Third‑party Funding As Access to Justice in Nigerian Arbitration

Third‑party funding as access to justice in Nigerian arbitration has moved from academic debate to statutory reality. The Arbitration and Mediation Act 2023 (AMA 2023), which received presidential assent on 26 May 2023, introduced dedicated provisions, principally Sections 61 and 62, that expressly recognise third‑party funding (TPF) in arbitrations seated in Nigeria, abolish the common‑law torts of maintenance and champerty in that context, and impose disclosure obligations on funded parties. At Vantage Attorneys LP, we advise corporates, funders and arbitration counsel on the practical implications of these changes, and in my view the AMA 2023 represents one of the most significant pro‑access reforms in Nigerian dispute resolution in decades.

This article explains what TPF is, why it matters for access to justice, what the new Act requires, and what counsel, funders and businesses should do now.

What Is Third‑Party Funding in Arbitration?

Third‑party funding is a non‑recourse financing arrangement under which an entity with no prior connection to a dispute agrees to fund part or all of a party’s arbitration costs in return for a share of any award or settlement. The defining feature is the non‑recourse element: if the funded party loses, the funder recovers nothing and bears the financial loss. If the funded party succeeds, the funder receives its agreed return, typically a multiple of the amount funded or a percentage of the recovery.

TPF is distinct from legal aid, pro bono representation and ordinary lending. A commercial funder undertakes genuine litigation risk; its return is contingent entirely on the outcome. In practice, TPF covers counsel fees, arbitrator fees, institutional charges, expert witness costs and, increasingly, enforcement expenses.

Typical Funding Structures and Returns

• Single‑case funding. The funder finances one arbitration claim in exchange for a return of two to four times the amount deployed, or 15–40 per cent of the recovery.
• Portfolio funding. Multiple claims are bundled, allowing risk diversification; the funder’s return is calculated across the portfolio rather than per claim.
• After‑the‑event (ATE) insurance. An insurer underwrites the risk of adverse costs orders, protecting the funded party and indirectly the funder against downside exposure.

Why Arbitration Can Be Inaccessible, the Cost Barrier and Access to Justice

Arbitration is often promoted as a faster, more flexible alternative to court litigation. However, unlike litigation, where the state absorbs the cost of judges, courtrooms and administrative infrastructure, arbitration is entirely party‑funded. Every element of the process carries a direct price tag: institutional administration fees, arbitrator remuneration, hearing‑room hire, transcription, expert reports, counsel fees, and travel. For a mid‑value commercial dispute, total costs can easily reach hundreds of thousands of US dollars; complex, multi‑party disputes routinely exceed several million.

In Nigeria, this cost structure creates a pronounced access‑to‑justice gap. A claimant with a meritorious claim against a well‑resourced respondent may be unable to initiate or sustain proceedings simply because of funding constraints. The imbalance is compounded by the length of proceedings; even a well‑managed arbitration can take twelve to twenty‑four months, during which legal costs compound.

Who Is Most Affected?

The parties most disadvantaged by high arbitration costs are small and medium‑sized enterprises (SMEs), minority shareholders, individual investors, and contractors in the oil‑and‑gas and construction sectors. These claimants often hold strong legal positions but lack the liquidity to prosecute them. Without access to external funding, meritorious claims go unresolved, or are settled on terms that heavily favour the better‑capitalised party. The result is a system that, despite its procedural merits, effectively rations justice by financial capacity. It is this structural inequity that third‑party funding is designed to correct, and that the AMA 2023 now facilitates within Nigerian‑seated arbitrations.

The Legal Change: Arbitration and Mediation Act 2023 and Third‑Party Funding in Nigeria

Before the AMA 2023, the legality of third‑party funding in Nigeria was uncertain. The common‑law doctrines of maintenance (supporting another’s litigation without justification) and champerty (funding litigation in return for a share of the proceeds) had not been expressly abolished by statute, and there was no clear judicial authority confirming that commercial TPF was permissible in arbitration. The AMA 2023 resolves that ambiguity decisively.

Section 61 of the AMA 2023 provides that the torts of maintenance and champerty shall not apply to third‑party funding agreements in connection with arbitral proceedings under the Act. This is a statutory safe harbour: funders can now invest in Nigerian‑seated arbitrations without fear that their agreements will be struck down as contrary to public policy. The Act defines a “Third‑Party Funder” as a person who is not a party to the arbitral proceedings but who enters into a funding agreement to finance part or all of the costs of those proceedings in return for a share of any award or settlement.

Section 62 imposes disclosure obligations. A funded party is required to disclose the existence of a third‑party funding agreement, the identity of the funder, and the funder’s interest in the outcome of the proceedings. The tribunal, in turn, is empowered to make procedural orders relating to such disclosure, including ordering further particulars where necessary to address conflicts of interest or to consider applications for security for costs.

The practical effect is significant. Nigeria has joined a small but growing group of jurisdictions, including Singapore, Hong Kong and England, that have enacted express TPF frameworks for arbitration. In my experience, this legislative clarity is already encouraging international funders to evaluate Nigerian‑seated claims more seriously.

Key AMA 2023 Provisions at a Glance

How Third‑Party Funding Improves Access to Justice in Nigerian Arbitration

The access‑to‑justice case for TPF rests on several interconnected mechanisms. First, TPF enables claimants to pursue claims they could not otherwise afford. A claimant with a strong case but limited resources can secure non‑recourse funding and prosecute the claim on its merits rather than being forced into a disadvantageous settlement. Second, TPF transfers financial risk from the claimant to a professional funder, which is better positioned to absorb that risk across a diversified portfolio. Third, the involvement of a funder typically improves case preparation: funders subject claims to rigorous due diligence before committing capital, which means only meritorious cases proceed, and they proceed with adequate resourcing.

Academic literature supports these observations. Research published through the SSRN and Zenodo repositories has found that TPF can significantly boost funding for arbitration proceedings, primarily benefiting claimants, and is associated with enhanced access to justice. Separately, scholarly work from Boston University School of Law has noted that third‑party funding shifts the balance of resources in favour of funded parties, enabling claims that would otherwise be abandoned for purely financial reasons.

In the Nigerian context, these benefits are especially salient. Commercial disputes in the oil and gas, construction, and banking sectors frequently involve claimants, contractors, subcontractors, minority shareholders, who hold strong positions on the merits but face opponents with far greater financial depth. Before the AMA 2023, those claimants had few options. Now, as I see in practice, the combination of statutory permission and growing funder interest in the African market is beginning to reshape how parties evaluate and fund their arbitration strategies in Nigeria.

Practical Consequences for Arbitration Proceedings in Nigeria

The AMA 2023’s TPF provisions introduce concrete procedural changes that counsel, funded parties and tribunals must navigate. Below, I set out the key areas of practical impact.

Disclosure of Third‑Party Funding in Nigerian Arbitrations

Under Section 62, the funded party must disclose the existence of the TPF arrangement at the earliest practicable stage. In practice, disclosure should be made at or before the first procedural conference. The disclosure should identify the funder by name, describe the nature of the funding arrangement in general terms, and confirm the funder’s financial interest in the outcome. It need not disclose the specific financial terms (fee percentages, caps or funding limits) unless the tribunal orders otherwise.

From what I am seeing in practice, tribunals are expected to issue procedural orders that standardise this disclosure process. The following model language can serve as a starting point:

“The Claimant hereby discloses, pursuant to Section 62 of the Arbitration and Mediation Act 2023, that it has entered into a third‑party funding agreement with [Funder Name], a company incorporated in [jurisdiction]. [Funder Name] has agreed to finance the Claimant’s costs in this arbitration in consideration of a share of any award or settlement recovered. [Funder Name] has no interest in the subject matter of the dispute beyond its rights under the funding agreement.”

Security for Costs and Funder Exposure

Disclosure of TPF will frequently prompt the opposing party to apply for security for costs. The argument is straightforward: if a funded claimant loses, can it satisfy an adverse costs order, or will the respondent be left with an unenforceable costs award against an impecunious party? The tribunal has discretion to order security and may require the funder to provide an undertaking or affidavit confirming its willingness and ability to cover adverse costs.

In my view, this is an area where early and transparent engagement between funder, counsel and the tribunal is essential. Funders who proactively offer adverse‑costs undertakings will reduce procedural delay and build credibility with the tribunal. Conversely, any perception that funding structures are being used to insulate claimants from cost consequences will invite adverse inferences.

Tribunal Powers and Typical Timelines

The tribunal’s powers under the AMA 2023 include ordering disclosure, requiring further information about the funder, and making appropriate costs orders. Tribunals are also likely to address TPF at early procedural hearings, treating it as a case‑management matter alongside document production, witness statements and hearing schedules. Where enforcement of any resulting award is likely to involve cross‑border proceedings, for instance, under the New York Convention, the existence and structure of the TPF arrangement may also become relevant at the recognition and enforcement stage.

Roles for Banks, Private Equity and Insurers, Commercial Models and Risk Controls

The AMA 2023 does not restrict the type of entity that may act as a third‑party funder. In practice, three categories of participant are emerging: specialist litigation funders, private equity and alternative asset managers, and insurers offering after‑the‑event (ATE) coverage.

Specialist litigation funders evaluate claims on their legal merits, enforceability of any award, and collectability from the respondent. Their investment decision is analogous to underwriting: they deploy capital against a probability‑weighted expected return. Private equity firms may fund claims directly or invest in portfolios of claims managed by specialist funders. Insurers typically participate through ATE policies, which protect the funded party (and indirectly the funder) against adverse costs exposure. Banks may also participate through structured lending facilities, though the non‑recourse nature of traditional TPF distinguishes it from balance‑sheet lending.

Funder Due Diligence Checklist

Funders entering the Nigerian market should also consider formal requirements for arbitration agreements and whether stamp duty or other regulatory requirements apply to their funding documentation.

Risks, Ethical Issues and Safeguards for Counsel

TPF introduces distinct ethical and professional challenges for counsel. The most significant relate to conflicts of interest, confidentiality and the risk of funder interference in litigation conduct.

• Conflicts of interest. Counsel must ensure that the funder’s interests do not compromise the duty owed to the client. In particular, counsel should not accept instructions from the funder, and the funding agreement should make clear that the client, not the funder, directs litigation strategy.
• Confidentiality and privilege. Sharing case materials with a funder during due diligence may risk waiver of privilege. Counsel should structure information‑sharing through non‑disclosure agreements and, where possible, through privilege‑preserving mechanisms such as common‑interest arrangements.
• Funder influence. Professional rules require counsel to exercise independent judgement. Funding agreements that give the funder a veto over settlement, or that tie counsel’s fees to the funder’s return, create problematic incentive structures that should be avoided.
• Professional regulation. The Nigerian Bar Association’s Rules of Professional Conduct do not yet contain specific guidance on TPF. In my view, regulatory guidance is likely to follow as TPF becomes more common, and counsel should anticipate this by adopting best‑practice standards from jurisdictions such as England and Singapore.

At Vantage Attorneys LP, we recommend that counsel entering into funded engagements obtain a separate written protocol, signed by client, counsel and funder, that expressly preserves counsel’s independence, defines information‑sharing boundaries, and confirms the client’s sole authority over settlement decisions.

Practical Checklist: For Counsel, Corporates and Funders

For claimants considering TPF:

• Assess whether your claim meets commercial funding thresholds (typically a minimum claim value and a reasonable prospect of success).
• Engage experienced arbitration counsel early, funders will require an independent legal assessment.
• Ensure the funding agreement preserves your authority over settlement and litigation strategy.
• Budget for disclosure obligations under Section 62 and prepare disclosure language in advance.
• Consider ATE insurance to cover adverse costs exposure.
• Verify the funder’s track record, capitalisation and regulatory standing.

For respondents facing a funded claimant:

• Request full disclosure of the TPF arrangement at the earliest procedural stage.
• Consider applying for security for costs, supported by evidence of the claimant’s financial position.
• Investigate the funder’s willingness to provide an adverse‑costs undertaking.
• Monitor for any indication that the funder, rather than the claimant, is directing the proceedings.
• Assess whether the funder’s involvement affects enforcement strategy.

For funders entering the Nigerian market:

• Conduct rigorous due diligence on legal merits, enforceability and collectability before committing capital.
• Structure funding agreements to comply with the AMA 2023 definitions and disclosure requirements.
• Engage local Nigerian counsel for jurisdiction‑specific advice on enforcement, tax and regulatory matters.
• Build adverse‑costs coverage into the funding structure, either through direct undertakings or ATE insurance.
• Ensure AML and sanctions compliance across all counterparties.
• Establish clear contractual boundaries around settlement authority, confidentiality and fee waterfalls.

Conclusion: Third‑Party Funding as Access to Justice in Nigerian Arbitration

The Arbitration and Mediation Act 2023 has created a clear, workable legal framework for third‑party funding as access to justice in Nigerian arbitration. By abolishing the common‑law obstacles of maintenance and champerty, and by introducing proportionate disclosure obligations, the Act enables parties with meritorious claims to access the resources they need to pursue justice through arbitration. For funders, the Act provides statutory certainty. For counsel, it introduces new professional responsibilities. And for businesses on both sides of a dispute, it changes the strategic calculus of arbitration in Nigeria fundamentally.

My advice to clients is straightforward: understand the new framework, prepare for disclosure, and engage early, with counsel, with funders, and with the tribunal, to ensure that TPF enhances rather than complicates the arbitral process.

Sources

1. Arbitration and Mediation Act, 2023, Full Text
2. International Bar Association, The Nigerian Arbitration and Mediation Act 2023
3. UNCITRAL, Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
4. New York Convention, Official Text
5. Frontline Bar Journal, Commentary on the Arbitration and Mediation Act 2023