Supreme Court To Lay Down Contours Of Third-Party Litigation Funding In India

The aspect of third-party litigation funding will require consideration by the top court.

The Supreme Court said so in an appeal filed by SBS Holdings Inc. against a decision of the Delhi High Court, which said that a third-party funder that is not a party to the arbitration proceedings cannot be held liable for discharging the awarded amount merely because it has funded a party in the proceedings.

Third-party funding is when an unconnected party takes care of the costs of defending a party in a court or arbitration proceeding in return for a contingent share of the win.

The concept helps level the playing field in cases with high litigation costs and encourages settlements based on the merits of the case and not on a difference in the risk appetite of the parties.

The apex court said that this issue is bound to arise again in the future, and it is a matter that demands the attention of the court.

What would be the cost and other liabilities of a third-party funder, and whether or not the funder would have any liability at all, will have to be considered, it said.

The case is set to be heard in February next year.

Background

In May, a two-judge bench of the Delhi High Court ruled that a third-party funder that is a non-signatory to an arbitration proceeding cannot be held liable for discharging the arbitral award just because it has funded a party in the proceedings.

In doing so, the division bench overruled a decision of a single-judge bench of the high court, which held that the cost awarded in arbitral proceedings can be enforced against a third-party funder who is not a party to the proceedings.

The division bench had said that third-party funding is essential to ensuring access to justice. A person without the necessary means to see through a proceeding that involves high costs would have no recourse in the absence of third-party funders, it said.

It also said that third-party funders need to be fully aware of their exposure in a case and that they can't be saddled with liabilities that they didn't agree to or know about.