By Marina Gouveia, Senior Investment Manager at Loopa Finance
Third-party funding is no longer confined to claimants who cannot pay their own legal bills. It can transfer litigation risk, preserve corporate liquidity, monetise a claim or protect a company’s balance sheet. That commercial reality matters when a successful party asks an English-seated tribunal to shift not only its legal fees but also the cost of the funding that made the arbitration possible.
This evolution matters because funding is not merely a mechanism for paying legal bills. It is increasingly part of the financial architecture of dispute resolution. Ciarb’s 2025 Guideline on Third-Party Funding expressly recognises that a party need not be impecunious to use funding and identifies risk transfer and access to justice among its potential advantages.[1]
That broader role makes the treatment of funding costs increasingly relevant. If external finance can be a reasonable and commercially rational way to pursue a claim, should the cost of that capital ever form part of a successful party’s recoverable costs?
The answer should not be automatic recovery. But it should not be automatic exclusion either.
A power to award, not an entitlement to recover a funder’s return The starting point is the tribunal’s authority over costs. Under section 59(1)(c) of the English Arbitration Act 1996, as amended, the costs of the arbitration include the parties’ “legal or other costs”. Section 63 addresses the determination and assessment of recoverable costs, including their reasonableness.[2] Institutional rules can also be framed broadly. Article 38(1) of the 2021 ICC Rules includes the reasonable legal and other costs incurred by the parties for the arbitration, while Article 28.3 of the LCIA Rules 2020 provides for the tribunal to determine the amount of the parties’ Legal Costs on a reasonable basis, with their allocation addressed in Article 28.4.[3][4]
These provisions do not create a special entitlement for funded parties, but they give tribunals flexibility to examine whether a financing cost properly falls within the costs of the arbitration.
Ciarb’s 2025 Guideline, which is non-binding, takes a similarly cautious approach. It indicates that funding costs may be recoverable in certain circumstances, with necessity and reasonableness among the relevant considerations, subject ultimately to the tribunal’s discretion under the applicable law and institutional rules.[1]
What Essar — and Tenke — actually tell us The best-known English authority remains Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd. Norscot had obtained approximately £647,000 in funding on terms that entitled the funder, upon success, to the greater of 300% of the amount advanced or 35% of the recovery. The costs award included approximately £1.94 million attributable to the funding arrangement. A decisive feature was the arbitrator’s finding that Essar’s conduct had placed Norscot under severe financial pressure and left it with no realistic alternative to external funding. The High Court dismissed Essar’s challenge under section 68 and held that the arbitrator had not exceeded his powers in treating the cost of obtaining litigation funding as capable of falling within “other costs” under section 59(1)(c).[5]
That distinction matters. The Court was not conducting a de novo review of whether the particular funding charge was reasonable or establishing a general rule that such charges must be recoverable. Essar is significant, but it should not be overstated. It did not establish that a successful funded party may ordinarily pass its funder’s return to the losing party. The circumstances were unusual, and the tribunal connected the need for funding to the respondent’s conduct. The case is therefore better understood as confirming the possibility of recovery, not a presumption in favour of it.
Tenke Fungurume Mining SA v Katanga Contracting Services SAS pushed the analysis further, although the financing structure was different. There, the relevant financing took the form of a loan arrangement rather than a conventional non-recourse third-party funding agreement. The ICC tribunal awarded approximately US$1.7 million in funding costs, and the subsequent section 68 challenge was dismissed by the Commercial Court.[6] As in Essar, the decision is best understood as confirming that such financing costs are not categorically outside the tribunal’s costs discretion, rather than creating an automatic entitlement to recover them.
Funding as a commercial tool, not a sign of weakness One reason this debate matters more today is that the rationale for using funding has expanded. Third-party funding should not be treated as shorthand for financial distress. Ciarb’s Guideline expressly notes that a party does not need to be impecunious to use TPF.[1] A company may have sufficient liquidity to finance an arbitration and still conclude that deploying substantial capital into a multi-year, uncertain recovery is not the best use of its resources.
Funding can therefore allow legal risk to be treated more like other corporate risks: assessed, priced and allocated. It can preserve cash flow, improve budget predictability and transfer some or all of the downside risk of a dispute away from the claimant.
Professional funding can also add another layer of scrutiny before capital is deployed. A funder must consider not only whether the legal theory is persuasive, but whether the claim is economically viable: likely damages, enforcement prospects, expected duration, procedural risks, budget and realistic paths to recovery. Funding does not validate a claim merely because capital is committed, but the underwriting process can impose useful financial discipline on the decision to pursue it.
These benefits explain why external finance should not be treated as inherently exceptional. But the commercial legitimacy of using funding is analytically distinct from whether its cost should be shifted to the losing party.
Why automatic recovery would go too far A funding agreement allocates risk between a claimant and a funder. The respondent does not negotiate that agreement, choose its pricing model or decide when the capital is deployed. Automatically transferring the resulting return to the losing party would therefore make one party responsible for a financing decision in which it had no involvement.
That concern is strongest where funding is primarily a capital-allocation choice. A financially capable company may legitimately prefer to preserve its own capital and transfer dispute risk. That can be commercially sensible without making the resulting funding return a cost that the opponent should necessarily bear.
Funding pricing also differs from ordinary legal expenditure. Counsel and expert fees generally compensate work performed. A funder’s return compensates capital at risk, duration, enforcement uncertainty and the possibility of total loss. Ciarb’s Guideline notes that pricing can vary depending on legal risk, duration, enforcement and recoverability, among other factors.[1] A tribunal must therefore ask more than whether the funding cost was contractually due. It must examine whether the amount was reasonable in the circumstances, with proportionality also capable of informing the exercise of its discretion.
A better test: reasonableness, causation and proportionality A sensible exercise of the tribunal’s discretion should therefore be case-specific.
First, the tribunal must have authority under the law of the seat and the applicable rules to award the relevant costs. Second, it should examine the connection between the funding and the arbitration: why was funding obtained, at what stage, and was it a reasonable response to the claimant’s circumstances? Necessity may be particularly important where the opposing party’s conduct created or materially aggravated the need for financing, but it should not be reduced to a strict insolvency test.
Where funding was principally a balance-sheet or capital-allocation choice, that does not make the decision to obtain funding unreasonable. It may, however, weigh against transferring its economic cost to the opposing party.
Third, the tribunal should consider whether the funding cost claimed was commercially reasonable and proportionate to the capital deployed, the duration of the financing and the risks assumed. That inquiry should, however, be conducted with care. The economic terms of a funding arrangement are not merely financial data: they may reflect the funder’s assessment of the merits, quantum, duration, enforcement prospects and overall risk of the claim. Disclosure of those terms may therefore reveal aspects of the funder’s substantive assessment of the case and risk influencing the tribunal’s perception of issues that should be determined independently on the evidentiary record.
Procedural fairness nevertheless requires that the opposing party have a meaningful opportunity to challenge a claim for funding costs. The solution should not be a presumption in favour of disclosure of the funding agreement or its complete economic terms. Rather, the funded party should provide sufficient evidence to establish the amount claimed and its reasonableness, with disclosure calibrated to what is genuinely necessary for that purpose. Depending on the circumstances, this may be achieved through limited or redacted disclosure, summaries of the relevant economic terms, or other evidence capable of substantiating the claim without exposing the funder’s broader risk assessment, privileged material or commercially sensitive information.
This approach preserves what arbitration does well: discretion calibrated to the circumstances of the dispute. It also reflects the reality that third-party funding is becoming an established part of how sophisticated parties finance disputes, manage legal risk and allocate capital.
The real question is therefore not whether funding costs belong inside or outside the concept of arbitral costs in every case. It is whether, in the particular case, they were a reasonable and sufficiently connected cost of pursuing the arbitration, and whether that can be demonstrated without unnecessary intrusion into the funding relationship.
Third-party funding does not need special treatment to prove its value. Its role is better recognised by applying ordinary principles of reasonableness and evidential connection, with proportionality informing the tribunal’s discretion, to the realities of how disputes are financed. Recovery should remain available, but the evidentiary burden should be proportionate and should not make disclosure of the funding agreement itself the price of seeking recovery.
Annex – Sources and Authorities
- Chartered Institute of Arbitrators (Ciarb), Guideline on Third-Party Funding (2025). Ciarb – Guideline on Third-Party Funding (2025)
- Arbitration Act 1996 (United Kingdom), sections 59 and 63. Arbitration Act 1996 International Chamber of Commerce, ICC Arbitration Rules 2021, Article 38. ICC Arbitration Rules 2021
- London Court of International Arbitration, LCIA Arbitration Rules 2020, Article 28.3. LCIA Arbitration Rules 2020
- vLex — Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) - Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd
- 4 Pump Court — Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S. [2021] EWHC 3301 (Comm): High Court upholds award of third-party funding costs - Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S.