News on Third-Party Funding in the EU: the Parliament’s recent proposal for a regulation

Daniela Amarante, Diana Nunes.

2023 International Arbitration Outlook Uría Menéndez, n.º 11

The EU Parliament has recently presented a proposal for the approval of a directive to regulate third-party funding in all dispute resolution proceedings taking place within the EU. This article analyses the content of the proposal and its potential effects for international arbitration.

Third-party funding in international arbitration

Third-party funding in dispute resolution is, as the name suggests, a financing method through which an entity funds another party's costs in a dispute – evidently, a dispute to which the funder is not a party. Although its significance varies from jurisdiction to jurisdiction (particularly within the EU, where it is still less used than elsewhere[1]), third-party funding may play an important role in providing access to justice for those who are unable to fund their own claims.[2] Although not exclusive to international arbitration (it is actually used in various dispute resolution methods), third-party funding is becoming increasingly popular in the arbitration community.

From the funded party's perspective, the reason is simple: the high costs involved in arbitration. International arbitration disputes typically concern highly complex transnational issues submitted to renowned arbitrators and require retaining large legal teams and specialised experts. The associated costs can therefore be dissuasive for parties who lack the necessary resources, making third-party funding an attractive solution.

From the funders' perspective, several factors make international arbitration a particularly attractive area for investment, including the high volume of claims, the enforceability of awards, the industry expertise of the arbitrators and the expectation of speedier proceedings.

There is an array of types of third-party funding in dispute resolution, which may vary depending on the type of client (e.g. corporation, individual, sovereign state) or the funding method (e.g. insurance, loans, assignments of claims).[3] Despite the particular characteristics of each type of funding, one thing they all have in common is the fact that third-party funding involves bringing an outsider into the dispute. This is particularly significant in the arbitration context, a method of dispute resolution for which confidentiality and party autonomy serve as core pillars. Having a third-party funder also makes it more complex to ensure the arbitrators' impartiality as it adds a new player into the arbitration equation (which would otherwise in principle only involve the parties to the dispute).

In this context, the issues that have been most extensively discussed in connection with third-party funding in arbitration are:[4] (1) disclosure duties, mainly in relation to impartiality and potential conflicts of interest of arbitrators and other participants; (2) the relevance of third-party funding when the arbitral tribunal is ruling on adverse costs and security for costs;[5] and (3) the negotiation and structuring of financing agreements between the party and third-party funder.[6] Some contend that the way to resolve these lasting debates is through regulation.

As José Miguel Júdice, a renowned Portuguese arbitrator, once put it, '[l]ike the Internet (or steam engines, combustion engines, [or] electricity, for that matter), [third-party funding] can be used for good, or not'.[7] The EU Parliament has recently taken steps towards such regulation. This article provides an overview of the issues involved.

Regulation of third-party funding across the globe

The first two countries to regulate third-party funding (within their own jurisdictions) were Singapore and Hong Kong,[8] allowing specific forms of funding agreements in international arbitrations. Regarding investment arbitration in particular, the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States, dated 14 September 2016, contains specific rules on third-party funding.[9]

Some of the most important international arbitral institutions have established rules addressing third-party funding in the most recent versions of their rules:[10]

(1) ICC: '[e]ach party must promptly inform the Secretariat, the arbitral tribunal and the other parties, of the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences'.[11]

(2) ICDR: '[t]he tribunal may require the parties to disclose: a. whether any non-party (such as a third-party funder or an insurer) has undertaken to pay or to contribute to the cost of a party's participation in the arbitration' or 'b. [...] has an economic interest in the outcome of the arbitration'.[12]

(3) ICSID: '[a] party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding'.[13]

(4) IBA: '[t]hird-party funders and insurers in relation to the dispute may have a direct economic interest in the award, and as such may be considered to be the equivalent of the party'.[14]

Similarly, two of the most important arbitral institutions in Portugal and Spain have also included references in their arbitration rules to the duty to disclose third-party funding.[15]

Moreover, in April 2018 the ICCA published the 'Report of the ICCA - Queen Mary Task Force on Third-Party Funding in International Arbitration'.[16] The task force conducted an extensive study on third-party funding, particularly concerning 'potential arbitrator conflicts of interest, confidentiality, privilege, and costs issues'.[17] The ICCA Report lays out a set of principles that are relevant when addressing and regulating third-party funding: (1) principles regarding disclosure and conflicts of interest, (2) principles regarding privilege and professional secrecy, (3) principles on the final award (allocation) of costs, and (4) principles on security for costs.[18]

The reasons for creating an obligation to disclose funding agreements align with those behind the need for uniform (and generalised) regulation of third-party funding: 'avoiding conflicts of interest, preserving transparency, complying with procedural good faith, refraining from abuse of the arbitral process and ensuring the party remains in control of its claim'.[19] Regulation of third-party funding therefore helps strengthen confidence in arbitral institutions and in arbitration in general as an alternative means of dispute resolution. 

The EU's recent proposal to regulate third-party funding

One of the most significant first steps towards regulating third-party funding within the EU came with the Voss Report.[20] The report includes a set of recommendations to the Commission on responsible private funding of litigation and contains a motion for a resolution, including a proposal for a directive of the European Parliament and of the Council on the regulation of third-party litigation funding ('Directive'). The report's proposals are guided by the objective of ensuring 'access to justice for all',[21] given that 'justice systems prioritize redress for injured parties, and not the interests of private investors who might only be seeking commercial opportunities from legal disputes'.[22] As such, the Voss Report deems it 'necessary to establish common minimum standards at Union level, which address the key aspects relevant to TPLF, including transparency, fairness, and proportionality'.[23]

It was in this context that, on 13 September 2022, the EU Parliament passed a resolution requesting the EU Commission to approve its proposal for a directive ('Proposed Directive').[24]

The Proposed Directive suggests the following:

  1. Establishing an authorisation and monitoring system for third-party funding activities within each Member State.[25] Under the proposed system, third-party funders would need to meet certain criteria concerning capital adequacy[26] and fiduciary duties.[27]
  2. Creating an independent supervisory department or authorities with powers to oversee all activities concerning third-party funding, including authorisation and monitoring of funders' activities and applying conditions, restrictions or even penalties to such funders.[28]
  3. Introducing rules on the requirements, content, validity and termination of third-party funding agreements. The proposed rules require that agreements go into significant detail on the regulated matters[29] in order to comply with a minimum transparency threshold and avoid conflicts of interest; Member States must ensure that all agreements that do not comply with these requirements are invalid.[30] Additionally, under the proposed rules a third-party funding agreement cannot be terminated unilaterally by the funder.[31]
  4. Attributing powers to courts and administrative authorities to disclose and review third-party funding agreements[32] and hold third-party funders liable for adverse costs in cases 'where the claimant party has insufficient resources to meet' such costs.[33]

If approved, all these provisions would apply to arbitral proceedings seated in a Member State.[34] However, it remains unclear at this stage whether the arbitral tribunals themselves would have the same powers that the Proposed Directive attributes to domestic courts and/or administrative authorities or if, alternatively, the latter would have powers to intervene in arbitration proceedings that involve third-party funding.

The European Commission will now decide whether or not to accept the Proposed Directive (which is not binding) by either submitting a text proposal to the European Parliament or giving its reasons for not doing so.[35] If a text proposal is submitted, it will be debated and – potentially – approved by the European Parliament, which will set deadlines for transposing the (future) directive into the legal systems of the Member States.

Next steps for third-party funding

For all the debate that this topic has continued to generate, the truth is that third-party funding is an established reality (both within and outside the context of international arbitration). That is why the debate should no longer focus simply on whether third-party funding should be allowed, but rather on whether and how it should be regulated.

Despite the regulations that have already been implemented worldwide, including by prestigious arbitral institutions, the Proposed Directive was not without its critics in the arbitration community. The critics have argued that the Proposed Directive intends to severely limit access to third-party funding (by regulating who may provide funding, the terms of funding agreements, etc.), which – instead of increasing access to third-party funding in arbitrations seated in Member States – may create real barriers to its operation in the EU.[36]

While criticism is certainly beneficial to the legislative process (as it increases the chances of a proposal being improved before its approval), efforts to regulate third-party funding in the EU should be welcomed. The world is currently going through a downturn, the impacts of which are already being felt – naturally, this may reduce the ability of companies to allocate income to dispute resolution. As such, third-party funding might assume a central role in the coming years and States and institutions should directly address its inherent challenges.

In any event, the Proposed Directive (if approved) and subsequent legislation at the level of the Member States should not overlook the importance of party autonomy to arbitration. In this regard, as with any regulation applicable to arbitration, it should afford a reasonable degree of flexibility.


[1] Recitals F. and I. of the European Parliament's resolution of 13 September 2022, stating 'whereas, while TPLF is virtually non-existent in Europe' and 'whereas TPLF is prevalent in Australia, the USA, Canada, the United Kingdom and the Netherlands'.

[2] 'Third Party Funding of Litigation' (Project Period: July 2022–September 2024) <> accessed 19 March 2023.

[3] L. Bench Nieuwveld et al, Third-Party Funding in International Arbitration (Wolters Kluwer: 2nd Ed: 2017), pp 2–7.

[4] Christopher Bogart, 'Third-Party Financing of International Arbitration' (2016) in The Arbitration Review of the Americas 2017, Global Arbitration Review <> accessed 19 March 2023 and Fernando Aguilar de Carvalho et al, 'Portugal. The Third Party Litigation Funding Law Review' (2020) in The Third Party Litigation Funding Law Review, Law Business Research, pp 134–141.

[5] Third-party funding should not, per se, be grounds for the arbitral tribunal to order provision of security for costs. Nevertheless, the ruling in RSM Production Corporation v Saint Lucia, ICSID Case No ARB/12/10, Decision on Saint Lucia's Request for Security for Costs, 13 August 2014, the arbitral tribunal concluded that '[...] the fact that it admittedly does not have sufficient financial resources itself and the (also admitted) fact that it is funded by an unknown third party which, as the Tribunal sees reasons to believe, might not warrant compliance with a possible cost award in favor of Respondents'. 

[6] For further information on this matter, see 'Report of the ICCA - Queen Mary Task Force on Third-Party Funding in International Arbitration' (2018), pp 14–16 <> accessed 19 March 2023.

[7] J. Júdice, 'Some notes about third-party funding: a work in progress' (Arbitraje, Revista de Arbitraje Comercial y de Inversiones, Vol XI, No 1: 2018), pp 55–71.

[8] The Civil Law (Amendment) Act 2017 establishes that 'A contract under which a qualifying Third-Party Funder provides funds to any party for the purpose of funding all or part of the costs of that party in prescribed dispute resolution proceedings is not contrary to public policy or otherwise illegal by reason that it is a contract for maintenance or champerty'. Hong Kong's Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 includes the wording '[...] setting out the practices and standards with which third party funders are ordinarily expected to comply in carrying on activities in connection with third party funding of arbitration'. For further information see D. Greineder et al, 'Acceptance and Anxiety: third-party funding in international arbitration' in Young Arbitration Review (Ed. 30: 2011, Year 7), p 22 and M. Krestin et al, 'Third-Party Funding in International Arbitration: To Regulate Or Not To Regulate?' in Kluwer Arbitration Blog (2017) <> accessed 19 March 2023.

[9] Article 8.26 of the CETA between Canada and the EU, establishing that '[...] where there is third party funding, the disputing party benefiting from it shall disclose to the other disputing party and to the Tribunal the name and address of the third party funder'.

[10] For additional information on specific regulation of third-party funding, see Hussein Haeri et al, 'Third-Party Funding in International Arbitration' in M&A Arbitration Guide (Global Arbitration Review: 2022), pp 107–119.

[11] Art 11(7), ICC Arbitration Rules, 1 January 2021.

[12] Art 14(7), ICDR International Dispute Resolution Procedures, 1 March 2021.

[13] Art 14(1), ICSID Arbitration Rules, July 2022.

[14] Explanation to General Standard 6(b), IBA Guidelines on Conflicts of Interest in International Arbitration, 23 October 2014: 'If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.'

[15] Art 10(5), CAC Arbitration Rules, 1 April 2021, and Arts 5(2.a) and 10(2), CIAM Arbitration Rules, 1 January 2020.

[16] 'Report of the ICCA - Queen Mary Task Force on Third-Party Funding in International Arbitration' (2018) <> accessed 19 March 2023.

[17] 'Report of the ICCA - Queen Mary Task Force on Third-Party Funding in International Arbitration' (2018), p 1 <> accessed 19 March 2023.

[18] 'Report of the ICCA - Queen Mary Task Force on Third-Party Funding in International Arbitration' (2018), pp 14–16 <> accessed 19 March 2023.

[19] M. Cura, 'Third-Party Funding: reasons, risks and regulatory approach' in Young Arbitration Review (Ed 30: 2011, Year 7), p 18.

[20] 'The Voss Report' was issued on 17 June 2021 (and amended on 25 July 2022) and was prepared by Axel Voss, a German member of the European Parliament. The Voss Report recommends: '[T]he establishment of a system of authorisation for litigation funders, thereby ensuring that effective opportunities are provided to claimants to make use of TPLF and that adequate safeguards are put in place, including through the introduction of corporate governance requirements and supervisory powers to protect claimants and to ensure that funding is only provided by entities that are committed to complying with minimum standards in terms of transparency, independence, governance and capital adequacy, and to observing a fiduciary relationship vis-à-vis claimants and intended beneficiaries. [...]'

The full text of the first version of the Voss Report can be found at <> and the full text of the latest version of the Voss Report – which was cited above – can be found at <>, both accessed 19 March 2023.

[21] The Voss Report, Introduction, item 3. <> accessed 19 March 2023.

[22] The Voss Report, Introduction, item 3. <> accessed 19 March 2023.

[23] The Voss Report, Introduction, item 3. <> accessed 19 March 2023.

[24] See the text adopted at <> accessed 19 March 2023.

[25] Art 5, Proposed Directive, 13 September 2022.

[26] Art 6, Proposed Directive, 13 September 2022. According to the proposed text, third-party funders would need to prove their capacity to 'pay all debts arising from their third-party funding agreements when they become due and payable' and to 'pay all debts arising from their third-party funding agreements when they become due and payable'.

[27] Art 7,Proposed Directive, 13 September 2022. According to the proposed text, third-party funders would need to have proper governance and internal procedures to allow them to observe a 'fiduciary duty of care requiring them to act in the best interests of a claimant'.

[28] Arts 8, 9 and 10, Proposed Directive, 13 September 2022.

[29] See Art 12, Proposed Directive, 13 September 2022. In particular, third-party funding agreements must include: '[T]he different costs and expenses that the litigation funder will cover, [...] a clause specifying that any awards from which the fees of the funder are deductible will be paid in full first to the claimants who may then subsequently pay any agreed sums to litigation funders as fees or commission (and) a disclaimer with regard to non-conditionality of funding in relation to procedural steps.'

[30] Art 14, Proposed Directive, 13 September 2022.

[31] Art 15, Proposed Directive, 13 September 2022.

[32] Arts 16 and 17, Proposed Directive, 13 September 2022.

[33] Art 18, Proposed Directive, 13 September 2022.

[34] Art 3(e), which defines proceedings as '[a]ny domestic or cross border civil or commercial litigation, or any voluntary arbitration procedure or alternative dispute resolution mechanism, through which redress before a court or administrative authority in the Union is sought concerning a dispute'.

[35] According to Art 225, Treaty on the Functioning of the European Union, 26 October 2012.

[36] J. Ballantyne, 'EU parliament calls for regulation of third-party funding' (2022), Global Arbitration Review <> accessed 19 March 2023. See also M. Krestin et al, 'Third-Party Funding in International Arbitration: To Regulate Or Not To Regulate?' in Kluwer Arbitration Blog (2017) <"> accessed 19 March 2023.

For more information, see also other newsletters, among many others on the matter available at <>, <> and <>, all accessed 19 March 2023.

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