.

Author: Ezgi Ceren Aydoğmuş