THIRD-PARTY LITIGATION AND ARBITRATION FUNDING IN NIGERIA: PRACTICAL BARRIERS FOR LOCAL CLAIMANTS POST-ARBITRATION AND MEDIATION ACT 2023.

Third party funding has evolved into a prevalent practice in leading jurisdictions such as the United Kingdom and the United States, gaining significant traction particularly in the context of high-stakes litigation. Third Party Funding (TPF) is a contractual arrangement in which an external entity (the funder) finances some or all of a party’s legal fees and expenses to pursue or defend a claim. In exchange, the funder is entitled to either a share of any financial recovery or a multiple of its invested amount if the claim is successful. If the claim fails, the funder typically bears the loss.

TPF is, perhaps, one of the most recent and significant developments in the evolving landscape of international arbitration. The Arbitration and Mediation Act 2023 (AMA) marked a milestone for dispute resolution in Nigeria. By expressly legitimizing third-party funding (TPF) in Section 61 and imposing structured disclosure rules in Section 62, the Act aligned Nigeria with leading arbitration hubs such as Singapore and Hong Kong. For the first time, the torts of maintenance and champerty no longer obstruct funding arrangements in arbitrations seated in Nigeria or related court proceedings.

A notable and highly public example of third party litigation funding is the funding of Terry Bollea’s (Hulk Hogan) invasion of privacy lawsuit against Gawker Media by billionaire investor Peter Thiel in 2016.

The Legal Framework Under the Arbitration and Mediation Act 2023

 The AMA’s TPF provisions offer a significant advantage to local claimants in investor-state disputes. Local investors can finance claims against foreign states. This integration not only regularizes access to high-stakes arbitration for Nigerian claimants but also reinforces the nation’s positioning as a primary and attractive hub for international arbitration in Africa.

Section 61 of the AMA provides thus-

 “The torts of maintenance and champerty, including being a common barrator, do not apply in relation to third party funding of arbitration and this section applies to arbitrations seated in Nigeria and to arbitration related proceedings in any court within Nigeria.”

Section 62 mandates prompt written disclosure of the funder’s name and address to the opposing party, the tribunal, and any administering institution. Where a respondent applies for security for costs based on the disclosure, the funded party may submit an affidavit confirming whether the funder has agreed to cover adverse costs orders, a factor the tribunal must consider.

Furthermore, Section 91 of the Act defines a TPF agreement comprehensively, outlining its scope and operational framework. By clarifying that such agreements can involve financing part, or all of, the costs associated with arbitration proceedings, whether through donations, grants, or reimbursement dependent on outcome.

The Current Landscape: A Striking Absence of Activity

Nigeria faces dozens of inbound Investor-State Dispute Settlement (ISDS) (e.g., P&ID v. Federal Republic of Nigeria, Eni v Nigeria, Shell v Nigeria), but outward claims by Nigerian investors remain virtually non-existent in public records. No reported case involves a Nigerian claimant using TPF in any ISDS proceeding, let alone one seated in Nigeria.

International funders have poured billions into global ISDS (notably in energy and infrastructure), yet none appear to have funded a Nigerian claimant in a Nigeria-seated case. This vacuum persists despite the AMA’s clear enabling framework.

Practical Barriers for Local Claimants

1. Extreme Scarcity of Suitable Nigeria-Seated ISDS Opportunities

Most Bilateral Investment Treaties (BIT) and investment contracts involving Nigerian investors favour neutral foreign seats like London, Paris, Singapore, Geneva. Nigerian claimants rarely negotiate a home-seat advantage because:

1. Host states perceive Nigerian courts/tribunals as higher risk for enforcement neutrality.
2. Nigerian investors themselves often prefer established seats to signal credibility to funders and tribunals.
3. The International Centre for Settlement of Investment Disputes (ICSID) Convention (to which Nigeria is party) does not use a seat concept, limiting AMA application unless parties opt for UNCITRAL/ad hoc with an express Nigerian seat.

Without a critical mass of Nigeria seated ISDS cases, TPF structures tailored to the AMA cannot develop organically.

• Disclosure Risk in Private and State-Related Disputes

Section 62 of the Arbitration and Mediation Act (AMA), while fostering transparency, introduces distinct strategic vulnerabilities for both private and state-related claimants:

1. Early notice of funding can trigger aggressive counter responses.
2. It frequently invites aggressive cost applications; funders remain wary of unlimited exposure to successful sovereign or corporate respondents.
3. Beyond risking national security (State) or trade secrets (Private), revealing a funder’s identity often prompts protracted challenges regarding arbitrator independence or perceived bias.

• Underdeveloped Local and Regional Funding Market

Global funders target high value claims (typically US$50–100 million+) with strong enforcement prospects against deep pocketed parties. Nigerian outbound claimants often present smaller or medium sized claims in emerging markets. Additional deterrents include:

1. Sovereign immunity and enforcement challenges (asset tracing abroad is complex).
2. Currency and repatriation risks.
3. Absence of specialized Nigerian or African ISDS focused funders; international players prefer established seats.

• Capacity, Awareness, and Structural Gaps

Many Nigerian lawyers and potential claimants lack familiarity with structuring AMA compliant TPF agreements for ISDSs. Ethical issues persist (e.g., funder influence vs. lawyer independence under RPC). Local entities often miss the corporate sophistication (SPVs, governance) that funders require for due diligence.

Way Forward

The imbalance undermines Nigeria’s position as Africa’s leading economy and its advocacy for reciprocal investment protections. Yet the AMA provides a solid foundation to reposition Nigeria as a preferred seat for regional ISDS, fostering capital flows. Practical steps include:

1. Engage Nigerian financial institutions, pension funds, and fintechs to develop ISDS-focused vehicles, potentially with regulatory incentives from CBN/SEC.
2. The Nigerian Investment Promotion Commission (NIPC) and Lagos Court of Arbitration could issue templates encouraging Nigerian seats and AMA compliant TPF.
3. NBA, CIArb Nigeria Branch, and law faculties should offer targeted training on outbound ISDS funding.
4. Nigerian investors in other African jurisdictions should negotiate Nigerian seats in new agreements and secure early TPF commitments.
5. Issue practice directions clarifying AMA application to treaty ISDS, including options for anonymized disclosures in sensitive cases.

Conclusion

The AMA 2023 removed the primary legal obstacles to third party litigation and arbitration funding in Nigeria, yet practical, market, and perceptual barriers continue to block local claimants from harnessing TPF in Nigeria-seated investor-state arbitration.

If addressed proactively, Nigeria could evolve from a frequent ISDS respondent into a hub empowering its own investors abroad. The legal framework exists; the momentum now depends on Nigerian claimants, counsel, funders, and policymakers stepping forward.

^{i Ciarb – Guideline on Third-Party Funding; https://www.ciarb.org/media/xbbegf1e/guidelines-on-third-party-funding_-published} 

 ^{ii Oliver Gayner: Third party funding: from origins to international arbitration at https://classic.austlii.edu.au/au/journals/ANZRIArbMedr/2018/10.pdf} 

 ^{iii. Arbitration and Mediation Act, 2023}

 ^{iv. Section 61 of the Arbitration and Mediation Act, 2023}

^{v.  Section 62 of the Arbitration and Mediation Act, 2023}

^{vi.  Bollea v. Gawker Media, LLC, No. 522012CA012447, 2016 WL 4073660; for context, Terry Bollea (Hulk Hogan) sued Gawker Media for publishing a sex tape, resulting in a $140 million judgment that forced Gawker into bankruptcy. Silicon Valley investor Peter Thiel secretly funded the lawsuit with approximately $10 million, a fact only revealed after the trial concluded.}

 ^{vii. TEMPLARS Thought Lab: Market Insights on Unlocking Third-Party Funding of Arbitration in Nigeria.}

 ^{viii. For context: ISDS is a mechanism in international investment treaties that allows foreign investors to sue sovereign states before international arbitration tribunals, rather than in domestic courts, if they believe government actions have harmed their investments.}