$20 Billion TPF Market Opens...

Published 25 Feb.2025 07:05(KST)

'Litigation Funding by Third Parties'
Cost Support for International Disputes
Success Fee Only When Winning
Global Leaders Rush to Revise Regulations

#1. A domestic M pharmaceutical company reduced its litigation cost burden by utilizing 'Third Party Funding (TPF)' in a patent lawsuit before the U.S. International Trade Commission (ITC) against an American pharmaceutical company. Although it lost the case, the company that funded the entire litigation cost (the funder) bore the expenses, allowing the pharmaceutical company to avoid financial losses.

#2. U.S. energy company B filed arbitration and litigation worth $1 billion against domestic energy company P. The litigation costs were financed through TPF. The dispute was resolved through a settlement payment.

Photo to aid understanding of the above article. Pixabay

#3. A Turkish construction company won a lawsuit but had difficulty enforcing the judgment. With the help of TPF, it seized the debtor's overseas assets. Subsequently, it successfully defended against jurisdictional violation lawsuits and reached a settlement with the debtor.

The TPF market, where a third party partially or fully subsidizes litigation costs in exchange for a certain percentage of the proceeds if the case is won, is growing. Since costs are not recovered if the case is lost, TPF is attracting attention in South Korea as a means to reduce the parties' burden and diversify risks in international disputes, such as international arbitration, where costs are substantial.

UK, Germany, and France Move to Revise Related Regulations

TPF adopts a concept similar to 'success fees.' In common law jurisdictions, it is generally prohibited for unrelated third parties to financially support litigants. This is defined as 'champerty' and is considered a violation of attorney ethics.

However, some common law countries have relaxed this rule, creating and activating the TPF market. The countries where TPF is most active are the United States, Australia, and the United Kingdom. The U.S. and Australia resolved legal issues through case law. Singapore reformed related regulations through legislation in 2017, officially permitting TPF in international arbitration cases. Since 2021, it has been applied restrictively to IP and antitrust cases. In Europe, the UK, Germany, and France are accelerating efforts to revise related regulations.

Lee Hyung-geun (50, Judicial Research and Training Institute class 34), a lawyer at Kim & Chang Law Office, attended the 'Analysis and Outlook of the Korean TPF Market in 2025' forum held on the 20th at Conrad Seoul in Yeouido, Yeongdeungpo-gu, Seoul, and explained, “In recent years, much of the legal uncertainty surrounding TPF has been resolved, and the global TPF market is rapidly growing,” adding, “It records an annual growth rate of 8-12%, with an annual investment scale reaching $15 billion to $20 billion.”

The growth of the TPF market is significantly influenced by the increase in complex cross-border disputes and the resulting costs, which are beyond imagination. Lawyer Lee said, “The introduction of discovery procedures in some countries has greatly increased litigation costs,” and added, “In such cases, utilizing TPF allows for evaluating the likelihood of winning and diversifying risks.”

Increasing Utilization in International Arbitration

TPF is increasingly utilized in international arbitration cases. Major international arbitration institutions such as the International Centre for Settlement of Investment Disputes (ICSID), International Chamber of Commerce (ICC), and London Court of International Arbitration (LCIA) permit TPF and have established rules on disclosure obligations and considerations for cost calculation when using TPF. Lee Sang-yeop, a foreign lawyer at the International Arbitration Center of the Korean Commercial Arbitration Board, stated at the event, “Unlike court judgments, arbitration is final and enforceable, making TPF utilization useful,” and added, “The Korean Commercial Arbitration Board will also prepare TPF guidelines through amendments to international arbitration rules and cooperate with the Ministry of Justice and the Korean Bar Association to create an environment where TPF can be used in international arbitration.” Lawyer Lee Hyung-geun also said, “For TPF to become a key tool in resolving international disputes, issues such as conflicts of interest, disclosure of funding facts, and the timing and scope of data sharing must be clarified.” Professor Jung Jun-hyuk (47, class 33) of Seoul National University Law School said, “TPF plays a role in financing international arbitration and is helpful even when it is difficult to enforce claims secured through winning or arbitration.”

"Solving Cost Issues... Assisting Decision-Making"

Shim Jong-hyuk, head of Legal Group 1 at POSCO International, explained the difficulties companies face as litigants and how the introduction of TPF can help. He said, “As cross-border transactions and investments become active, various disputes arise, causing companies not only financial burdens but also psychological pressure,” adding, “TPF can solve cost issues and help corporate management focus on decision-making by alleviating the pressure felt during litigation.” He also noted, “However, there is a risk that internal corporate secrets may be shared with third parties, so it is necessary to carefully consider confidentiality obligations, the likelihood of winning, and amounts involved.”

Korean Market Still in Early Stages

The Korean TPF market is still in its infancy. Foreign lawyer Lee Sang-yeop explained, “There are no explicit domestic laws prohibiting TPF, but the prohibition on fee-sharing between lawyers and non-lawyers makes activation difficult,” describing the current market situation. Lawyer Kim Se-yeon (57, class 23) of Kim & Chang Law Office said, “Countries like Singapore and Hong Kong are building infrastructure at the national level, and changes are happening worldwide,” adding, “Korea also needs to establish rules for information sharing and conflict of interest prevention.”