Third-party funding in international investment arbitration in Africa: The need for better regulation and transparency

This chapter explores the complex history of third-party funding (TPF) in international investment law, illustrating its evolution from an arrangement intended to aid financially disadvantaged claimants to a strategic instrument used by well-resourced entities to benefit from the spoils of arbitration, and also mortgage the sovereignty of States. TPF, which emerged in the early 21st century as a result of reforms in the United Kingdom, Australia, and the United States, has since become a global phenomenon that substantially impacts international investment arbitration. Thus, this chapter investigates the factors that have contributed to the widespread adoption of TPF, such as the substantial returns to funders and high costs of arbitration, and evaluates the reasons behind the increasing call for reform of the practice. Although TPF provides claimants with improved access to justice and risk mitigation, it poses significant challenges for developing States such as African States, in aspects of unequal power asymmetries, compromise of regulatory autonomy, and imposition of severe financial burdens on States.

In achieving its aims, the first part of this chapter introduces the concept of TPF, the attitude of arbitral tribunals towards it, and its increasing use in international investment arbitration. The second part examines its relation-ship with international investment arbitration to determine the inherent issues and challenges of the practice. To properly establish these issues, the starting part critically explores the nature of international investment arbitration, its challenges, and the debate surrounding the legitimacy crisis of investor-state dispute settlement (ISDS). Similarly, the transformation of TPF as a tool for exploitation of States, particularly in relation to African States, is investigated. Furthermore, the third part explores initiatives aimed at regulating TPF and propose possible reform measures to stops its negative impact on sovereignty and decision-making powers of States.