Litigation funding in English-seated commercial arbitration

Litigation funding is an arrangement whereby a third party pays a litigant's legal costs in exchange for a financial return should the case succeed.  Typically, the claimant will be the funded party: if the case is lost, the funder will receive nothing and the funded party will owe nothing for the capital advanced; if the case is won, the funder will receive an uplift on its investment.

Litigation funding is lawful in connection with legal proceedings in England, including English-seated arbitrations.  However, as a result of the Supreme Court's decision in PACCAR^[1] (in which Travers Smith acted for the successful appellant), third-party funders are generally not permitted to receive a return calculated on the basis of the damages recovered.  Litigation funders in England are therefore typically compensated by way of a return calculated as a multiple on amounts invested or committed.  However, even a return calculated on the basis of a multiple is nonetheless often subject to a cap calculated as a proportion of damages recovered. 

The rules of the major arbitral institutions do not restrict the rights of parties to access litigation funding.  However, many of the major institutions now require parties to disclose at least the existence of litigation funding arrangements.  For example:

1. The ICC Arbitration Rules 2021 (Art 27) require that the existence of any funding arrangement and the funder's identity be disclosed "promptly".
   
   
2. The HKIAC Arbitration Rules 2024 (Art 44) require a similar disclosure to be made at the outset of the proceedings (if litigation funding is already in place), or as soon as practicable after the agreement is made (if funding is secured in the course of the proceedings).
   
   
3. The SIAC Rules 2025 (Art 38.1) similarly require parties to disclose the existence of funding arrangements and the funder's identity at the outset of proceedings or as soon as practicable after the agreement is made, as appropriate.  Pursuant to Article 38.4, after the constitution of the Tribunal, parties are expressly prohibited from entering into funding arrangements which may give rise to a conflict of interest with the Tribunal, and may be directed to withdraw from such arrangements if they do so.
   
   
4. The LCIA Arbitration Rules 2020 do not make any express provision for litigation funding.  However, in the course of its ongoing Rules Revision Consultation the LCIA has sought submissions on disclosure requirements and tribunal powers in respect of litigation funding^[2].
   
   
5. Tribunals, including those constituted under the LCIA Arbitration Rules 2020, may also order disclosure on an ad hoc basis where appropriate.

The primary reason for requiring the disclosure of the existence of funding arrangements in arbitration proceedings, and the identity of the funder, is the avoidance of conflicts affecting arbitrators. Funders — particularly large institutional bodies with diversified portfolios — may have previous or current relationships with proposed arbitrators that would not be apparent without such disclosure.  In light of that potential conflict, a claimant that fails to make an appropriate disclosure of litigation funding arrangements risks a challenge to the enforcement of any subsequent award it may receive in the proceedings.  Claimants may therefore wish to consider voluntary disclosure of funding arrangements even where that is not ordered or required by institutional rules, to avoid potential challenges at the enforcement stage. 

Although some institutional rules require disclosure of the existence and identity of third-party funders, no major institutional framework requires, as a matter of course, the disclosure of funding terms (such as the funder's return, the waterfall structure, or any control provisions).  However, a funded party may be required to make such a disclosure in appropriate circumstances, most notably (and similarly to court litigation) in response to an application for security for costs, in order to demonstrate the claimant's ability to satisfy an award for adverse costs should the claim be unsuccessful.

A notable difference between the approach to funding in English-seated arbitration proceedings and proceedings before the English court, is the possibility of recovering the costs of funding from the unsuccessful party.  

In Essar Oilfields Services Limited v Norscot Rig Management Pty Ltd^[3], the High Court confirmed that an arbitral tribunal has the power to award a successful party's costs of obtaining third party litigation funding, on the basis that they are "other costs" of the arbitration for the purposes of s 59(1)(c) Arbitration Act 1996.  Most notably, that includes recovery of the funder's return, which would not ordinarily be recoverable in proceedings before the English courts.  

The possibility of recovery of funding costs is a potentially significant benefit for funded parties to arbitration proceedings.  However, any order of such costs will – subject to any agreement between the parties to the contrary – always be at the discretion of the tribunal, to be exercised on the basis of the facts of the individual case, and the tribunal will not award costs that are not appropriate in the circumstances^[4]. Parties should not therefore proceed on the assumption that funding costs will always be recoverable, or recoverable in their entirety, in the event that they are successful in the proceedings.    

There are some practical considerations to bear in mind when seeking litigation funding, whether for arbitration or court litigation:

1. A key consideration will be the size and merits of the relevant claim.  Many funders will not fund claims with a realistic prospect of recovery of less than £10 million, and will require independent merits advice supporting the claim (in England, often from a King's Counsel who is not involved in the proceedings).
   
   
2. It is also important to ensure that privilege is protected throughout the due diligence process. Relevant materials should only be shared with a prospective funder under a properly structured common interest and confidentiality agreement established at the outset. Failure to do this risks waiving privilege, which counterparties may later seek to exploit.
   
   
3. Ensure that any funder is financially robust and has sufficient capital reserves to support the proceedings for their duration.  A complex arbitration may run for many years, and even longer if enforcement proves to be difficult.  A funder that becomes insolvent or winds down its fund mid-proceedings may leave a party exposed.
   
   
4. A funder will often seek to retain a right to terminate mid-proceedings on the basis of a reassessment of the merits, which can present a significant risk for the funded parties.  It is therefore important to ensure that any such right is subject to clearly defined trigger criteria, cure periods, and run-off funding obligations to facilitate a transition to another funder.
   
   
5. On the funding agreement itself, the waterfall — which governs the priority of recovery between funder, funded party, and counsel — should be stress-tested against a range of outcome scenarios, including partial success and partial recovery.  Where adverse costs exposure is significant, consider whether it would be appropriate to obtain After-the-Event insurance alongside litigation funding in order to manage potential risk.

The Civil Justice Council has recently reviewed the current scheme of regulation for litigation funding in England.  Although its Final Report^[5] proposed the introduction of further regulation for litigation funding for English court proceedings, it recommended that English-seated arbitrations be exempted from any such scheme.  Similarly, the Arbitration Act 2025 – which amended and updated the Arbitration Act 1996 – did not lead to any change in the position or role of litigation funding for English-seated arbitrations.  As a result, it appears that litigation funding will remain an established feature of arbitration in England for the foreseeable future.

[1] R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and Ors [2023] UKSC 28.
[2] See: https://www.lcia.org/News/lcia-rules-revision-consultation.aspx. 
[3] [2016] EWHC 2361 (Comm), para 70.
[4] Arbitration Act 1996, s 61(1) and (2).
[5] Review of Litigation Funding – Final Report, Civil Justice Council, paragraph 2.4, http://judiciary.uk/wp-content/uploads/2025/06/CJC-Review-of-Litigation-Funding-Final-Report.pdf.