THIRD-PARTY FUNDING

INTRODUCTION

The costs of conducting the arbitration — arbitrator fees, secretary fees, expert fees, and other incidental charges such as venue fees and so on – are one of the most important aspects of the process. There is no doubt that parties, especially claimants, are sometimes hesitant to initiate arbitration procedures due to the financial ramifications. As a result, in a few countries throughout the world, such as Singapore and Hong Kong, third-party funding in arbitration has become more common.

Nigeria currently lacks third-party funding. In this post, we'll take a quick look at Nigeria's current legal framework for third-party fundraising.

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CONCEPT

Third-party funding is an idea that has been around for a long time.

Third-party funding is an arrangement in which a party receives full or partial funding (i.e. legal fees and expenses) for the proceedings in exchange for a portion of or the entire amount recovered after the dispute is resolved by an independent, commercial funder who has no prior connection to the parties' dispute. The rationale for this approach is typically thought to be based on the financial necessity of a party seeking funding to sponsor its claims.

One of the numerous benefits of third-party funding is that it allows access to justice in cases when the costs of initiating the arbitral procedures would otherwise be prohibitive for a party with a valid claim. While it is possible to argue that third-party funding encourages the initiation of frivolous arbitration actions, this is rarely the case because most third-party funding agreements are structured so that the funder carries all or part of the losses if the claim is unsuccessful. Before giving funds, most funders will conduct rigorous due diligence on the claim's quality and amount, as well as its chances of victory, to ensure that it has a good probability of success.

Third-party funding arrangements, on the other hand, may raise concerns about confidentiality and disclosure (especially when information is exchanged between the claimant and the funder), as well as potential conflicts of interest (for example, reconciling the interests of the funder with the interest of the claimant during the arbitration proceedings).

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Third-party fundraising is becoming more legal around the world.

Third-party funding (TPF) entails an independent commercial fund that has no prior ties to the case stepping in to fund the proceedings in exchange for a share of any damages awarded. This approach has grown in popularity in several countries throughout the world over the last decade. However, the traditional theories of champerty and maintenance, which might criminalize the involvement of a third-party financier, have caused problems in several Common Law states.

Clients frequently view the option of using TPF as an attraction, while clients view the inability to do so as a drawback of choosing a jurisdiction for arbitration. Therefore, it is not a coincidence that TPF in international arbitration has just been made permissible in Hong Kong and Singapore. Both jurisdictions applied a methodical self-regulatory approach when legalizing funding and a "soft touch" approach when evaluating their legislation. According to this strategy, TPF's operations in the jurisdictions will be influenced by market behavior and laxer regulation from relevant authorities. Nigeria is considering allowing TPF, similar to Hong Kong and Singapore, but it is going about it in a different way.

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The regulation of third-party funding in Nigeria and its usage

The Present Situation

In Nigeria, the practice of third-party fundraising is uncommon. The common law doctrine of champerty and maintenance—intended to deter third parties who lack discernible legal interests from interfering in legal proceedings—remains applicable in Nigeria as part of received English law, notwithstanding the fact that there is no legislation that expressly permits or prohibits third-party funding as of the time of writing. Nigerian law is still governed by received English law principles, with the exception of those that have been repealed or altered by legislation or court decisions.

In Oloko v. Ube, the respondent's attorney had submitted a bill for "Winds of change are expected to blow.

"It is champertous for a solicitor to agree to contribute money to litigation in exchange for a portion of the proceeds." Even his out-of-pocket fees are not recoverable from the client by the lawyer.

The Nigerian Court of Appeal added the following in Egbor & Anor v. Ogbebor:

It is undisputedly established law that it is champertous when one person decides to pursue and pay the costs of another's lawsuit in exchange for a part of the settlement money. The champertous relationship, however, must be supported by the facts and cannot be based on an individual's impression of what he believes the relationship to be. To put it another way, the facts must demonstrate that the Respondent volunteered to continue the action by covering the litigation costs in exchange for a share of the settlement in order for the case to be considered champertous.

The aforementioned examples include legal disputes that were litigated in Nigerian courts. Additionally, there is no case law regarding third-party funding in arbitrations with Nigeria as the seat. However, there is a danger that such an agreement may be deemed to be champertous and so unenforceable in the absence of a clear statutory provision or body of case law specifically endorsing third-party funding in arbitration proceedings.

In conclusion, in the field of international arbitration, third-party funding has become common. The practice appears to be here to stay, based on all evidence. There is currently no legislation or judicial pronouncement in Nigeria that clearly restricts the use of third-party funds. Nonetheless, in Nigeria, the common law doctrine of champerty and maintenance is still in effect, casting questions on the legality of third-party funding agreements. If the Arbitration and Mediation Bill of 2020 is passed into law in its current form, however, third-party funding will become increasingly common.

By: Ibukun Spaine (Intern at the Lagos Court of Arbitration)