Briefing

International arbitration third-party funding in France: The legal framework and stakeholder initiatives

Third-party funding in arbitration, a practice that originated from common law jurisdictions, has experienced significant growth in France in recent years. At its inception, third-party funding was conceived as a mechanism to promote equality between parties. By enabling a financially weaker party to pursue or defend a claim against a better-resourced opponent, it helps to rebalance procedural inequalities and ensure more effective access to justice.

Third-party funding allows third parties to the proceedings, such as investment funds or specialised financing companies, to finance all or part of the costs related to arbitral proceedings, in exchange for a percentage of damages awarded to the funded party. The funder bears alone the financial risks linked to the proceedings: if the funded party does not prevail at the conclusion of the arbitral procedure, the funder receives no remuneration and will not seek reimbursement from its client for the costs it advanced. If the claim succeeds, the funder is usually paid a percentage of the damages recovered.

The increasing use of third-party funding raises several legal and ethical questions. In France, these issues arise in a legal environment that lacks specific legislation, but is shaped by case law, professional rules, and market practices.

The absence of dedicated legislation in France

French law does not contain legislation specifically regulating third-party funding. Instead, courts have treated funding agreements as sui generis contracts governed by the general principles of French contract law.

French courts have recognised the validity of such agreements. While this contractual model remains relatively uncommon in many European jurisdictions – apart from Germany – it is considered legally permissible under French law. Since the French Civil Code does not directly address litigation funding, ordinary rules governing contracts and obligations apply.

In particular, Article 1107 of the Civil Code reflects the principle of contractual freedom. Parties are therefore free to structure funding agreements as they see fit, provided the contract respects general legal principles such as legality, good faith, and public policy.

Judicial control over funder fees

Although parties enjoy contractual freedom, French courts retain the power to review and reduce a funder’s remuneration if it is considered excessive in relation to the services provided.

The French Court of Cassation has confirmed that courts may apply rules allowing judicial revision of price in contracts comparable to services contracts, indicating that “the exclusively borne risk does not prevent the possible reduction of the agreed remuneration” when it would be “excessive in relation to the service rendered”.

Stakeholder Initiatives and Professional Rules

In the absence of legislation, professional bodies have played an important role in shaping the framework for third-party funding in France.

National Bar Council Resolution (2015)

On 20 and 21 November 2015, the French National Council of Bars adopted a resolution encouraging the development and implantation of third-party funders in France. The resolution provided practical guidelines for lawyers working with funded clients and highlighted the need to preserve core professional duties such as confidentiality and loyalty.

Paris Bar Council Working Group and Resolution (2016-2017)

In September 2015, the Arbitration Commission of the Paris Bar created a working group to conduct a comprehensive study of third-party funding. The group analysed the development of the funding industry, its economic rationale, and the ethical questions it raises for lawyers. The findings were presented to the Paris Bar Council on 21 February 2017.

In February 2017, the Paris Bar Council adopted a resolution expressly supporting the use of third-party litigation funding for the benefit of both litigants and lawyers, particularly in international arbitration (the Resolution). At the same time, it reaffirmed that French lawyers must continue to comply with their legal, ethical and professional duties and obligations when representing funded parties.

Ethical considerations for French lawyers

Third-party funding raises several ethical issues for lawyers practising in France, particularly concerning confidentiality, independence, and potential conflicts of interest.

Professional secrecy

Professional secrecy is a fundamental obligation for French lawyers. It is protected not only by disciplinary rules but also by criminal law under Article 226-13 of the Penal Code.

Given its broad scope and its status as a matter of public policy, this obligation cannot be waived – even at the express request of the client. A French lawyer therefore remains bound by confidentiality in all circumstances.

In practice, any information required by the funder must be provided directly by the client. The lawyer of the funded party is prohibited from communicating directly with the third-party funder, regardless of the terms of the funding agreement or any requests that could otherwise be relayed through the client. Accordingly, any disclosure to the third-party funder of information relating to the proceedings and related facts must originate solely from the client.

Independence and client instructions

French lawyers must remain independent and may only receive instructions from their client. Even when a funder pays legal fees, the funded party remains the lawyer’s sole client. The lawyer therefore owes duties of loyalty, advice, and representation exclusively to the funded party. The presence of a funder cannot alter this relationship or influence the lawyer’s professional judgment. The Resolution of the Paris Bar Council also recommended, but did not require, disclosure of funding arrangements to arbitral tribunals to prevent potential conflicts of interest with the arbitral tribunals.

Conflicts of Interest

Despite these safeguards, third-party funding can create potential conflicts of interest. Funders sometimes seek to influence key decisions in the proceedings, such as the selection of counsel, litigation strategy, or whether to pursue an appeal. Such influence may diverge from the client’s interests. Lawyers must therefore remain vigilant to ensure that the client’s objectives prevail and that their professional independence is preserved.

Current market landscape in France

Third-party funding is increasingly seen as a tool for improving access to justice. It allows parties who lack financial resources to pursue legitimate claims that might otherwise remain unaddressed.

In international arbitration, funding may also help correct imbalances between parties with unequal financial resources. In extreme cases, such imbalances have been invoked as grounds for challenging arbitral awards under Articles 1520 paragraphs 4° and 5° of the Code of Civil Procedure for violations of the right of access to justice and the principle of equality between parties.

Although the French funding market remains smaller than those in common law jurisdictions or Germany, it has grown steadily over the past decade. Several international funders are active in arbitrations seated in Paris, some have established local offices, and French funding companies have begun to emerge.

Nevertheless, some practitioners argue that the absence of clear legislation creates legal uncertainty that may hinder the growth and development of third-party funding in France. The current French model relies primarily on professional rules and soft-law guidance, which remain non-binding and relatively limited. While this flexible framework has allowed the practice to develop, debate persists as to whether the introduction of formal regulation would enhance legal certainty and better support the continued expansion of the French third-party funding market.