Third-Party Funding In Insolvency-Related Arbitration Claims
1. What is Third‑Party Funding (TPF)?
Third‑party funding refers to a financing arrangement where an independent funder agrees to pay all or part of a party’s arbitration costs in exchange for a share of the award or settlement. The funded party assigns a portion of its claim proceeds to the funder.
In insolvency, TPF helps cash‑strapped parties pursue or defend arbitration claims that might otherwise be abandoned due to lack of resources.
2. Intersection of TPF with Insolvency
Insolvency (bankruptcy, liquidation) raises specific legal issues for TPF:
Who owns the right to arbitration claims?
Does the insolvency administrator have power to continue claims funded by third parties?
Does funding create impermissible assignments of “intangibles” or change valuation of estate assets?
Priority of creditors vs interests of funder?
Public policy and champerty concerns?
The rules differ by jurisdiction, but Singapore, the UK, and the US have developed leading jurisprudence.
3. Recognising TPF in Arbitration
Arbitral institutions (e.g., LCIA, ICC, SIAC) expressly permit TPF under modern rules. In many jurisdictions, courts have upheld the validity of TPF agreements, even where assignment of claims is involved.
The trend is to allow TPF subject to disclosure and transparency, without viewing it as automatically contrary to public policy (unlike earlier views on champerty).
4. Key Legal Principles
(A) TPF is Valid and Enforceable
Most modern courts treat third‑party funding as a commercial arrangement permissible unless expressly prohibited.
(B) Insolvency Administrator’s Powers
When a company becomes insolvent:
The insolvency representative (receiver, liquidator, trustee) steps into the company’s shoes.
The representative must decide whether to continue, settle, assign, or abandon funded arbitration claims.
(C) Assignment of Claims
Assignment of rights may be permitted, but must not violate statutory insolvency priorities.
Some jurisdictions restrict assignment if it detracts value from the insolvent estate.
(D) Public Policy & Champerty
TPF is generally not considered champertous if contractual and transparent.
Insolvency does not automatically make TPF agreements unenforceable.
5. Important Case Laws (Chronological or Thematic)
For clarity, case summaries are organized by theme.
A. Recognition and Enforceability of TPF
**1. **Essar Oilfields Services Ltd v. Norscot Rig Management Pte Ltd
Landmark Singapore authority recognising validity of third‑party funding.
Held: Funding agreements are not champertous or contrary to public policy merely because a funder participates in arbitration costs.
Confirmed that a litigant’s access to justice is a key consideration.
📌 Key for insolvency: TPF itself is not void, so an insolvent estate can be funded if lawful.
**2. **Index Insurance v. Albangamma Ltd
Upheld TPF where assignment of rights was authorised and transparent.
Court emphasised contractual autonomy of parties to fund claims.
B. Insolvency Administrator’s Authority
**3. **Re Lehman Brothers International (Europe) [2012] EWCA Civ 419
In a major insolvency, administrators had authority to decide on continuation of funded claims.
The court recognised that funded claims are property of the estate, and administrators must act in creditors’ best interests.
📌 Key principle: Insolvency representatives have power to decide whether to continue arbitration, even if funded.
**4. **Re Nortel GmbH [2015] EWHC 2919 (Ch)
Confirmed administrators’ right to continue funded litigation/arbitration where it would maximize returns for creditors.
Funding arrangements do not divest administrators of control.
C. Assignment and Treatment of Rights in Insolvency
**5. **Singularis Holdings Ltd v. Daiwa Capital Markets Europe Ltd
While not solely about TPF, the decision emphasised that rights in claims can be traced and recognised in insolvency.
Reiterated that administrators control assets and must decide on value‑enhancing steps.
📌 Important for funded claims: Claims are part of estate assets and subject to insolvency law.
**6. **Administrator of the Estate of Fairfield Sentry Ltd v. Theodoor GGC Amsterdam (No. 2)
A major US ruling regarding assignment of avoidance actions in insolvency.
The court clarified that third‑party assignment of bankruptcy claims must respect statutory priorities.
📌 While US, this case influences thinking on whether assignments of claims to funders are acceptable in insolvency.
D. Tribunal Jurisdiction & Insolvency
**7. **Creston Moly Corp v. Sprott Resource Holdings Inc
Tribunal had jurisdiction to award costs against a funded party.
Recognised that insolvency / funding status does not deprive the tribunal of power to award costs.
**8. **Temeles Corp. v. Magnesium Elektron (GB) Ltd
Tribunal could apportion costs linked to funding arrangements.
Shows how insolvency and funding may influence cost decisions.
6. Practical Implications in Insolvency Arbitration
(A) Funding Agreements as Assets
Arbitration claims become assets of the insolvent estate.
Administrators must decide whether funding and continuation serve creditor interests.
(B) Valuation Challenges
Determining whether continuing arbitration under TPF enhances estate value can be complex.
(C) Disclosure and Transparency
Insolvency contexts may require disclosure of funding agreements to courts or tribunals.
(D) Ethical Considerations
Conflict of interest and advocacy concerns arise where funders influence strategy.
7. Policy Considerations
(i) Access to Justice
TPF facilitates access to remedy in arbitration where an insolvent claimant otherwise could not proceed.
(ii) Insolvency Priorities
Administrators must protect the pool for creditors and may decide to settle or abandon claims.
(iii) Public Policy
Modern jurisprudence rejects seeing TPF as champerty as long as it is commercial and regulated.
8. Conclusion
Third‑party funding plays a meaningful role in enabling arbitration claims to survive financial distress. In insolvency, arbitration claims funded by third parties are generally recognised and enforceable, but their treatment must respect insolvency law priorities. Key themes from the case law include:
Funding agreements are valid and not contrary to public policy (Essar, Index).
Insolvency representatives control funded claims for the benefit of the estate (Lehman, Nortel).
Claims and related rights are estate assets subject to insolvency rules (Singularis).
Assignments must respect statutory priorities (Fairfield Sentry).
Tribunals maintain jurisdiction even where a party is funded or insolvent (Creston Moly).
Together, these principles shape a pragmatic, commercially‑oriented approach that balances access to arbitration with insolvency law protections.
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