Are third parties allowed to fund litigation? If so, are there any restrictions on this and can third party funders be made liable for the costs incurred by the other side?

Litigation & Dispute Resolution

Sweden Small Flag Sweden

There are no restrictions to third party-funding with the exception that a counsel is in practice prohibited from funding a party’s litigation if the counsel is a member of the Swedish Bar Association. Third party-funding for court litigation is very rare in Sweden, although it is gaining increased attention in the wake of successful examples of third-party arbitration funding.

As for potential risks for a funder, the following deserves mentioning. Owners and board members of special purpose vehicles may be held liable for the counterparty’s litigation costs where the SPV arrangement is made solely for the purposes of circumventing the loser-pays principle established in the Code of Judicial Procedure. This is one of the rare situations under Swedish law where the corporate veil can be pierced. It is uncertain if this liability could apply for third party-funders as well.

Portugal Small Flag Portugal

Third parties funding is not allowed under Portuguese law.

UAE Small Flag UAE

There are no rules which govern third party funding, and the law does not address this issue.

Saudi Arabia Small Flag Saudi Arabia

There are no rules against third party funding.

Norway Small Flag Norway

There are no rules prohibiting third parties from funding litigation. Third party funders can not be held liable for the costs incurred by the other side, except based on general tort law
principles in exceptional circumstances. However, in certain cases and based on non-statutory law, the representative of a party may be hold personally liable for costs incurred by the other side if the case was manifestly ill-founded and the representative knew that the party would not be able to pay costs awarded to the opposing party.

United States Small Flag United States

There is no federal prohibition on third parties funding litigation, but certain states outlaw the practice. In federal court, third-party funders may potentially be made liable for the costs incurred by the opposing party if the costs are imposed as a sanction for misconduct under FRCP 11 and if the funder is found to have substantially controlled the litigation.

There is an ongoing debate as to whether courts should require parties to disclose third-party funders. The Northern District of California recently adopted a rule mandating parties to disclose the identity of third-party funders in proposed class actions, making it the first federal district to do so.

Austria Small Flag Austria

Third-party funding is getting more common and has been explicitly approved by the Austrian Supreme Court. There are, however, no statutory rules governing third-party funding. Therefore, there are no restrictions as to arrangements between funders and litigants and there is no obligation to disclose a funding arrangement. Certain restrictions might apply if lawyers act as third-party funders since contingency and conditional fee arrangements (pactum de quota litis), which give a part of the proceeds to the lawyer, are prohibited between lawyers and clients under Austrian law.

Updated: May 18, 2018