Third‑party Funding in Nigeria Arbitration (arbitration & Mediation Act 2023): Disclosure, Security for Costs and Ethics

Third-party funding arbitration nigeria has moved from a grey-area practice to an expressly recognised feature of the country’s dispute resolution landscape, and 2026 is a year in which it matters increasingly for commercial decision-makers. The Arbitration and Mediation Act 2023 gives statutory footing to funding arrangements that were, under the old common law framework, clouded by uncertainty around maintenance and champerty. As market uptake grows, tribunals seated in Nigeria are increasingly likely to scrutinise funder disclosure, weigh security for costs applications more closely, and probe the ethical boundaries around counsel independence.

This guide sets out a practical decision framework for using funding in Nigeria-seated arbitration, covering the statutory recognition, disclosure obligations, security for costs tests, funding agreement drafting, and the professional ethics that in-house counsel, CFOs, claims owners and funders must weigh before signing.

Why third-party funding arbitration nigeria matters in 2026

For years, claimants with strong cases but constrained balance sheets faced a difficult choice: fund a costly arbitration internally, settle early at a discount, or abandon a meritorious claim altogether. Third-party funding removes that dilemma by allowing a specialist financier to bear the costs of pursuing a claim in exchange for a share of any recovery. The commercial appeal is obvious, funding converts a contingent legal asset into a financed, off-balance-sheet pursuit, and it shifts downside risk to a party in the business of pricing that risk.

What changed the calculus in Nigeria is statute. The Arbitration and Mediation Act 2023 provides express recognition of third-party funding for arbitration proceedings, resolving longstanding doubt about whether such arrangements offended older doctrines that treated the sale of an interest in litigation as unlawful. That recognition, combined with a maturing pool of international and regional funders looking at African disputes, has driven rising interest through 2026. With rising use comes rising scrutiny: tribunals are more likely to ask who is behind a claim, what control a funder exerts, and whether a respondent facing a funded but impecunious claimant should be protected by security for costs.

Understanding third-party funding arbitration nigeria therefore means understanding both the opportunity and the procedural risks that attach to it.

Legal recognition under the Arbitration and Mediation Act 2023

The single most important development is that the Arbitration and Mediation Act 2023 expressly addresses third-party funding in the context of arbitration and abolishes the application of the common law torts and offences of maintenance and champerty to third-party funding arrangements connected with arbitration seated in Nigeria. Where the previous regime left funders and claimants to navigate those common law doctrines, rules originally designed to prevent officious intermeddling in another’s litigation, the current Act removes that uncertainty for arbitration proceedings. This is a deliberate policy choice aligned with Nigeria’s ambition to be a competitive seat for international arbitration and to attract the capital that funding brings to viable claims.

Recognition alone, however, is not the whole picture. The Act also situates funding within a framework of tribunal powers. Nigerian tribunals exercise wide discretion over the conduct of proceedings, and that discretion extends to matters directly affected by the presence of a funder, including the ability to address disclosure of a funder’s involvement and to consider applications for security for costs. In practice this means the statute does two things at once: it legitimises funding and it leaves tribunals equipped to manage the procedural consequences of funding. Parties structuring a funded claim should treat both dimensions as linked, because the benefits of recognition come packaged with heightened tribunal attention.

The pre-2023 position and what has shifted

Before the 2023 Act, the enforceability of funding arrangements in Nigeria was genuinely uncertain. The historic prohibitions on maintenance and champerty created a real risk that a funding agreement could be attacked as contrary to public policy, which in turn threatened the recoverability of a funder’s return and, in the worst case, exposed the underlying arrangement to challenge. That uncertainty deterred both domestic claimants and international funders, who priced legal risk into their decisions or avoided Nigerian-seated matters entirely.

The statutory shift changes the commercial conversation. Funders can now price a Nigerian-seated case on its merits and enforcement prospects rather than on the threshold question of whether funding is lawful at all. For claimants, the practical effect is potentially greater access to capital and a wider field of funders willing to engage. For respondents, the shift means funded claims are now a settled part of the landscape to be met with tactical responses rather than a challenge to legitimacy.

Is third-party funding legal in Nigeria for arbitration?

The direct answer is yes. Third-party funding is lawful for arbitration seated in Nigeria, and its legality now rests on express statutory recognition rather than on strained interpretation of older common law. This is a clear foundation for a funder or claimant to build upon: a recognised, lawful arrangement whose validity does not depend on litigating the champerty question.

There are, however, sensible caveats. Recognition of funding does not immunise a funding agreement from ordinary contract principles or from public policy scrutiny where an arrangement is abusive, or where terms purport to give a funder improper control over the conduct of the case. Parties should also remember that the legality of the funding relationship is distinct from the procedural treatment of the funded claim: a lawful funding agreement does not prevent a tribunal from ordering disclosure of the funder or granting security for costs where the circumstances justify it.

It should also be noted that the Act’s abolition of maintenance and champerty in this context is directed at arbitration; the position for court litigation funding may differ and should be considered separately.

The practical consequences differ by role. For funders, lawful recognition means Nigerian-seated matters can be underwritten with greater confidence, subject to diligence on enforcement. For claimants, it means access to a developing market for capital, provided they are prepared to accept the disclosure and control terms funders require. For respondents, it means funded claims cannot be resisted simply on the basis that funding is impermissible, the more productive strategy is procedural, focused on disclosure and security.

Disclosure of funder in Nigeria arbitration: tribunal powers, timing and best practice

Disclosure is where the theory of recognition meets the reality of contested proceedings. The Act’s framework leaves tribunals able to manage funding transparency, and the international trend, reflected in guidance from bodies such as UNCITRAL and the Chartered Institute of Arbitrators, has moved steadily towards greater disclosure of funder identity and involvement. In a third-party funding arbitration nigeria scenario, getting disclosure right protects both the integrity of the tribunal and the confidentiality interests of the funded party.

When might a tribunal require disclosure?

Tribunals do not order disclosure reflexively. They are generally guided by whether the funder’s presence is material to an issue the tribunal must decide. The principal triggering events are:

• Conflicts of interest. Where a funder’s identity is needed to test whether an arbitrator has any connection to the funder that could compromise independence or impartiality.
• Material influence or control. Where there are indications that a funder exercises control over strategy, settlement or the appointment of counsel such that the funder is, in substance, driving the case.
• Costs risk and security applications. Where a respondent applies for security for costs and the funder’s terms, including any commitment to meet adverse costs, are relevant to the tribunal’s assessment.

What to disclose

Where disclosure is ordered, the scope should be proportionate to the purpose. Full disclosure of the entire funding agreement is rarely necessary. A calibrated disclosure typically covers:

• Identity of the funder. The name and, where relevant, the corporate structure of the funding entity, the minimum needed to run a conflicts check.
• Existence and general nature of the arrangement. Confirmation that funding exists and a high-level summary of its scope, without exposing commercially sensitive economics.
• Control and termination rights. Whether and to what extent the funder can influence strategy, control settlement decisions, or terminate funding, because these bear directly on control-related concerns and on costs risk.

How to protect confidentiality

Confidentiality is a legitimate and central concern for funded parties, and it can often be reconciled with disclosure through careful procedure. Effective techniques include disclosing only to the tribunal and opposing counsel rather than the world, redacting commercially sensitive terms such as the funder’s return and pricing, and seeking a procedural order that limits onward use of any disclosed material. Building confidentiality carve-outs into the funding agreement itself, expressly permitting disclosure where a tribunal so orders, avoids putting the funded party in breach of its own contract when it complies with a tribunal direction.

A disciplined disclosure checklist tracks the key procedural moments:

• Pre-commencement. Decide the disclosure position before filing; assess conflicts against the likely arbitrator pool.
• At constitution of the tribunal. Consider proactive disclosure of funder identity to pre-empt later challenge and to protect any eventual award.
• At the emergency arbitrator or interim relief stage. Anticipate that urgent applications may prompt early scrutiny of funding.
• On any application for relief. Be ready to disclose control and costs-relevant terms if a security application is made.

Do parties have to disclose third-party funding to the tribunal in Nigeria? There is no blanket automatic public register. However, tribunals under the Act may order disclosure where funding is material to control, conflicts or costs. Best practice is proactive but limited disclosure of the funder’s identity and involvement, coupled with a procedural order to preserve confidentiality over commercial terms.

Security for costs in Nigeria arbitration: tests, evidence and likely outcomes

Security for costs is often the most consequential tactical battleground in funded claims, and it is where respondents most often seek to convert the presence of a funder into a procedural advantage. An order for security requires the claimant to put up money, typically into an escrow or by bank guarantee, to cover the respondent’s costs should the claim fail. For a claimant relying on funding, an unexpected security order can stall momentum and force renegotiation with the funder.

Legal tests tribunals apply

The power to order security is discretionary, and tribunals typically weigh several factors rather than applying a single mechanical rule. The recurring considerations are:

• Impecuniosity of the claimant. Whether the claimant would be unable to meet an adverse costs award, often the central inquiry, and one where the very existence of external funding may be raised as a signal of limited own resources.
• Risk of non-enforcement. Whether any eventual costs award against the claimant could realistically be enforced, particularly where the claimant’s assets sit in jurisdictions that are difficult to reach.
• The balance of the merits and prejudice. The tribunal will generally seek to avoid using security to stifle a genuine claim, weighing the prejudice to the claimant of an onerous order against the prejudice to the respondent of being left without recourse on costs.

Crucially, the mere presence of a funder does not automatically produce a security order. Funding can cut both ways: it may indicate the claimant lacks resources, but it may equally show that a well-capitalised backer stands behind the claim. The outcome turns on the specific evidence and the terms of the funding.

Evidence to support an application

A respondent building a security application should assemble a focused evidential record, which may include the claimant’s financial statements or accounts said to demonstrate inability to pay, the enforcement footprint showing where the claimant’s assets are located and how hard they are to reach, and, where disclosed, the terms of the funding agreement bearing on whether the funder will meet adverse costs. Evidence of jurisdictional risk, such as a lack of reciprocal enforcement or a history of asset dissipation, can strengthen the case for an order.

How claimants and funders can rebut or avoid security

Claimants and funders are far from powerless. One of the most effective mitigations is often a direct undertaking to the tribunal that the funder will meet any adverse costs award, which addresses the impecuniosity concern at its root. Other tools include placing funds in escrow, procuring after-the-event insurance covering adverse costs where available, and demonstrating a clear enforcement pathway against a solvent, reachable party. A short funder undertaking to the tribunal typically confirms:

• The funder’s commitment to fund the claimant’s own costs of the arbitration for a defined scope.
• The funder’s agreement to satisfy any adverse costs award made against the claimant, up to an agreed cap where applicable.
• A covenant not to withdraw funding in a manner that frustrates the respondent’s ability to recover costs.

When will Nigerian tribunals order security for costs in funded claims? Tribunals generally apply the usual discretionary factors, claimant impecuniosity, the realistic prospect of enforcing a costs award, and the merits balance. The presence of third-party funding may increase the likelihood that security will be considered but does not guarantee an order. A clear funder undertaking to meet adverse costs is frequently persuasive in avoiding one.

Funding agreements in Nigeria arbitration: must-have terms and model clauses

The funding agreement is the document that determines how the entire arrangement performs under pressure. A well-drafted agreement anticipates the tribunal’s scrutiny, protects the claimant’s control of its own case, and gives the funder the commercial protections it needs without crossing into impermissible control. In any third-party funding arbitration nigeria matter, the drafting should be treated as risk management rather than boilerplate.

Key commercial terms

The commercial core of the agreement should address, at minimum, the scope of funding (which costs are covered and to what limit), the recoverability and priority of the funder’s return, whether the funder has step-in rights on termination, and, critically, how settlement decisions are handled. Settlement control is often the most sensitive commercial term: funders naturally want protection against a claimant accepting an uncommercial settlement, but a clause that hands the funder outright control of settlement risks both the ethical independence of counsel and a finding that the funder is running the case.

Tribunal-facing clauses

Beyond the commercial terms, a sophisticated funding agreement contains provisions designed to work with, not against, the tribunal process. These include an express permission for the funded party to disclose the funder’s identity and involvement where a tribunal so orders; a covenant by the funder not to take steps that frustrate enforcement of any award or costs order; and, where negotiated, a security undertaking allowing the funded party to offer the funder’s commitment to the tribunal to resist a security application.

Illustrative drafting language, for guidance only and to be tailored by counsel, might provide that “the Funder consents to disclosure of its identity and the existence of this Agreement to any tribunal that so directs, and to opposing parties where required by such direction,” and that “the Funder shall not withdraw funding in a manner intended to frustrate recovery of costs awarded against the Funded Party.”

Contingency fees, success fees and professional ethics in Nigeria arbitration

Funding introduces a third economic actor into the lawyer–client relationship, and that raises distinct questions of professional ethics that counsel cannot afford to overlook. The concern is not funding itself but the risk that a funder’s economic interest, or a success-based fee, subtly redirects a lawyer’s loyalty away from the client.

Are contingency and success fees allowed?

The Rules of Professional Conduct for Legal Practitioners and the general law approach outcome-based fee arrangements with caution, and any counsel considering a fee that turns on the outcome must do so within the boundaries set by those rules and applicable law. Where such arrangements are permissible, they demand full and clear disclosure to the client and precise documentation in the retainer. The risk is sharpened where a funder, rather than the client, is the source of a success fee, because that structure can create an incentive alignment between counsel and funder that competes with the lawyer’s duty to the client. Counsel should verify the current position under the applicable professional rules before entering any such arrangement.

Managing conflicts and independence

The governing principle is that counsel’s professional duty runs to the client, not the funder, regardless of who pays. Preserving that independence requires deliberate protocols:

• Written informed consent. The client should acknowledge in writing the funding arrangement, any success-based element of counsel’s fees, and the scope of any information shared with the funder.
• Information firewalls. Clear boundaries on what privileged or confidential material passes to the funder, protecting privilege and preventing waiver.
• Control thresholds. Express terms confirming that strategic and settlement decisions remain with the client on counsel’s advice, and that the funder’s role is financial rather than directive.

Comparative table: Nigeria, England & Wales and international ICC practice

Practical checklist: deciding whether to use a funder for a Nigeria-seated arbitration

Before committing to funding, decision-makers should work through a structured assessment. The following ten points capture the essentials:

1. Merits. Is the legal and factual case strong enough to attract funding on acceptable terms?
2. Quantum. Is the recoverable amount large enough to leave a worthwhile net return after the funder’s share and costs?
3. Enforceability. Are there identifiable, reachable assets against which any award can be enforced?
4. Counterparty risk. Is the respondent solvent and likely to remain so through to enforcement?
5. Tribunal appetite. How is a tribunal at the chosen seat likely to view funding, disclosure and security?
6. Cost of funding. Is the funder’s return proportionate to the risk and the expected recovery?
7. Disclosure risk. What disclosure is likely to be required, and can confidentiality be protected?
8. Security risk. How exposed is the claim to a security for costs application, and can it be mitigated?
9. Confidentiality. Are sensitive commercial terms adequately protected in the funding documents?
10. Funding agreement terms. Do the control, settlement and termination provisions preserve the client’s independence?

Respondent strategies when facing a funded claimant

Respondents in a third-party funding arbitration nigeria dispute should treat funding as an opportunity to deploy legitimate procedural pressure rather than as an unfair advantage to be resented. The most effective tactical steps are:

• Early disclosure requests. Seek disclosure of the funder’s identity and the existence of funding at the earliest appropriate stage to test conflicts and gather intelligence for a security application.
• Prompt security for costs applications. Where the claimant appears impecunious, apply early, before significant costs are incurred, so an order has real protective value.
• Jurisdiction and enforcement mapping. Assess where the claimant’s assets sit and how enforcement of a costs award would work, building the evidential foundation for security.
• Asset tracing. Where warranted and lawful, investigate the claimant’s financial position to demonstrate the genuine risk of non-recovery.

Model clause bank

The following short clauses are indicative drafting aids only and should be adapted by counsel to the specific matter:

• Funding disclosure clause (tribunal-facing). “The Funded Party may disclose the identity of the Funder and the existence of this Agreement to any tribunal, and to opposing parties where a tribunal so directs, without breaching any confidentiality obligation owed to the Funder.”
• Funding undertaking to the tribunal. “The Funder undertakes to fund the Funded Party’s costs of the arbitration and to satisfy any adverse costs award made against the Funded Party, up to the agreed limit.”
• Settlement consent clause. “Any settlement shall be a decision of the Funded Party taken on the advice of its counsel; the Funder shall be consulted but shall not have the right to compel acceptance or rejection of any settlement offer.”

Conclusion and recommended next steps

Third-party funding arbitration nigeria has entered a new phase: statutory recognition under the Arbitration and Mediation Act 2023 has substantially settled the question of legality, and the practical agenda has shifted to disclosure, security for costs and ethics. For claimants and funders, the path forward is disciplined due diligence on merits and enforcement, a funding agreement that preserves client control while offering tribunal-facing undertakings, and pre-emptive attention to confidentiality through appropriate procedural orders. For respondents, the productive response is procedural, early disclosure requests, timely security applications, and careful enforcement mapping. Handled with foresight, funding is a powerful tool for unlocking meritorious claims in Nigeria-seated arbitration; handled carelessly, it invites avoidable disputes over disclosure and costs.

The sensible next step for any party contemplating a funded matter is to align the funding agreement, the disclosure strategy and the counsel protocols before the arbitration begins, taking current legal advice on the specific circumstances.

Sources

1. ICSID / World Bank, Resources on Third-Party Funding and Enforcement
2. Supreme Court of Nigeria, Official Website and Judgments
3. Nigerian Bar Association, Rules and Professional Guidance
4. UNCITRAL, Documents on Third-Party Funding and Arbitration
5. Chartered Institute of Arbitrators (CIArb), Practice Notes and Guidance