Abstract
The blog critically analyzes the nuances of third-party funding in arbitration and seeks to address how it can be regulated and implemented in India. The major issue of pendency of litigation in India has been highlighted, and how Alternate Dispute Resolution was intended to reduce the burden on courts. Furthermore, it has been discussed how arbitration in India remains in the hands of a certain section of society, with TPF becoming almost necessary to make it accessible to all. The blog also mentions foreign models of TPF and suggests that in India how a Welfare Model deployment can be a boon. Moreover, this can be done by bringing in DLSA and establishing court-annexed arbitration centers which will reimagine how we perceive the arbitration space in India.
The blog concludes with the proposition that “Arbitration For All” remains an unexplored proposition area of discussion, which is required in order to truly reap the fruits of arbitration.
Introduction
The terminology “Arbitration” might be a novice but the concept behind this word is in existence in the Indian setup since the inception of the society. Initially, courts were not there to hammer out the solutions to the problems between parties, at that time the notion of settlement was there. Nowadays the concept of settlement between the parties is termed as “Arbitration” derived from the Latin term ‘arbitrari’ which means “to judge”. In English, this word includes the process of settlement and adjudication too. With the evolution of new terminology, the system which used to exist in the conventional setup has become the luxury of the rich. The objective behind bringing arbitration into the legal domain was to reduce the burden of courts, unfortunately, the same seems to be frustrating. Presently the pendency of the court ranges from 4.7 to 5 crores, which is prodigious in a country having supremacy of law. With this, it is very well understood that the objective of arbitration is being forgotten. There are a lot of discussions and deliberations happening in order to reverse the damage done and to accord a solution to the same. One such proposed solution is the concept of Third Party Funding. If we understand this notion from the layman’s perspective it is very clear that it ought to bring Arbitration accessible to all via funding from this party. Though innumerable discussion on this topic revolves around and various proposed methodologies exist. But as we know law is like wax it would take the shape in which it moulded, so the concept of third-party funding if thought considering India’s scenario (problems such as poverty, illiteracy, overburdened judiciary etc.) would be the most fruitful solution to make arbitration accessible for all.
The Concept of Third-Party Funding
Third-Party Funding as a concept has a foreign ring around it, as it is not of Indian origin. As the name suggests, when any arbitration is being funded by a third party who is not related to the dispute, on some agreed return, it is known as ‘Third Party Funding.’ There has been controversy going on about whether third-party funding should be brought into India. As of now, the concept is applicable only in the Advance Arbitration countries, and India is at a nascent stage of arbitration where half of the population is not aware of ‘arbitration’ as a mechanism. Moreover, this is one unexplored domain which, if it comes into existence, can be a successful model in the Indian setup.
Arbitration in India: A Privilege of the Rich
Alternate Dispute Resolution was envisaged as a means of reducing the burden on conventional methods of dispute resolution, and most importantly, litigation in courts. Arbitration in India is generally seen as a means of resolving disputes for “high-profile” or “high-transaction” matters, involving big corporate houses and wealthy individuals, among others, with the claim amount running into multiple figures. Arbitration proceedings in India are expensive, and institutional arbitration remains accessible to a select few. India being a developing nation still has a population that is below the poverty line, and affording arbitration services is a farfetched idea for them. It is in this context that third-party funding in India has to be introduced in a manner to make arbitration accessible to a large section of society.
Arbitration and Third-Party Funding in other Jurisdictions: Comparative Analysis
There are many countries where Arbitration is utilized at an advanced level with a full-fledged model of third-party funding. An analysis is made to understand the model of third-party funding in arbitration in foreign jurisdictions, which are as follows:
Being an arbitration hub, Singapore is progressive in its laws as well. The legal development of the country has gone to an extent that they now have fully developed laws on Third Party funding since 2017 titled Civil Law (Third-Party Funding) Regulations 2017. Furthermore, the law is according to their developed citizenry and status as initially third-party funding was open only for international arbitration and litigation. However, considering the demands at the domestic level, Singapore came up with an amendment in 2021 to extend the scope of third-party funding not only to domestic arbitration but also to litigation.
England is considered the second-largest market for third-party funding. In England, prominence has been given to funding litigation via third parties. The market is being encapsulated by private players, and presently the third-party funding is majorly governed by the Associate Litigation Funding (ALF) body. Apart from this, other well-recognized names are involved in the field. In short, it can be asserted that England has more of a commercialized model which regulated third-party funding.
After London and Singapore, Hong Kong is considered the preferred seat for Arbitration. But until 2017, it followed the doctrines of common law i.e., maintenance and champerty which prohibited third-party funding. In 2017 the legislative body came up with a law bypassing these doctrines. The newly enacted law governs third-party funding in Hong Kong, but still in the developing phase as it has not been extended to the litigation domain, unlike other countries.
Third-Party Funding: Through the lens of Welfarism in India
Considering the development of third-party funding in foreign jurisdictions and the absence of such a mechanism in India, it is now incumbent that third-party funding in India has to be reimagined in a way that is peculiar to the Indian legal system. There is a need to introduce arbitration for resolving a major chunk of disputes pending before courts in India. The conventional method of litigation has been proven to be time-consuming, and expensive and often results in various levels of appeals. The essence of a dispute is time and easy access to a resolution, and arbitration in that sense offers a novel mechanism for the same. Given the scope of arbitration and the pendency of cases, what may prevent the arbitration space in India from blossoming is the access and costs associated with it. This is where Third Party Funding would come in, and more importantly, an endeavor has to be made to alter the “Return on Investment” proposition associated with it. It has to be reimagined in terms of a ‘welfare model’, wherein those who fund the arbitration proceedings would do so “pro bono publico” and “in the interests of justice”. Normally, no third party would fund the arbitration without getting a profitable share of the award, however, this can be made possible via 2 already existing mechanisms viz. District Legal Services Authority (hereinafter referred to as DLSA) and funding under the model of ‘Corporate Social Responsibility’ (hereinafter referred to as CSR).
Suggestive Indian Model for Third-Party Funding: A Way Forward
Considering the problems associated with arbitration and the recent developments in India, it is important to implement a model of third-party funding which is suitable to the Indian perspective. India, being a developing nation, is at a nascent stage of Arbitration and lacks a comprehensive legal framework like other countries as discussed above. The suggestive model that can be implemented in an Indian setup is as follows:
There is a need to bring in comprehensive legislation with respect to arbitration in India, on the lines of the proposed Mediation Bill, 2021. Such a law will ensure that various facets of arbitration, including third-party funding of arbitration, can be regulated via a single law. A welfare model of third-party funding is required which is based on the principle of good faith and not as a commercial setup. Presently, the Arbitration and Conciliation Act, 1996 has some aspects of arbitration which are absent and which, with the passage of time, have become relevant to be incorporated into the law.
The scope of DLSA’s work has to be increased to ensure that it can be a nodal body to maintain records of potential third parties who are interested in funding the parties in dispute “pro bono” such as corporates via CSR funds, NGOs, Social Activists, think tanks, businessmen, and other welfare organizations. This can be made possible since DLSA is present in every district and under its free legal aid programme, eligible parties can be provided with third-party funding in arbitration proceedings. DLSA can be made as a nodal body for regulating the same, and it can be ensured that third-party funding is not being commercialized and secondly, that disputes which are trivial matters which can be resolved quickly can be referred to arbitration.
The model of mediation centers in district courts can be replicated for arbitration as well, and court-annexed arbitration centers can be set up in district courts. The court may make a reference to such arbitration centers as per Section 89 of the Civil Procedure Code, 1908. This will not only ensure that arbitration is accessible but would also encourage poor litigants who cannot afford the long vicious cycle of court proceedings can opt for it with the help of DLSA.
Conclusion
With the above analysis, it can be concluded that third-party funding if made applicable according to the Indian setup can prove to be a boon. Moreover, it is high time that India should come up with its own model which is feasible considering the status of the citizens. The objective and jurisprudence behind bringing arbitration was to avoid the hectic vicious cycle of proceedings and to make justice available to all. Hence, “Arbitration for all, rather than the ones who have big pockets” is what India should follow, especially when reeling under the pressure of huge pendency and judicial backlog, hindering the resolution of disputes.