The TPF Paradox: Regulation Or Complete Prohibition?
Reuben George Varghese, Jindal Global Law School, O.P. Jindal Global University
ABSTRACT
This paper provides an in-depth analysis of prohibition and regulation of third-party funding in investment arbitration by examining the paradox between enhanced access to justice for claimant investors and the systemic risks to procedural integrity. Following the 2008 economic recession, third- party funding has expanded significantly in investor-state dispute settlement, raising concerns regarding conflicts of interest, breach of confidentiality, structural asymmetries favouring claimants, and settlement deterrence. The 2024 India-UAE BIT is used as a prime example illustrating complete prohibition of third-parting funding whereas other treaties, national legislations and institutional rules are studied to illustrate different forms of regulating third-party funding in investment arbitration. This paper demonstrates, through doctrinal analysis of key ICSID jurisprudence, that unregulated third-party funding creates radical asymmetries whereby funded claimants face no downside risk whilst respondent States bear full defense costs from public budgets. This paper advocates for comprehensive multilateral regulation encompassing mandatory disclosure requirements, capital adequacy standards, success fee caps and more, arguing that prohibition or substantive regulation constitutes a necessary safeguard against wealth transfers from taxpayers to commercial speculators whilst preserving legitimate access to justice.
