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EU Parliament Voted To Regulate Third-Party Funding

On September 13, 2022, the European Parliament approved a report by its committee on legal affairs that calls for the introduction of a new regulatory framework to prevent abuses that may be caused by third-party-funded lawsuits.

Third-party funding (TPF) has dramatically changed the landscape of international arbitration over the past decade. At its most basic, TPF involves a third party providing funding to support a party’s (typically the claimant’s) costs of arbitration. Some have praised TPF for enhancing access to justice, while others have criticized the industry for encouraging vexatious litigation and creating conflicts of interest. As a result, there have been increasing calls for heightened transparency and regulation of TPF.

In reaction, some institutions have amended their rules to require the disclosure of any TPF. For example, the ICC 2021 Arbitration Rules provide that “each 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 defenses and under which it has an economic interest in the outcome of the arbitration.” The ICSID Amended 2022 Rules contain similar provisions. Finally, UNCITRAL’s Working Group III released an Initial Draft on the regulation of TPF in 2021, in which it considered, in part, issuing a complete ban on TPF. 

Recently, European lawmakers have advanced their consideration of new regulation on TPF. On September 13, 2022, they adopted a resolution that seeks to protect EU Member States against the “growing practice” of third-party litigation funding. The resolution broadly applies to “any 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.” As a result, the resolution could have far reaching impacts on not only domestic arbitration but also any domestic litigation linked to international arbitration, such as discovery or award enforcement proceedings. Most notably, the resolution calls for including a potential 40% cap on the funder’s share of the recovery, an obligation to pay adverse costs, and disclosure of funding agreements.

In the initial report published on June 17, 2021, from which the resolution stemmed, the EU Parliament criticized the TPF industry as being a “profit-making enterprise, in which justice for the claimant may or may not be a by-product,” resulting in the potential “financial exploitation” of European citizens. While the resolution is only a preliminary step toward the enactment of an EU Directive on TPF, it has possible wide-ranging implications for disputing parties in funded international arbitration with a connection to the EU.

© 2023 ArentFox Schiff LLPNational Law Review, Volume XII, Number 283
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About this Author

Timothy J. Feighery Attorney Arbitration ArentFox Schiff Washington DC
International Arbitration & Dispute Resolution Practice Co-Leader

Tim is a partner in our Washington, DC office and co-leader of the firm’s International Arbitration & Dispute Resolution practice.

Tim’s practice focuses on international arbitration, international claims, and dispute resolution work, including the representation of sovereign states, investors, and private parties in international commercial transactions. Current active matters include: representation of US investors in investment dispute brought under the US-Colombia Trade Promotion Agreement; representation of Sovereign in two separate...

202-857-6085
Lee Caplan Arbitration Attorney ArentFox Schiff Washington DC
International Arbitration & Dispute Resolution Practice Co-Leader

Lee is a partner in our Washington, DC office and co-leader of the firm’s International Arbitration & Dispute Resolution practice.

Lee counsels private and sovereign clients in a wide range of matters involving international dispute resolution, public international law, and international investment law and policy. He regularly appears before international tribunals in connection with complex and high-value disputes arising out of concession agreements, investment treaties, and other international agreements. Lee's experience spans a range of...

202-857-6337
Maxime Jeanpierre International Arbitration Lawyer
International Attorney

Max’s practice focuses on international arbitration and dispute resolution, including the representation of states and investors before international fora, such as the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) and the International Chamber of Commerce (ICC), as well as the representation of sovereigns in maritime boundary disputes under the United Nations Convention on the Law of the Sea (UNCLOS).

Current active matters include: representation of a Canadian investor in a tax dispute brought against...

202-350-3661
Associate

Maya has a background in international arbitration, international investment law, and complex litigation with experience in the U.S., Europe, and within international organizations.

Prior to returning to ArentFox Schiff, Maya worked previously at a boutique complex litigation firm, the Department of Health and Human Services, Brooklyn Defenders Services, the Office of the High Commissioner of Human Rights, the International Residual Mechanism for the Criminal Tribunals, and the U.S. Embassy in Paris, France.

202-350-3664
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