Navigating Nigeria’s Third-Party Funding Landscape?

Contributor: Chibueze .K. James

Introduction

Individuals and businesses may become entangled in legal disputes, necessitating significant financial resources to meet legal fees, court costs, and other associated expenses. They often find themselves embroiled in legal disputes that require considerable financial resources to address legal fees, court costs, and other related expenses.^[1] These disputes may arise from various areas of law, including commercial, property, or contract matters. The burden of funding legal proceedings can place much strain on the parties involved, making it vital to explore alternative mechanisms for managing legal costs and ensuring access to justice.^[2] In this circumstance, obtaining financial support to commence and sustain legal proceedings until their resolution is not merely an option but a necessity.^[3]

Historically, third-party funding was viewed as being against public policy and was consequently regarded as unlawful.^[4] It was perceived as champerty. This principle, in English Common Law, historically refers to the unethical and often illegal practice of financially supporting another party’s litigation in exchange for a share of the proceeds.^[5] Thus, it was deemed to be against public policy because it is likely to encourage frivolous suits. However, attitudes toward maintenance and champerty have shifted over time, and numerous jurisdictions, including Nigeria, have introduced legislation or established case law to regulate or permit third-party funding in certain situations.^[6]

This work will point out the significance in the legal and business sectors, as well as introduce TPF’s relevance in Nigeria’s contemporary economic and legal contexts. It will outline any existing Nigerian legislation or regulations regarding third-party funding. In furtherance, the best strategies for engaging third-party funders will be discussed, as well as the lessons Nigeria can learn from other nations’ TPF practices.

Third-Party Funding and the Arbitration and Mediation Act (AMA) 2023

The AMA represents a substantial development in the legal framework governing TPF. It expressly acknowledges the roles it plays in arbitration. Unlike the repealed Arbitration and Conciliation Act,^[7] the AMA explicitly recognises and affirms the concept of third-party funding. According to the AMA 2023, TPF refers to an arrangement where a party known as the Third Party Funder enters into a contract with a disputing party or law firm representing such party in order to finance (either in part or fully) the cost of proceedings.^[8] A Third Party Funder is a natural or legal person who is not a party to a dispute but enters into a contract with the disputing party to finance the cost of the proceedings.^[9]

It was pointed out earlier in this work that the TPF was historically rooted in the doctrine of maintenance and champerty. However, the AMA 2023 provides that the torts of maintenance and champerty do not apply in relation to third-party funding of arbitration with respect to arbitrations seated in Nigeria and to arbitration-related proceedings in any court in Nigeria.^[10] Thus, it is not prohibited in relation to arbitration proceedings in Nigeria. What is required is that the party benefiting from the TPF shall give written notice to the other party or parties, the arbitral tribunal, and where relevant, the arbitral institution, of the name and address of the Third Party Funder. ^[11]

Importantly, the written notice shall be made for a funding agreement made without delay as soon as the funding agreement is reached either on or before the commencement of the arbitration, at the commencement of the arbitration or after the commencement of the arbitration.^[12]

Challenges Bedevilling Third-Party Funding

1. The High Cost of Funding: Where a party is successful, most funders will expect to recover the amount financed, along with a significant fee.^[13] This may be a percentage of the damages awarded (typically between 20 and 40 per cent), a multiple of the sum provided, or a combination of both.
2. Conflict of Interest: Third-party funding arrangements may give rise to undisclosed conflicts of interest, whether perceived or actual.^[14] Such conflicts may arise, for instance, where a prior relationship exists between the funder and a party or law firm engaged in the proceedings, or between the funder and an arbitrator. Thus, this raises ethical concerns about TPT. These conflicts can lead to costly ancillary disputes, including challenges to the arbitrator’s appointment and applications for disclosure of the funding arrangement.
3. Disclosure and Transparency Issues: The debate concerning the disclosure of third-party funding remains contentious. Advocates for transparency contend that disclosing a funder’s involvement is crucial to avoid undisclosed conflicts.^[15] Conversely, opponents argue that such disclosures could reveal the funder’s strategic insights.^[16] The disparity in disclosure requirements across various jurisdictions further complicates the matter, potentially resulting in unexpected challenges and strategic manoeuvring.
4. Enforcement Challenges in Specific Jurisdictions: Enforcement challenges in specific jurisdictions, particularly in relation to maintenance and champerty, pose a significant obstacle to third-party funding. In certain jurisdictions, maintenance and champerty are still considered unlawful or unethical.^[17] This can result in the courts invalidating third-party funding agreements, rendering them unenforceable. Such jurisdictions may refuse to recognise awards or judgments that involve third-party funding, viewing the arrangement as contrary to public policy. Consequently, funders face heightened risks of being unable to recover their investments, thus discouraging their involvement in such cases.

Lessons Learnt from other Jurisdictions

It is vital to look at other jurisdictions that have accepted TPF as being legal and being a means of financing the cost of proceedings.

The United Kingdom

The use of TPF in the UK is increasing^[18] and it has gradually moved away from the old doctrines of champerty and maintenance, which historically prohibited third-party involvement in litigation for profit.

TPF in the UK is regulated by the Association of Litigation Funders (ALF),^[19] a self-regulatory body that oversees funders. The ALF issues the Code of Conduct for Litigation Funders, which sets out the standards funders must adhere to, including:

1. having adequate capital to meet their funding commitments;
2. not interfering with the control of the litigation or arbitration process;
3. ensuring that their funding agreements are fair and transparent.^[20]

The Code outlines the standards of practice and behaviour required from Funders who are Members of The Association of Litigation Funders of England & Wales.^[21] It applies to the funding of the resolution of Relevant Disputes as disputes whose resolution is to be achieved principally through litigation procedure in the courts of England and Wales.^[22]

Thus, in the UK, it is clear that TPF is self-regulated through the ALF, which provides a Code of Conduct that members must adhere to, thereby focusing on transparency, fairness, and ethical practices.

Singapore

Singapore embraced TPF in 2017 with the amendment of the Civil Law Act (CLA).^[23] Prior to this, TPF funding was deemed unlawful based on the traditional doctrines of maintenance and champerty.^[24] In 2017, lawmakers chose to abolish the common law torts of maintenance and champerty, allowing the use of third-party funding, though initially limited to international arbitration and related proceedings.^[25] Thus, it is valid if they involve a qualifying third-party funder and pertain to specific prescribed dispute resolution proceedings.^[26] In 2021, Singapore expanded the scope of TPF in the country vide the Civil Law (Third-Party Funding) (Amendment) Regulations 2021.^[27] It expands it to include the following (among others):

1. arbitration proceedings;
2. court proceedings arising from or connected with any arbitration proceedings;
3. application for a stay of proceedings under section 6 of the Arbitration Act or International Arbitration Act, and any other application for enforcing an arbitration agreement.
4. proceedings related to the enforcement of an award under the Arbitration Act or a foreign award under the International Arbitration Act;^[28]

From the foregoing, it is evident that Singapore has a comprehensive legal framework for TPF, providing clear rules on its use in international arbitration and related proceedings. This ensures transparency and minimizes legal uncertainties surrounding TPF.

Conclusion

TPF is still a developing practice in Nigeria that is yet to gain wide recognition in dispute resolution.^[29] The Arbitration and Mediation Act 2023 recognizes TPF and allows for a Third Party Funder who has no connection with the dispute, to finance the cost of proceedings while ensuring that it is disclosed to the other party and the arbitral panel.^[30] As the practice gains traction, there is a critical need for a structured regulatory framework to ensure transparency, fairness, and ethical conduct. Thus, the following is hereby recommended:

1. There should be a robust regulatory framework on TPF to ensure that rights and obligations of all parties in a TPF arrangement are clearly spelt out.
2. A formal Code of Conduct for TPF providers that outlines ethical standards, transparency, and best practices can be established.
3. Training and resources should be offered to legal professionals and funders on the ethical and legal implications of TPF.
4. There can be increased awareness and understanding of what TPF entails for the public to have a better view of the concept.

REFERENCE

1. Adedoyin, A, et al, ‘Third-Party Funding Under the New Arbitration And Mediation Act 2023’, <https://www.mondaq.com/nigeria/arbitration-dispute-resolution/1465608/third-party-funding-under-the-new-arbitration-and-mediation-act-2023> accessed 16^th September, 2024. ↑
2. Ibid. ↑
3. Ibid. ↑
4. Ibid. ↑
5. Ibid. ↑
6. Mulheron, R, ‘Champerty and Maintenance in other Jurisdictions’ <https://academic.oup.com/book/46753/chapter-abstract/413309502?redirectedFrom=fulltext> accessed 16^th September, 2024. ↑
7. Arbitration and Conciliation Act, Cap A18 Laws of the Federation of Nigeria 2004. ↑
8. AMA, s 91. ↑
9. Ibid. ↑
10. Ibid, s 61. ↑
11. Ibid, s 62(1). ↑
12. Ibid, s 62 (2). ↑
13. Fulbright, NR, ‘The Third-Party Funding Debate – We Look at the Risks’, <https://www.nortonrosefulbright.com/en/knowledge/publications/6c843d32/the-third-party-funding-debate—we-look-at-the-risks> accessed 16^th September, 2024. ↑
14. Ibid. ↑
15. Bozimo, I & Ekpo, I, ‘Third-Party Funding in Arbitration: Pros and Cons’, <https://broderickbozimo.com/third-party-funding-in-arbitration-pros-and-cons/> accessed 16^th September, 2024: ↑
16. Ibid. ↑
17. Muriithi, PM, ‘Champerty and Maintenance: The Legality of Third-Party Funding in Arbitration in Common Law Jurisdictions’, <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4073476> accessed 17^th September, 2024.

    ↑

18. Zhang, B, ‘TPF in England’, <https://link.springer.com/book/10.1007/978-981-16-1095-0> accessed 17^th September, 2024. ↑
19. Ventures, A, ‘In review: third party litigation funding in United Kingdom (England & Wales)’, <https://www.lexology.com/library/detail.aspx?g=443c68b1-77b7-42a3-af56-ce7597a0f973> accessed 17^th September, 2024.

    ↑

20. Mulheron, R, ‘A Review of Litigation Funding in England and Wales’, <https://legalservicesboard.org.uk/wp-content/uploads/2024/05/A-review-of-litigation-funding.pdf> accessed 17^th September, 2024. ↑
21. Code of Conduct for Litigation Funders 2018, Code 1. ↑
22. Ibid. ↑
23. Lee, I, ‘Litigation Funding Overview – Singapore’, <https://www.lexology.com/library/detail.aspx?g=648ca2b8-19b4-43eb-9106-ee7e98f8fa3a> accessed 17^th September, 2024. ↑
24. Ibid. ↑
25. Ibid. ↑
26. Civil Law (Third-Party Funding) Regulations 2017, s 4 & 5. ↑
27. Wong Wai Chin, C, ‘[International Arbitration] Special Alert: Balancing Desire and Danger: Regulating Third Party Funding in a Global Context’ <https://www.mondaq.com/civil-law/1428960/international-arbitration-special-alert-balancing-desire-and-danger-regulating-third-party-funding-in-a-global-context> accessed 17^th September, 2024. ↑
28. Civil Law (Third-Party Funding) (Amendment) Regulations 2021, s 3. ↑
29. Shasore, O, ‘Arbitration: Third Party Funding, New Frontiers in Dispute Resolution in Nigeria’, <http://www.alp.company/sites/default/files/ARBITRATION%20-THIRD%20PARTY%20FUNDING%20%20..pdf> accessed 17^th September, 2024. ↑
30. Ibid. ↑