Arbitration has gradually become the most favoured method of resolving international commercial disputes. However, the cost involved in arbitration proceedings can be detrimental for those less inclined to afford it or for those who are no longer willing to take such a financial risk. As a result, the flourish of third-party funding of litigation and arbitration proceedings is hardly surprising. It merely reflects the needs of a market and the risks parties are no longer willing to take.

Third-party funding provides a solution for those for whom the initiation of arbitration proceedings is contingent on the availability of funding. As a result, despite the cost involved, a party is more inclined to initiate arbitration proceedings knowing that it is not putting its company at risk.1

Third-party funding of international arbitration has been a growing phenomenon in many jurisdictions and has received increasing attention from the international arbitration and litigation communities. However, it has received limited attention in France, one of the major arbitration forums in the world, while it is well-developed in many other countries such as the United States, United Kingdom, Germany and Australia.

What is third-party funding?2

Third-party funding is an agreement by which a third-party to a dispute agrees to pay all or part of the costs associated with the proceedings. In exchange for the funds, the third-party receives a portion of the proceeds awarded by a decision in favour of the funded-party. As such, repayment of the thirdparty is contingent on the success of the funded-party in the dispute.

This financing method has proven profitable thus far for both the funded-party and the funder. Both share a common interest in succeeding in the proceedings and obtaining a favorable award. Because its impecuniosity no longer hinders the pursuit of a meritorious claim, the funded-party gains access to a justice it may otherwise have been unable to access, while the funder makes a profitable investment.

Depending on the jurisdiction involved, a party may resort to a diverse panel of funders. The funder may be (i) the client’s law firm (where authorized), (ii) an insurance company, (iii) a bank, or (iv) an outside (financial) institution, either specialized in third-party funding, or financing arbitration on a case-by-case basis alongside other traditional financial investments.

Some examples of international arbitration’ funders are: Juridica Capital Management3, La Française AM International4, Litigation Risk Strategies Group (Crédit Suisse)5, Juris Capital LLC6, Burford Capital Limited7, Foris AG8, etc.

These specialized institutions carry out a high-profile scrutiny of the cases purporting to benefit from the funding. They carefully weigh the chances of success and only proceed with the financing if they consider they will have a chance of success and a sufficient rate of return on their investment. Depending on the result of this analysis, they proceed with the funding or reject it. Should the proceedings turn out to be unsuccessful for the funded-party, the third-party funder of the arbitration proceedings is in principle not entitled to compensation. As a result, the funder loses the invested funds and bears the financial risks alone.

Third-party funding of arbitration in France9

Theoretically, there is nothing that prohibits resorting to third-party funding in France. However, it is not used in practice. This can be explained by (i) the low cost of legal actions in France compared to other countries; (ii) the prohibition of punitive damages; (iii) the widespread availability of legal aid or insurance in France; or the (iv) the prohibition of pure contingency fee arrangements (quota litis pacts).

There is only one reported case where French courts were asked to consider the validity of a thirdparty funding agreement in an international arbitration. In 2006, the Versailles Court of Appeal10 was asked to enforce a funding agreement between an Australian company specialized in waste treatment, which had initiated arbitration proceedings against another company as a result of the failure of a construction project. The Australian company had concluded a financing contract «to secure the financing of litigation costs in exchange for an interest in the proceeds» with a German financing company, Foris AG.

When the arbitral tribunal rejected the claims of the Australian company, the latter turned to Foris AG for the payment of costs. The third-party funder, Foris AG, refused to honor the agreement. Notwithstanding that the Court of Appeal denied the jurisdiction of French courts over the dispute, it acknowledged that the financing contract in question was sui generis and unknown in EU countries apart for those countries of Germanic culture. However, although the Court was unable determine the nature of this contract, it did not declare it void.11

The main limitations to third-party funding in France originate out of the conflict between the practice itself and a French lawyer’s ethical rules.

First, in France pure contingency fee arrangements between a lawyer and his client are strictly prohibited; that is, French law prohibits any determination of fees depending solely on the result of proceedings.12 The fee structure must therefore entail the payment of the lawyer’s fees, or at least part of them, for the actual service rendered irrespective of the result of the proceedings.

In addition, under the French National Bar Association rules, a lawyer may only receive payment from his client or the client’s agent.13 Therefore, in practice, third-party funders would have to provide the money to the client, who would then pay the lawyer’s fees directly.

When considering entering into a funding arrangement, the funded-party may be required to provide documentation and information to ascertain its chances of success. Such information may be comprised of privileged information. However, in France, the lawyer’s duty of professional secrecy cannot be lifted and is of public order.14 Therefore, under French law, the client would be the only one that could provide privileged information to the third-party funder.

There are no laws or rules that question the validity of third-party funding arrangements or prohibit a lawyer from representing a party benefiting from such funding in international arbitrations provided that French ethical rules are complied with. This is, of course, assuming that the contract was duly formed and that it does not contravene French public policy.

It is noteworthy that these ethical rules are only applicable to French lawyers. Foreign lawyers representing a client in international arbitration proceedings in France would not be subject to such rules and regulations.

Concerns irrespective of the jurisdiction

Because it is still a growing practice, third-party funding raises a number of other issues irrespective of the jurisdiction where it is used and which remain unresolved. Its potential benefits and risks have received increasing attention from the arbitration community.

One of the main concerns is the possible waiver of rights in relation to privileged documents or information (including lawyer-client privilege) when the client discloses privileged documents and information to the third-party funder, either during the due diligence scrutiny phase where the funder determines whether or not to fund the arbitration proceedings, or during the course of the proceedings.15 Although specific confidentiality agreements are generally concluded to that respect, it is a risk the funded-parties should consider when they decide whether or not to resort to third-party funding.

In addition, potential conflicts of interest may arise, mainly due to the control the funder may directly or indirectly exert, or try to exert, over the proceedings. Indeed, by funding the entire proceedings, the funder gains an interest in the result of the proceedings. There is a non-negligible risk that, if the structure of the agreement is not stringent enough, the funder will attempt to prioritize its own interests ahead of the client's.

In principle, the funder does not acquire the rights and obligations of the funded-party, but because of its financial input, the funder may claim certain control rights over the proceedings. This in itself calls for the implementation of specific regulation and special care.

Another question which remains unresolved is whether the existence of a funding agreement should be disclosed to the arbitral tribunal or to the opposing party.


Third-party funding is still a developing institution, and even more so in France. However, under the current legal framework, the development and success of arbitration in France could enliven a possible avenue for third-party funding in France.

Although many risks and contingencies are entailed in the process, including that the legal system could become a mere instrument for financial speculation, this mechanism also provides adequate solutions for impecunious parties with meritorious claims and for parties wishing to preserve the financial health of their companies. So long as sufficient regulatory restraints and risk analyses are duly carried out before entering into funding agreements, third-party funding will continue to flourish.