Arbitration In Europe: New Rules On Third-party Litigation Funding

On September 13, 2022, the European Parliament passed a resolution to propose a directive (the "Directive") on the regulation of third-party litigation funding. Although not obvious at first sight, the Directive would also apply to arbitration procedures or other alternative dispute resolution mechanisms.¹

The European Parliament recognizes that, although third-party litigation funding is "virtually non-existent in Europe, it is a booming phenomenon in investment arbitration that multiplies the number and the volume of claims of private investors against States"². As it expects the practice of third-party litigation funding to expand in Europe-considering how it is already prevalent in the United States and many Commonwealth countries-the European Parliament is concerned about the potential for abuse by litigation funders, should the status quo of a regulatory vacuum be maintained. Indeed, litigation funders may be tempted to put their own economic interest over