Third-Party Litigation Funding and ADR in Europe: Current Framework and Future Trends

by Pierfrancesco C. Fasano

Third-party litigation funding (TPLF) – whereby an external financier covers the costs of a dispute in return for a share of the proceeds – is rapidly expanding across Europe. Its relevance now extends well beyond court litigation, influencing arbitration, mediation and hybrid ADR models.

1. The Emerging EU Framework

The European Parliament’s 2022 Resolution on “responsible private funding of litigation” calls for minimum EU standards on transparency, capital adequacy, disclosure and limits on disproportionate success fees. The 2025 Commission Mapping Study confirms that most Member States still lack sector-specific rules and rely on contract and consumer law. Whether a binding Directive will follow remains politically open.

The Representative Actions Directive 2020/1828 also provides fertile ground for funded mass claims, particularly in consumer and competition matters, while insisting on safeguards against abusive litigation.

2. National Approaches: Fragmented but Evolving

Italy, France and Germany treat TPLF under general principles (good faith, public policy, lawyer-independence rules), although Germany’s mass-claims legislation and Spain’s upcoming statute show a move toward more structured regulation. The UK, though outside the EU, remains an influential comparator: its self-regulatory system is under pressure after recent case law questioning the enforceability of certain funding agreements, prompting calls for light statutory intervention.

3. TPLF Meets ADR

European policy increasingly treats funding as relevant to all dispute-resolution settings. In international arbitration, funders are particularly active in energy, construction, IP and investment disputes. Funding of mediation is less common but often included within broader funding packages, especially where ADR is mandatory.

Key issues for ADR include:

• Disclosure of funders to assess conflicts of interest;

• Control of settlement: clauses giving funders veto rights raise concerns about party autonomy;

• Security for Costs: tribunals must balance access to justice with protection of respondents.

4. Insights from the Recent Reuters Investigation

A recent Reuters inquiry into confidential TPLF contracts offers rare insight into funder influence. The documents reveal, contrary to the “passive investor” narrative, cases where funders held settlement veto powers, chose or instructed counsel, or even shaped litigation strategy. Such control, if replicated in ADR, may undermine neutrality, voluntariness of settlement and independence of arbitrators or mediators.

The investigation also highlights the opacity of many funding agreements and reinforces the case for mandatory disclosure – not only to courts, but also to arbitral tribunals and ADR providers. Critics quoted note that while TPLF broadens access to justice, funders often select only high-value, high-probability claims, raising the risk of profit-driven rather than justice-driven litigation management.

These findings strengthen the EU’s argument for robust safeguards: clearer limits on funder control, enhanced transparency obligations and supervision of profit-sharing mechanisms.

5. Market Players and Specialised Operators

Europe hosts more than one hundred active funders, including global investors and boutique operators focused on arbitration, insolvency, IP disputes and collective actions. Industry associations (ELFA, EALF) and soft-law instruments (e.g., ELI Principles on TPLF) contribute to an emerging ecosystem of self-regulation.

6. Outlook: Opportunities and Responsibilities

TPLF can expand access to justice and make complex ADR processes financially viable. However, as the Reuters findings show, unchecked funder control poses real risks for fairness and independence. The likely evolution in Europe points toward clearer disclosure duties, restrictions on settlement control and increased accountability of funders across all dispute-resolution settings.

For lawyers and ADR practitioners, understanding funding dynamics is no longer optional — it is integral to competent, ethical and transparent dispute management.