Third-party funding in Nigeria-seated arbitration proceedings

Godwin Omoaka

Templars, Lagos

godwin.omoaka@templars-law.com

Stanley Nweke-Eze

Templars, Lagos

stanley.nweke-eze@templars-law.com

Olusola Odunsi

Templars, Lagos

olusola.odunsi@templars-law.com

Introduction

One of the fundamental elements of arbitration is the costs that are involved in prosecuting the proceedings – arbitrator fees, secretary fees, expert fees and other miscellaneous costs such as cost of venue and so on. There is little doubt that parties, particularly claimants, are sometimes hesitant in commencing arbitration proceedings because of the financial implications. This has made the practice of third-party funding in arbitration more prevalent in a few jurisdictions around the world, including Singapore and Hong Kong.[1]

Third-party funding is not prevalent in Nigeria at present. In this article, we will briefly consider the current legal framework for third-party funding in Nigeria and its prospects for the future.

The concept of third-party funding

Third-party funding is an arrangement where an independent, commercial funder, without prior connection to the dispute between the parties, provides a party with full or partial funding (ie legal fees and expenses) for the proceedings in exchange for a portion of or the full amount recovered by that party after the determination of the dispute. It is generally believed that the rationale for this practice is based on the financial necessity of a party seeking the funds to sponsor its claims.

One of the many advantages of third-party funding is that it enables access to justice where the expenses involved would otherwise have been a constraint for a party with a meritorious claim in commencing the arbitral proceedings. While it can be argued that third-party funding could promote the institution of frivolous arbitration proceedings, this is generally not the case because most third-party funding arrangements are structured in a way that the funder bears all or some of the losses if the claim falls through. Most funders will typically carry out thorough due diligence of the merit and quantum of the claim, as well as prospects of success, before providing funding to confirm that it has a good chance of success.

However, third-party funding arrangements may give rise to concerns relating to confidentiality and disclosure (particularly in relation to the exchange of information between the claimant and the funder) as well as conflicts of interest (for example, reconciling the interests of the funder with the interest of the claimant during the arbitration proceedings).

The law and practice of third-party funding in Nigeria

The current position

The practice of third-party funding is not prevalent in Nigeria. Besides the fact that there is no legislation that expressly permits or prohibits third-party funding as of the time of writing, the common law doctrine of champerty and maintenance[2] – aimed towards discouraging third parties who have no recognisable legal interest from interfering in legal proceedings – remains applicable in Nigeria as part of received English law. The principles of received English law remain applicable in Nigeria except for those abolished or modified by legislation or case laws.[3]

In Oloko v. Ube,[4] the respondent’s counsel had forwarded a bill for ‘the sum of NGN189,600 being the agreed 20 per cent of the judgment sum of NGN948,000.’ On this, the Nigerian Court of Appeal held as follows:

‘An agreement by a solicitor to provide funds for litigation in consideration of a share of the proceeds is champertous. The solicitor cannot recover from his client his own costs or even his out of pocket expenses.’

In Egbor & Anor v. Ogbebor,[5] the Nigerian Court of Appeal also noted as follows:

‘It is no doubt settled law that a situation where a person elects to maintain and bear the costs of an action for another in order to share the proceeds of the action or suit is champertous… However, the facts have to bear out the champertous relationship and cannot be founded on the perception of a person of what he thinks the relationship is. Put differently, in order for the action of the Respondent to be champertous, the facts have to show that the Respondent offered to maintain the action by bearing the costs of the litigation in order to be given a share of the proceeds.’

The foregoing cases relate to litigation proceedings in Nigerian courts. and there is no case law on third-party funding in Nigeria-seated arbitration proceedings. However, in the absence of a clear statutory or case law expressly affirming third-party funding in arbitration proceedings, there is a chance that such an arrangement may be held to be champertous and therefore unenforceable.

Anticipated winds of change

The principal legislation which governs arbitration in Nigeria is the Arbitration and Conciliation Act, 1988 (the ACA).[6] With a view to ‘provide a unified legal framework for the fair and efficient settlement of commercial disputes by arbitration’, a bill to amend the ACA – the Arbitration and Mediation Bill, 2020 (the Bill)[7] – has been introduced to the Nigerian legislative arm of government.

The Bill contains certain provisions which support the practice of third-party funding. For example, Section 52(1) of the Bill provides relevantly as follows:

‘The arbitral tribunal shall fix costs of arbitration in its award and the term “costs” includes:

(g.)  the costs of obtaining Third-Party Funding.’

Also, Section 61 of the Bill expressly abolishes the torts of maintenance and champerty in relation to Nigeria-seated arbitration proceedings. It provides as follows:

‘The torts of Maintenance and Champerty (including being a common barrator) do not apply in relation to third-party funding of arbitration. This Section applies to arbitrations seated in Nigeria and to arbitration related proceedings in any court within Nigeria.’

Section 62(1) of the Bill also provides:

‘(1) If a Third-Party Funding agreement is made, the party benefitting from it shall give written notice to the other party or parties, the arbitral tribunal and, where applicable, the arbitral institution, of the name and address of the Third-Party Funder.

(2) Such written notice shall be made:

(a) for a funding agreement made on or before the commencement of the arbitration – at the commencement of the arbitration; or

(b) for a funding agreement made after the commencement of the arbitration – without delay as soon as the funding agreement is made.

(3) Where a Respondent has brought an application for security for cost based on the disclosure of Third-Party Funding, the Tribunal may allow the funded party or its counsel to provide the Tribunal with an affidavit stating whether under the funding arrangement, the Funder has agreed to cover adverse costs order. The affidavit shall be a relevant consideration to the tribunal’s decision on whether to grant security for costs.’

Section 91(1) of the Bill defines ‘third-party funder’ and ‘third-party funding arrangement’:

‘“Third-party funder” means 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 such 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.

“Third-party funding arrangement” means 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 such 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.

Based on the foregoing provisions of the Bill, it seems clear that if the Bill is passed into law, third-party funding agreements will be held to be enforceable in Nigeria. In any event, the passage of the Bill will still leave the practice of third-party funding in Nigeria-seated arbitration proceedings scarcely regulated. It is imperative to have more detailed provisions in the Bill that will regulate the entire spectrum of third-party funding arrangements in Nigerian arbitration proceedings, particularly in relation to questions of confidentiality and conflict of interest.

Conclusion

Third-party funding has become popular in the international arbitration space. All indications suggest the practice is here to stay. In Nigeria, there is currently no legislation or judicial pronouncement that expressly prohibits third-party funding. Nonetheless, the common law doctrine of champerty and maintenance continues to apply in Nigeria, and this raises significant doubt about the enforceability of third-party funding agreements. Third-party funding will, however, become more prevalent if the Arbitration and Mediation Bill, 2020 is passed into law in its present form.