Third Party Funding'Impact On Privilege In Litigation And International Arbitration

Published date25 October 2021
Subject MatterFinance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Arbitration & Dispute Resolution, Privilege
Law FirmArnold & Porter
AuthorAlastair Brown, Kabir A.N. Duggal, Sebastian Jungermann, Charlotte Mallorie, Jessica L. Wang and Jane Wessel


"Third party funding is a feature of modern litigation." These opening words of the judgment of the English Court of Appeal in Excalibur1 reflected the reality that over the course of the last 20 years the role of third party funding in major litigation, including competition litigation, has become pervasive in many jurisdictions, including England, the US and Germany, and in international arbitration. Indeed, funders find competition litigation particularly attractive as an investment opportunity, where often the litigation arises as the result of a conclusive finding of a breach of competition law by a local or regional regulator. Breach has already been established, leaving only causation and quantum to be determined. But the involvement of an additional entity in the assessment of the merits of a claim can lead to questions about the application of privilege.

The underlying purpose of privilege is to allow candid and transparent communications between lawyers and clients without concerns about disclosure of those communications to other parties in litigation. The impact of third party funding on privilege remains an area with some uncertainty, in particular, how privilege can be protected when communicating with and providing documents to a third party funder.

Before deciding to fund a claim, a funder will usually conduct comprehensive due diligence in order to evaluate the strengths and weaknesses of the claim and the potential return on its investment. As part of the due diligence process, the funded party will often be required to provide information and documents to the funder that would otherwise be typically protected by privilege.

This raises an important concern: would a party that discloses privileged documents or communication to a third party funder to secure funding risk waiving the privilege? In this article we address this issue through the lens of common and civil law jurisdictions, namely the US, England and Wales, and Germany. We also examine the impact of third party funding on international arbitration.

The US

The US: attorney-client privilege and the work product doctrine

In the US, attorney-client privilege protects communications between attorney and client made in confidence and created for the purpose of seeking, obtaining or providing legal assistance. The doctrine of attorney work product ensures that "opinion" documents (which reflect an attorney's opinion) created in anticipation of litigation and prepared by an attorney or their agent are protected from disclosure.

Most US states do not regulate litigation funding companies. Among the few states that have enacted any statutory regulation, only three specify...

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