European Commission Report: Mapping Third-Party Funding in Litigation and Arbitration across Europe and beyond

On 21 March 2025, the European Commission published the report "Mapping Third-Party Litigation Funding in the European Union", in response to a 2022 resolution by the European Parliament on responsible third-party funding (TPF).

The Commission’s Report, which exceeds 700 pages and was conducted in collaboration with the British Institute of International and Comparative Law and the Asser Institute, examines the TPF landscape for litigation and arbitration across EU Member States and four non-EU countries – Canada, Switzerland, the UK, and the US – to inform potential future policy decisions. It analyses legislation, practices, and ongoing debates surrounding TPF and includes consultations with stakeholders. This article provides an overview of the Report’s key findings and considerations.

Background: Third-party funding

TPF has gained increasing attention from both states and institutions. Third-party funders cover the legal and related costs of claimants in exchange for a share of any potential damages awarded in successful cases. The primary rationale for permitting TPF is to enhance access to dispute resolution. It serves as a mechanism that enables the pursuit of claims, particularly in jurisdictions where legal costs are high or where marginalised groups lack the resources to finance legal action.

In recent years, TPF has become more prevalent in international arbitration, especially in investment arbitration cases. As TPF evolves, various legal and procedural questions have emerged. Current debates surrounding its regulation include issues such as the extent of disclosure, potential conflicts of interest, claim assignments, responsibility for adverse cost orders, and confidentiality during funders' due diligence before committing to a case.

Report's main findings and considerations

Findings from legal analyses and research

The Report highlights the following regarding existing or planned legislation for TPF in the assessed jurisdictions, as well as other potential issues:

• In most EU Member States, there is no specific TPF legislation. Similarly, Switzerland has no specific regulation. In Canada and the UK, no legislation directly addresses TPF, and guidance comes from the development of common law on a case-by-case basis. In the US, TPF is subject to the overlapping jurisdiction of state and federal courts, state and federal legislatures, regulatory agencies, and bar associations, with activities taking place at each of these levels.
   
• Where there is no TPF-specific legislation, the practice often operates within a general framework of contract law and civil procedure. Additionally, rules of ethics and professional conduct may apply to counsel, covering issues such as conflict of interest, confidentiality obligations, loyalty, and duties of independence. The assignment of claims is generally allowed in all assessed EU and non-EU countries, though practical implications and challenges related to TPF have only been discussed in certain jurisdictions. In places where champerty is present (Ireland, Canada, and the UK), the assignment of claims as a means of funding is limited or prohibited. In all jurisdictions, banking and financial regulations, including capital adequacy requirements, may apply to litigation funders based on their structure.
   
• The Report highlights doctrinal discussions in the assessed jurisdictions, noting concerns expressed about undue control, such as funders potentially unilaterally terminating funding agreements, controlling settlements, influencing litigation strategy, or charging excessive fees. The discussions also address potential conflicts arising from relationships between a party's counsel and funders. Transparency and disclosure are mentioned as tools to exclude these concerns. Finally, the Report notes that, in the absence of regulation, uncertainty may persist, potentially creating risks for claimants, such as funders operating without sufficient financial resources.

Consideration of three different approaches

In light of the results, data gathered, and consultations, the Report concludes by presenting three potential approaches to regulating TPF:

• No regulation: The Report begins by outlining arguments raised by experts and stakeholders against regulating TPF, citing the lack of evidence of harmful effects. They argued overly strict regulation could deprive legitimate claimants of the financial support needed to pursue a claim. Existing laws, including those governing contracts, civil procedure, consumer protection, financial regulation, and collective redress, along with judicial oversight, may be sufficient to regulate TPF. Issues specific to sectors like patent litigation could be addressed through targeted legislative amendments.
   
• Light-touch regulation: The Report then notes that others advocate for a light-touch regulatory approach, proposing basic rules that would allow TPF to remain viable. It is argued that the current legal landscape may be inconsistent and unpredictable for claimants, funders, and defendants. Given the growing use of TPF and limited transparency, relying solely on the judiciary to oversee funders could become an overwhelming task. Suggested areas for regulation include transparency, financial rules, and consumer protection. A uniform and balanced approach may improve access to justice, prevent potential abuse, and ensure fairness.
   
• Strong regulation: Finally, the Report notes that some support comprehensive regulation, including proposals for an EU directive, citing the potential negative impact of TPF, such as conflicts of interest, funding of frivolous claims, and rising legal costs. It refers to arguments that regulation would promote transparency, reduce undue influence, and restore confidence. The Report, however, also notes that critics warn excessive regulation could stifle TPF, denying deserving claimants the financial resources needed to pursue their cases.

Comment

TPF is a rapidly growing industry that is attracting increasing regulatory attention, including at the European level. Both states and institutions continue to focus on the innovative use of TPF to ensure broader access to dispute resolution.

The Report provides a valuable comparative analysis for stakeholders, practitioners, and regulators alike. Its findings are likely to influence future regulatory developments, offering key insights into the state of TPF across EU Member States and non-EU countries. The TPF practices in Switzerland and the UK are particularly relevant to EU countries due to the potential for cross-border litigation and arbitration.

For more information on this Report and TPF in the Europe and abroad, contact your CMS client partner or this CMS expert.