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By Babayemi Olaniyan Esq, LL.M, Notary Public, ACIArb (UK), AICMC, ACIS, ABR & Nwizu Obianuju
Introduction
Arbitration was originally intended to be a cost-effective way to access justice. However, over the years, it has become a very expensive form of dispute resolution, sometimes even more costly than litigation, especially when the ‘place of arbitration’ is in a foreign country. The escalating costs raise concerns about the fate of those who cannot afford either judicial processes or arbitration. In arbitration, in particular, the lack or insufficiency of capital to pursue claims is a significant barrier to justice. The purpose of law is to ensure justice, as reflected in the maxim ‘Fiat justitia ruat caelum’ (Let justice be done though the heavens fall). But how can justice be done if people cannot even access an affordable dispute resolution method? In response to this question, third-party funding (TPF) is viewed as an absolute necessity. Recognizing its importance, third-party funding has now been incorporated into the relatively recent Arbitration and Mediation Act 2023, ensuring access to justice even for those who cannot afford it.
Meaning of Third-party Funding
Third-party funding (TPF) is defined as an arrangement where an independent, commercial funder, who has no prior connection to the dispute, provides full or partial financial support (covering legal fees and expenses) to a party involved in the proceedings, in return for a portion of or the full amount recovered by that party after the dispute is resolved.[1] This arrangement can be seen as a form of investment, as the potential return is usually higher than the initial funding amount, thus attracting funders like banks, insurance companies, or even wealthy individuals.[2]
Third-party funding under the Arbitration and Mediation Act 2023
Prior to the 2023 Act, third-party funding (TPF) was primarily a feature of international commercial arbitration. However, the new Act, in Section 61, strategically abolishes the Common Law Doctrines of Maintenance and Champerty. It states that the torts of maintenance and champerty, including common barratry, do not apply to third-party funding of arbitration. This section applies to arbitrations seated in Nigeria and to arbitration-related proceedings in any Nigerian court. This progressive move marks a significant shift from the previous legal framework, bringing Nigerian law in line with jurisdictions such as Singapore and Hong Kong.[3]
However, this seemingly vague provision has ignited comments suggesting that the mere mention of third-party funding does not automatically make the concept applicable in Nigeria.[4] This view is unduly restrictive and, frankly, erroneous. The interpretation section clearly defines relevant terms relating to third-party funding and it would be disrespectful to insinuate that the draftsmen wasted their effort. Under the interpretation section, a third-party funding agreement is a contract between the Third-Party Funder and a disputing party, an affiliate of that party, or a law firm representing that party, in order to finance part or all of the cost of the proceedings, either individually or as part of a selected range of cases, and the financing is provided either through a donation or grant or in return for reimbursement dependent on the outcome of the dispute or in return for a premium payment.[5] While, a third-party funder is regarded as any natural or legal person who is not a party to the dispute but who enters into an agreement either with a disputing party, an affiliate of that party, or a law firm representing that party, in order to finance part or all of the cost of the proceedings, either individually or as part of a selected range of cases, and the financing is provided either through a donation or grant or in return for reimbursement dependent on the outcome of the dispute or in return for a premium payment.[6]
The Act does not specify the form and conditions for the validity of third-party funding (TPF) agreements, but it does require the disclosure of the existence of such arrangements. The significance of disclosing the existence of third-party funding (TPF) cannot be overstated, as it can impact several procedural issues, including the impartiality and independence of arbitrators in the context of third–party funding, security for costs against funded parties, and the awarding of costs when third-party funders are involved.[7]
Section 62(1) of the Arbitration and Mediation Act 2023 mandates that the party benefiting from a TPF agreement must provide written notice to the other party or parties, the arbitral tribunal, and, if applicable, the arbitral institution, disclosing the name and address of the third-party funder. Subsection 2 further requires that this written notice be given without delay once the funding agreement is made, whether before, at the commencement of, or after the commencement of the arbitration. Subsection 3 addresses situations where a respondent requests security for costs based on the disclosure of TPF. In such cases, the arbitral tribunal may permit the funded party or its counsel to submit an affidavit indicating whether the funder has agreed to cover adverse cost orders, and this affidavit will be a relevant factor in the tribunal’s decision on whether to grant security for costs.
Given that there are no specific requirements for the contents of a TPF agreement, parties are free to negotiate and agree on the terms of their funding arrangements and are under no obligation to disclose the specific terms of the TPF to any other party involved in the arbitration.[8] This approach establishes an appropriate equilibrium, balancing the confidentiality of the funding agreement’s details with the need for transparency to handle possible conflicts of interest that may arise.
Access to justice
This fundamental principle of the rule of law dictates that citizens should have equal access to the justice system and other justice services to effectively resolve their legal issues.[9] Access to justice is defined as the ability of individuals to seek and obtain remedies through formal or informal justice institutions for grievances, in accordance with human rights standards.[10] It encompasses more than just improving access to courts or guaranteeing legal representation. Key aspects of access to justice include:
- Affordability: The legal system should be accessible financially, ensuring that it is not so expensive that only the wealthy can afford it. This includes costs for legal representation, court fees, and other related expenses.[11]
- Being Heard: Individuals should have the opportunity to present their case before an impartial authority, such as a judge or arbitrator.
- Understanding Rights: Individuals should be aware of their legal rights and responsibilities.[12]
- Fairness: Everyone should be treated equally under the law, regardless of their background or social status.[13]
Therefore, access to justice is not present if the justice system is financially inaccessible, as it fundamentally represents the opportunity to secure one’s rights under the law.
Relevance of Third-party funding to Accessing Justice in Nigeria
In a third-world country like Nigeria, where poverty is widespread,[14] the lack of funds often prevents people from pursuing their cases or forces them to abandon arbitration midway. This poses a significant barrier to accessing justice, threatens the constitutional right to a fair hearing, and undermines the tangent legal maxim ‘Ubi jus ibi remedium’ (Where there is a right, there is a remedy).Third-party funding (TPF) can enhance access to justice in several ways:
- Levelling the Playing Field: TPF enables claimants with compelling cases but limited financial resources to pursue their claims.[15] This results in a fairer system in which the outcome is determined by the strength of the case rather than financial power.
- Upholding Equity for the Common Man: The high cost of litigation often leaves ordinary Nigerians without recourse.[16] TPF provides an equitable medium for individuals to challenge powerful entities or defend their rights even if they lack the necessary funds.
- Boosts Public Participation and Trust: By making arbitration more accessible, TPF can encourage more people to use this dispute resolution method, helping to reduce court congestion. Greater participation can encourage early settlement and enhance public trust in the legal system.[17]
Challenges to TPF’s Role in Enhancing Access to Justice
Despite the lifeline that third-party funding (TPF) offers and its crucial role in enhancing access to justice, it is not without its challenges. There are legitimate ethical concerns about the operation of TPF in Nigeria, as it may potentially lead to the abuse of the arbitral system and impede justice. Some of these challenges include:
- Frivolous Claims: TPF could lead to an increase in frivolous claims, with funders backing risky cases in hopes of high returns.[18]
- Funder Influence: Funders may exert undue influence on the proceedings’ strategy or settlement decisions, prioritizing their financial gain over the claimant’s best interests.[19]
- Corruption of the Legal System: By prioritizing profit over justice, TPF can put funders’ investment interests ahead of other parties, potentially weakening the fairness and integrity of the legal system and negatively impacting the economy.[20]
- Scanty Provisions of TPF in the Act: The incomplete TPF provisions in the Arbitration and Mediation Act 2023 may lead to funding withdrawal and jeopardize arbitration participation. Specific guidelines for the withdrawal of support should be included in the Act to prevent funders from suddenly withdrawing their support and compromising a party’s ability to continue arbitration.[21]
- Lack of Awareness: In Nigeria, a great number of people believe there are not enough laws governing us,[22] however just like with TPF, the actual issue is that most people are unaware of their existence or how to access it. This gap in awareness means that individuals who could benefit from TPF might not take advantage of it. Raising awareness and promoting legal education can help bridge this gap and ensure more people benefit from TPF.
Conclusion
Access to justice is a cornerstone of a healthy democracy and a just society,[23] necessitating efforts to bridge the financial gaps that discourage individuals from seeking recourse through arbitration. The Arbitration and Mediation Act (AMA) addresses deficiencies in the Arbitration and Conciliation Act (ACA) by introducing the innovative provision of third-party funding (TPF).[24]
Although these provisions do not fully encompass the entire scope of third-party funding, they represent a significant step forward.[25] It is anticipated that, with practice and experience, the scope of TPF will be further expanded and refined to enhance its effectiveness and accessibility. By prioritizing the reduction of financial barriers, these measures aim to ensure broader access to justice and strengthen the democratic fabric of society.
Caveat:
The information above is solely for educational and information purposes and is not meant to serve as legal advice. It is based on inference and is subject to change.
For more information contact Lehi Attorneys:
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[1] Godwin Omoaka,Stanley Nweke-Eze, and Olusola Odunsi ‘Third-party funding in Nigeria-seated arbitration proceedings’ IBA (2021) <https://www.ibanet.org/third-party-funding-Nigeria-arb-proceedings> accessed 19 June 2024.
[2] Timothy Olamide, ‘The Concept of Third-Party Funding and Its Applicability under the Nigerian Arbitration Law’ Linkedin (2023) <https://www.linkedin.com/pulse/concept-third-party-funding-its-applicability-under-nigerian-olamide/#_ftn7> accessed 19 June 2024.
[3] Adegoke Adedoyin, Olayinka Alao and Umar Geidam, ‘Third-Party Funding Under The New Arbitration And Mediation Act 2023’ Mondaq (2024) <https://www.mondaq.com/nigeria/arbitration–dispute-resolution/1465608/third-party-funding-under-the-new-arbitration-and-mediation-act-2023#:~:text=Third%2Dparty%20funding%20in%20arbitration,involved%20in%20an%20arbitration%20proceeding.> accessed 19 June 2024.
[4] Joseph Onele, ‘Third-Party Funding for Arbitration in Nigeria: Yea or Nay?’ <https://arbitrationblog.kluwerarbitration.com/2018/06/07/third-party-funding-arbitration-nigeria-yea-nay/> accessed 20 June 2024.
[5] AMA 2023 s91.
[6] Ibid.
[7] Superuser, ‘Third Party Funding of Arbitration in Nigeria under the Arbitration and Mediation Bill 2022’ Stren & Blan Partners (2023) <https://strenandblan.com/2023/01/25/third-party-funding-of-arbitration-in-nigeria-under-the-arbitration-and-mediation-bill-2022/> accessed 19 June 2024.
[8] Adegoke Adedoyin, Olayinka Alao and Umar Geidam, ‘Third-Party Funding Under The New Arbitration And Mediation Act 2023’ Mondaq (2024) <https://www.mondaq.com/nigeria/arbitration–dispute-resolution/1465608/third-party-funding-under-the-new-arbitration-and-mediation-act-2023#:~:text=Third%2Dparty%20funding%20in%20arbitration,involved%20in%20an%20arbitration%20proceeding.> accessed 19 June 2024.
[9] Norul Mohamed, ‘Access to Justice – United Nations and the Rule of Law’ (2019) <https://www.un.org/ruleoflaw/thematic-areas/access-to-justice-and-rule-of-law-institutions/access-to-justice/> accessed 20 June 2024.
[10] United States Institute of Peace, ‘Necessary Condition: Access to Justice’ United States Institute of Peace <https://www.usip.org/guiding-principles-stabilization-and-reconstruction-the-web-version/rule-law/access-justice> accessed 19 June 2024.
[11] Ibid.
[12] ‘What Is Access to Justice?’ NCAJ <https://ncaj.org/what-access-justice> accessed 20 June 2024.
[13] ‘Equality Regardless of Social Status’ Constitute <https://www.constituteproject.org/topics/equalgr12> accessed 20 June 2024.
[14] ‘Overview’ World Bank <https://www.worldbank.org/en/country/nigeria/overview#:~:text=The%20poverty%20rate%20is%20estimated,largest%20poor%20population%20after%20India.> accessed 20 June 2024.
[15] Maya Steinitz , ‘Third Party Funding of Investment Arbitration’ Boston University School of Law (2021) <https://scholarship.law.bu.edu/cgi/viewcontent.cgi?article=4444&context=faculty_scholarship> accessed 20 June 2024.
[16] Nlerum Okogbule and Saulo Padilha, ‘Access to Justice and Human Rights Protection in Nigeria’ Sur International Journal on Human Rights (2017) <https://sur.conectas.org/en/access-justice-human-rights-protection-nigeria/#:~:text=It%20is%20a%20well%20known,a%20legal%20matter%20to%20pursue.> accessed 20 June 2024.
[17] VIA Mediation Centre, ‘Advantages of Third Party Funding in Arbitration’ <https://viamediationcentre.org/readnews/MTMzMA==/Advantages-of-Third-Party-Funding-in-arbitration> accessed 19 June 2024.
[18] Brooke Guven and Lise Johnson, ‘The Policy Implications of Third-Party Funding in Investor-State Dispute Settlement’ Columbia Law School (2019) <https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=1007&context=sustainable_investment_staffpubs> accessed 20 June 2024.
[19] Institute for Legal Reform, ‘What You Need to Know about Third Party Litigation Funding’ ILR (2024) <https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/> accessed 20 June 2024.
[20] Ibid.
[21] ‘The Third-Party Funding Debate – We Look at the Risks’ Norton Rose Fulbright (2016) <https://www.nortonrosefulbright.com/zh-hk/knowledge/publications/6c843d32/the-third-party-funding-debate-we-look-at-the-risks#:~:text=Third%2Dparty%20funding%20arrangements%20may,the%20funder%20and%20an%20arbitrator> accessed 20 June 2024.
[22] Lawpavilion, ‘ncredible: 5 Laws You Probably Did Not Know Exist in Nigeria’ LawPavilion Blog (2022) <https://lawpavilion.com/blog/incredible-5-laws-you-probably-did-not-know-exist-in-nigeria/#google_vignette> accessed 21 June 2024.
[23] ‘Access to Justice’ <https://www.partnersglobal.org/our-expertise/accountable-governance/access-to-justice/> accessed 20 June 2024.
[24] Uzoma Azikiwe and others ‘Nigeria’ Global Arbitration Review (2024) <https://globalarbitrationreview.com/review/the-middle-eastern-and-african-arbitration-review/2024/article/nigeria> accessed 20 June 2024.
[25] ‘Breaking Barriers in Arbitration Funding: Third-party Funding as a Risk Management tool under
the Arbitration and Mediation Act 2023’ Templars thought lab
<https://www.templars-law.com/app/uploads/2023/11/Breaking-Barriers-in-Arbitration-Funding-Third-Party-Funding-as-a-Risk-Management-tool-under-the-Arbitration-and-Mediation-Act-2023.pdf> accessed 20 June 2024.
