Regulation

Overview

Is third-party litigation funding permitted? Is it commonly used?

There is currently no law or regulation that expressly prohibits or specifically regulates third-party funding.

Korean courts have not expressly shown their attitude in regard to this issue and have not endorsed such funding. According to article 6 of the Trust Act, third-party funding must be arranged or structured in such a manner that does not constitute an entrustment of a lawsuit. In addition, under article 34(1) of the Attorney-at-Law Act, non-attorneys are prohibited from introducing, referring or enticing a party to a case to a specific attorney in exchange for money or other benefits, and under article 34(5) of the Attorney-at-Law Act, no fees and other profits earned through services that may only be provided only by attorneys-at-law shall be shared with any person who is not an attorney-at-law.

At this point, without further legislative changes, we expect Korean courts to take a conservative approach in regard to third-party funding.

While there have been active introductions and related discussions regarding this topic, it appears that third-party litigation funding is yet to be commonly used to date.

Restrictions on funding fees

Are there limits on the fees and interest funders can charge?

No. There is no specific limitation on the fees and interest a third-party funder may charge. However, a funding arrangement will still be subject to the Interest Limitation Act. Under the Interest Limitation Act, the amount of money that the funder receives from the successful party other than the principal amount will be counted as ‘interest’. Pursuant to the Act, statutory interest as of 2018 is capped at 24 per cent per annum, and any amount exceeding such rate is null and void. In this regard, any amount of money that a creditor receives in connection with a loan, including a deposit, rebate, fees, deduction or advance interest is deemed as interest for the purpose of applying the statutory interest rate ceiling.

Specific rules for litigation funding

Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?

No. However, depending on how the third-party funding is arranged or structured, it may be limited based on the restrictions set forth under the Trust Act or the Attorney-at-Law Act (see question 1).

Legal advice

Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?

Under the Attorney’s Code of Ethics, attorneys are prevented from ‘stirring up litigation’, either by directly encouraging potential clients or by indirectly permitting a third party to do so. In consideration of such rule, lawyers will need to take a careful stance on introducing or advising clients in relation to third-party litigation funding.

Regulators

Do any public bodies have any particular interest in or oversight over third-party litigation funding?

Not at the present time. However, if third-party funding becomes more common or prevalent in Korea, it is likely that the Ministry of Justice and the Korean Bar Association will actively oversee third-party funding activities.