The Third Party Litigation Funding Law Review: Sweden

Market overview

Despite its breakthrough at the global level, third-party funding is still a relatively new phenomenon in Sweden. In part, this is due to the fact that historically there has only been a limited domestic market in Sweden for third-party funding. The instances in which third-party funding has been used in Sweden in the past couple of years have instead mainly been limited to international arbitration proceedings seated in Sweden.2 However, the domestic market in Sweden is now on the rise and we have lately noticed a clear increase in the number of active third-party funders on the Swedish market.

Historically, the most common type of litigation investment3 that has been established in Sweden has been sales of claims for damages. Sweden has seen many examples of companies established for the sole purpose of acquiring smaller claims, typically damages claims against company directors. Over the past 10 years, this trend has also evolved into larger damages claims, including claims in cartel cases. However, there is reason to believe that we will see less of this phenomenon on the Swedish market in the future and that companies in these situations will most likely opt for third-party funding instead.

Legal and regulatory framework

In Sweden, third-party funding is unregulated.4 Hence, there is no legislation or other mandatory rules in Sweden barring the use of third-party funding. In our view, this will remain the case for the immediate future.

In terms of the approach taken by the Swedish courts to third-party funding, there is currently no case law that explicitly concerns third-party funding. However, case law does exist in relation to issues that often arise in connection with third-party funding, such as conflicts of interest. In relation to these issues, Swedish courts have been inclined to draw inspiration from international guidelines, such as guidelines established by the International Bar Association (IBA).5 Arguably, Swedish courts will take a similar approach with respect to third-party funding as well (i.e., they will be guided by international guidelines in these areas). This will be further elaborated upon in this chapter when discussing issues of conflicts of interest and disclosure.

A regulatory framework that also may be of importance to a third-party funding arrangement involving Swedish lawyers is the Swedish Bar Association's Code of Professional Conduct (the Bar Rules), which governs the financial interests of lawyers in disputes in which they act as counsel. The Bar Rules may be of importance since, in certain jurisdictions, it has become common practice to structure a third-party funding arrangement by way of a risk-sharing agreement between the third-party funder and the law firm, whereby the lawyer's fees are based fully or partially on the outcome of the dispute. Thus, similarly to third-party funding, the lawyer has a direct financial interest in the outcome of the dispute. However, this is not a viable option in a third-party funding arrangement involving a Swedish lawyer as counsel.

With the exception of a few narrow grounds set out in the Bar Rules, lawyers are prohibited from entering into risk agreements in Sweden.6 The existing exceptions apply primarily to situations where the client is financially unable to bring the legal action (access to justice) or where the arrangement constitutes part of a larger international dispute based on a contingency fee agreement. However, the Bar Association's Disciplinary Committee has applied these exemptions very restrictively. In one important case, the Disciplinary Committee reprimanded a lawyer for charging a risk-based fee.7 This was despite the fact that the client proposed the arrangement and the client explained that it would not be financially viable to bring the action unless the lawyer accepted the risk agreement. The client had contacted the lawyer to investigate the prospects of recovering unpaid royalties. The parties agreed that the lawyer would receive 25 per cent of the royalties received in exchange for the lawyer bearing all the costs incurred from pursuing the legal action. The majority of the Disciplinary Committee held that the arrangement was not permissible. As far as we are aware, as at the time of writing, the Disciplinary Committee has given no rulings permitting risk agreements. Given this fact, the prevailing principle concerning risk agreements for lawyers can best be described as a general prohibition. This means that it will not be possible for Swedish lawyers to enter into a risk agreement when representing parties funded by a third party.

An alternative to risk agreements, however, is a 'conditional fee arrangement'. Arrangements of this kind allow for outcome-based increases or reductions of the lawyer's fee that come into effect once the dispute is concluded. As regards conditional fees, the situation is not as clear-cut under the Bar Rules. There is no case law from the Bar Association or indeed the courts to provide guidance on this type of arrangement. However, the Bar Rules do state that an agreement under which the lawyer assumes a financial risk in relation to the outcome of the case does not necessarily mean that the lawyer's financial self-interest will be disproportionate or could affect the way in which the lawyer performs his or her work on the case.8 Consequently, in our assessment, the Bar Rules appear to permit conditional fee arrangements where the risk and the reward are reasonably balanced. This option might therefore be of interest when structuring the lawyer's fees in a third-party funding arrangement.

In summary, third-party funding remains an unregulated practice in Sweden. However, it is clear that a restrictive view applies in Sweden in relation to lawyers' financial interests in the outcome of a dispute when exercising their professional role. Conversely, third-party funders who engage Swedish legal counsel must come to terms with the fact that Swedish lawyers, as a rule, charge fees based on traditional fee models, possibly with the exception of conditional fees. This, in turn, may affect the construction of the funding arrangement, as some funders require the funded party's legal counsel to impart risk through the use of outcome-based fee arrangements.9

Structuring the agreement

In light of the fact that the domestic third-party funding market in Sweden has historically been limited, no common practice has developed in terms of the typical structure of an agreement between the claimant and the investor. As mentioned above, litigation investment on the Swedish market has historically related to transfers of damages claims. The transfer agreement is diametrically different from an investment agreement. This type of transfer is also covered by legal provisions setting out how the acquirer of the damages claim can take over the action.10 This type of issue does not arise in the case of third-party funding, since third-party funding does not generally involve any transfer of the damages claim.

However, a number of other interesting issues arise in the case of third-party funding, such as in relation to exclusivity, settlements and confidentiality. In relation to these and other potential issues, it is important to bear in mind that, under the Swedish Bar Rules, a lawyer must carefully assess whether he or she might be considered to be representing both the claimant and the investor when third-party funding is used. How this situation should be dealt with is discussed below.

As regards the relationship between the claimant and the investor, initially the lawyer should make it very clear that the claimant is the client, which should also be stated in the investment agreement between the claimant and the investor. Even though this relationship is evident, situations could arise that result in the lawyer facing serious ethical challenges. The following example illustrates this. Generally, investment agreements provide for a right for the investor to terminate the agreement if the prospects of success in the dispute diminish. If a lawyer perceives that because of some factor the legal action has changed to diminish the prospects of success, the lawyer undoubtedly has a duty under the Bar Rules to inform the client (i.e., the claimant).11 A lawyer's primary duty is a fiduciary duty to his or her client.12 However, the question is whether the lawyer has an equivalent duty to the investor (i.e., whether the investor should also be informed of the poorer prospects of success). This question is further complicated by the fact that under the agreement the claimant is generally always under a contractual obligation to inform the investor if circumstances change. In all likelihood, the correct solution for the lawyer in this situation is to inform the claimant of the new circumstances and then remind the claimant of its contractual obligation to inform the investor.13

The situation described above is rendered even more cumbersome if the investor pays the lawyer's fees (which is typically the case) and the lawyer has agreed to regularly update the investor on the dispute (which is also typically the case). In this situation, the lawyer could owe a fiduciary duty to the investor, meaning that both the claimant and the investor are the lawyer's clients. If a claimant in this situation tells the lawyer that under no circumstances should the investor be informed of the new circumstances that have diminished the prospects of a successful outcome in the dispute, the lawyer will probably be placed in an impossible situation. In a case such as this, the lawyer is likely to have no choice other than to decline to act for the client in the dispute. This means that, where possible, the lawyer should explain his or her role carefully to both the claimant and the investor at the outset of the engagement. If the lawyer assumes a role that could trigger a fiduciary duty to the investor, the lawyer should explain clearly to the claimant what effect this has on the lawyer's role. The claimant must also comply in full with the provisions of the investment agreement to avoid placing the lawyer in an impossible situation where he or she may ultimately be compelled to decline to act for the claimant in the dispute. The example given is only one of many examples of issues that need to be considered in relation to third-party funding. Accordingly, a great deal of importance should be placed on the way in which the investment agreement is structured to ensure that the agreement also works for all the parties involved.


Another pressing issue relating to the procedural impact of third-party funding is the extent to which a claimant that receives third-party funding is under an obligation to disclose this to the arbitral tribunal or the other party to the dispute. This question is strongly linked to the requirement for an impartial and independent arbitral tribunal, which constitutes a fundamental principle in both domestic and international arbitration proceedings. Currently, neither Swedish legislation (i.e., the Swedish Arbitration Act (SAA)) nor the SCC's rules impose any obligation to disclose the existence of funding on a party's own motion.14 Thus, as the law now stands, the parties in arbitration proceedings are not under any obligation to inform the arbitral tribunal that they are being funded by an investor. However, the SCC, in 2019, adopted a policy for disclosure of third parties with an interest in the outcome of the dispute to minimise risks of conflicts of interest among arbitrators.15 The policy sets out that each party is encouraged to disclose in its first written submission the identity of any third-party interests in the dispute, including the existence of third-party funders. Notably, the policy is not mandatory; that is, the parties are not formally required to disclose the existence of a third-party funder arrangement.

Although there are no explicit provisions regarding mandatory disclosure of third-party funding, such a disclosure obligation may in some cases be derived from the generally applicable framework in relation to conflicts of interest. The general rule under Section 8 of the SAA is that an arbitrator must be impartial and that, upon application by a party, an arbitrator can be discharged if circumstances exist that could give reason to question the arbitrator's impartiality. The assessment of whether an arbitrator is impartial is made on objective grounds.16

The third-party funder's impact on the arbitrators' impartiality under Section 8 of the SAA has not been addressed by Swedish courts. However, internationally, these issues have been subject to extensive doctrinal developments as well as public discourse. The latter has given rise to a body of guiding principles that are seen, inter alia, in the provisions of the IBA Guidelines and also the general recommendations laid out in the Report of the ICCA-Queen Mary Task Force on Third-party Funding in International Arbitration. This raises the question of whether Swedish courts are inclined to resort to international guidelines and other sources of a 'soft-law' nature to decide on issues pertaining to international arbitration in general and third-party funding in particular.

In this respect, the Supreme Court has stated that, based on the similarity of the rules and the international elements that are often present, when assessing impartiality, not only should the provisions of the SAA be observed, but also international rules and guidelines.17 In our experience, it is rarely the case that parties agree on a strict application of, for instance, the IBA Guidelines on Conflicts of Interest. This notwithstanding, in one Supreme Court case, the court based a disqualification of an arbitrator partially on provisions laid out therein.18 A similar line of argument with reference to the IBA Guidelines on Conflicts of Interest was also applied in a subsequent Supreme Court case.19 Consequently, applicable case law supports the notion that Swedish courts generally have a positive attitude towards deriving guidance from international rules when determining matters – both domestic and international – relating to, among other things, conflicts of interest. This has also been confirmed by leading authorities in the area, such as the former President of the Supreme Court, Stefan Lindskog.20

In light of the above, it is noteworthy that the IBA Guidelines on Conflicts of Interest include the following provision:

If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.21

This means that, from a conflict-of-interest perspective, third-party funders can be deemed to be comparable to a party to the proceedings whose claim the investor has funded. The explanatory section further states that a third-party funder 'may have a direct economic interest in the award, and as such may be considered to be the equivalent of the party'.22

Consequently, the IBA Guidelines advocate for a case-by-case assessment as to whether a third-party funder 'may be considered to bear the identity' of the funded party. As far as the commentary is concerned, since a third-party funder is generally likely to fall within the scope of the provision, it will 'bear the identity' of the claimant.

According to Article 7(a) of the IBA Guidelines on Conflicts of Interest, the parties are required to disclose any relationship with the arbitrator that may trigger impartiality concerns. In accordance with what has been stated above, the parties' duty to disclose 'any' relationship between the arbitrator and the party extends to relationships with persons or entities with a direct economic interest in the award, such as an external funder, or any individual or entity committed to indemnify a party for an adverse costs decision or award.23 The fact that the rules of the IBA Guidelines are generally not binding upon the parties means that it is within their own discretion to decide whether or not to disclose the existence of funding. It has been argued in this respect that the arbitrators cannot be deemed conflicted if they are not aware of the circumstances triggering the conflict. However, under Swedish law, the presence of any conflict of interest is determined based on an objective assessment. Arguably, this means that a Swedish court will not take into consideration whether the arbitrator de facto has been influenced when deciding on the existence of conflicts with disqualifying potential.

Accordingly, in light of the above, should a claimant and a third-party funder fail to disclose the existence of funding, they do so accepting the inherent risk that this will be discovered later on during or after the proceedings. This, in turn, could result in a conflict of interest under the SAA, which could lead to one or more arbitrators being discharged. Moreover, if the conflicting realities come to light after the conclusion of the arbitration proceedings, the conflict of interest could constitute grounds for setting aside the arbitral award. However, in this respect it should be noted that challenges to arbitral awards are subject to a two-month limitation period under Swedish law.24 If a challenge is not brought within this period, the grounds for challenge will be procedurally barred. This is the case even in situations where the party that wants to challenge the award became aware of the grounds for challenge after the expiry of the limitation period.25

A typical case in which it can be disclosed that a third-party funder is funding a dispute is where the opposing party suspects that this is the case and requests that the arbitral tribunal order the opposing party to disclose whether it is being funded by a third party. If the arbitral tribunal grants this request, the opposing party will have no choice other than to disclose the funding. If it turns out that there is a conflict of interest, this could create problems for both the parties and the arbitral tribunal. As stated above, it could mean that an arbitrator is required to resign from his or her appointment at a late stage in the proceedings. It could also constitute grounds for a challenge action against the arbitral award pursuant to Section 34 of the SAA. Consequently, the issue of whether or not the third-party funding should be disclosed should be carefully considered when using such funding.

Regardless of the above, and specifically the fact that currently no obligation for a funded party to disclose its third-party funding seems to exist (neither for the funded party nor for the third-party funder), we are yet to experience how courts and arbitral tribunals in practice will handle the correlation between disclosure and third-party funding. In addition to the principles inherent in the IBA Guidelines on Conflicts of Interest, support for an open-ended view on imposing disclosure obligations can be found in the ICCA-Queen Mary Task Force Report. For the purpose of mitigating the risk of conflicts of interest, the report suggests that parties 'should, on their own initiative, disclose the existence of a third-party funding arrangement and the identity of the funder to the arbitrators'.26 This should be done as soon as possible after the funding has taken place.27 The report further advocates for a fairly generous view with respect to the arbitral tribunal's mandate to order disclosure of whether a party is funded, as well as the identity of the funder.28 As noted above, transnational soft-law sources have influenced the Swedish Supreme Court's interpretation of the provisions relating to conflicts of interest in the SAA on numerous occasions. If applied in a third-party funding context, this tendency may predict a shift towards a stricter view on disclosure duties, at least with respect to the existence of funding and the identity of the funder.


Under Swedish law, a claimant that transfers a claim to a party that has no financial resources to pay the defendant's legal fees and litigation costs in the event the claim is unsuccessful could later be ordered to pay those costs. However, this requires that the claimant retains a financial interest in the outcome of the dispute insofar as the outcome is positive. The question is whether this can also be applied to third-party funding and, if so, whether this means that a third-party funder can later be ordered to pay the defendant's legal fees and litigation costs if the claimant does not have the financial resources to do so.

Under Swedish law, the assumption is that the party that loses the case must compensate the opposing party for its reasonable legal fees and litigation costs.29 The problem described above arises when the claimant is in such a poor financial condition that it is unable to pay the defendant's legal fees and litigation costs and, furthermore, has not agreed that the third-party funder will cover the opposing party's legal fees and litigation costs.

In this respect, it should be noted at the outset that Swedish courts have held that a party in poor financial condition is entitled to bring a legal action.30 However, the Supreme Court has held that, in a situation where the claimant is unable to pay the defendant's legal fees and litigation costs, in exceptional cases there may be grounds for imposing liability for paying these costs on a third party with a financial interest in the outcome of the dispute.31 According to case law, this probably requires the third party to be the effective beneficiary in the dispute and the claim to have been transferred to an individual or a company in poor financial condition for the purpose of limiting the adverse financial consequences of a negative outcome in the dispute.

In light of the above and based on current case law, it is probably difficult to impose liability for legal fees and litigation costs on a third-party funder, since third-party funding does not generally involve the claim being transferred to an individual or company in poor financial condition. The situation is reminiscent of that where an individual creditor in bankruptcy invests in the bankruptcy estate's action against a debtor in respect of a claim in favour of the bankruptcy estate. In a case such as this, the creditor in bankruptcy is the effective beneficiary in terms of the financial outcome of the dispute and probably also exercises a certain amount of influence over the action. Under Swedish law, in this situation the creditor in bankruptcy is unlikely to be ordered to pay the opposing party's legal fees and litigation costs in the event the action is unsuccessful.32

In light of this, it is unlikely that a third-party funder will be held liable for paying legal fees and litigation costs based on current case law. However, this does not prevent the Supreme Court from altering this position when it has the opportunity to assess a situation relating to liability for legal fees and litigation costs where a third-party funder has been involved.

The year in review

In the past year, there have been no significant changes in the Swedish market that bear relevance as to third-party funding. However, as indicated in the introductory market overview, we have seen an increase in third-party funders on the Swedish market and an increase in awareness and interest among Swedish lawyers towards third-party funding and its potential benefits. While third-party funding was previously regarded fairly negatively, during the course of the past few years we have noted a more positive attitude towards third-party funding.

Conclusions and outlook

In summary, third-party funding is a phenomenon that is still relatively new in Sweden and accordingly there is no legislation governing or barring its use. In our view, this will remain the case for the immediate future. If third-party funding issues arise in the Swedish courts, it is reasonable to assume that the courts will be guided primarily by international guidelines and other soft-law sources.

As for the future, we predict great potential for the continued development of third-party funding in Sweden. The SCC is one of the major arbitral institutions and will thus continue to attract many arbitration cases. Moreover, the SCC is noted as being one of the major institutions when it comes to larger disputes, which typically are of greatest interest to third-party funders. Therefore, it is likely that the third-party funding market will increase in Sweden in the coming years.


1 Johan Sidklev is a partner and Carl Persson is a principal associate at Roschier Advokatbyrå AB. Bruno Gustafsson, associate at Roschier, has conducted research, revised, and provided updates to the current version of this article.

2 For a brief overview of the prospective Swedish third-party funding market, see Johan Sidklev, Carl Persson, Bruno Gustafsson, Third-party Funding in Sweden – Uncovering Uncharted Territory, Kluwer Arbitration Blog (16 Sept 2018

3 This term also includes investments relating to claims pursued by arbitration.

4 In this chapter, third-party funding refers to a situation in which an investor that is not party to the proceedings or otherwise connected to the dispute between the parties is funding the claimant's claim, with the investor's sole interest being the receipt of compensation for its funding by way of a proportion of the funds expected to be received as a result of the legal action. A similar definition is used by Catherine Rogers in Ethics in International Arbitration (Oxford, 2014), p. 185.

5 Case reported on p. 841 in NJA 2007. Stefan Lindskog, Skiljeförfarande: En kommentar [Arbitration: A Commentary] (2nd edn), p. 4.

6 Section 4.2.1 of the Swedish Bar Association's Code of Professional Conduct (the Bar Rules).

7 Disciplinary Committee's decision in D-2014/1967.

8 Section 4.2.2 of the Bar Rules.

9 See Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International; 2016) pp. 33–34.

10 In the case of transfers of damages claims in litigation proceedings, the conditions that must be met for the third-party acquirer to take over an ongoing action are set out in the Swedish Code of Judicial Procedure. If the claimant transfers the claim, the third-party acquirer will be permitted to assume the claimant's claim and take over the action.

11 Section 2.3 of the Bar Rules.

12 Section 1 of the Bar Rules.

13 In this respect, it should be noted that a lawyer is not permitted to assist in the investor's deceptive conduct, according to the commentary on Section 1 of the Bar Rules.

14 Numerous established arbitration institutes have assessed the need to implement provisions in their rules regarding disclosure of third-party funding and there are examples internationally of disclosure provisions specifically in relation to funded arbitrations. For instance, under the Singapore International Arbitration Centre (SIAC), the arbitral tribunal is authorised to enquire regarding the existence of third-party funding. With regard to investment treaty arbitration, the arbitral tribunal is expressly mandated under Rule 24(l) of the SIAC Investment Arbitration Rules to order disclosure of third-party funding, including certain pieces of information regarding the contents of the funding agreement, such as whether the funder has agreed to cover adverse costs. Furthermore, pursuant to Article 44 of the 2018 Administered Arbitration Rules of the Hong Kong International Arbitration Centre, the funded party is obligated (by written notice) to communicate to all other parties the existence of third-party funding, and the identity of the funder. Additionally, the proposed updated arbitration rules for investment treaty arbitration conducted under the auspices of the International Centre for Settlement of Investment Disputes include an obligation for the funded party to disclose, inter alia, the identity of the funder and the source of the funding.

15 SCC Policy disclosure of third parties with an interest in the outcome of the dispute. Adopted by the SCC Board on 11 September 2019.

16 Stefan Lindskog, Skiljeförfarande: En kommmentar [Arbitration: A Commentary] (2nd edn), p. 414.

17 Case reported on p. 841 in NJA 2007.

18 Case reported on p. 841 in NJA 2007.

19 Case reported on p. 317 in NJA 2010.

20 Stefan Lindskog, Skiljeförfarande: En kommmentar [Arbitration: A Commentary] (2nd edn), p. 412.

21 IBA Guidelines on Conflicts of Interest 2014, General Standard 6(b).

22 IBA Guidelines on Conflicts of Interest 2014, Explanation to General Standard 6(b).

23 IBA Guidelines on Conflicts of Interest 2014, Explanation to General Standard 7.

24 The Swedish Arbitration Act was updated as of 1 March 2019. In the previous version of the Swedish Arbitration Act, challenges to arbitral awards were subject to a three-month limitation period. The three-month limitation period still applies to arbitral proceedings that were commenced prior to the entry into force of the new Swedish Arbitration Act on 1 March 2019.

25 Stefan Lindskog, Skiljeförfarande: En kommmentar [Arbitration: A Commentary] (2nd edn), p. 917.

26 See Report for public discussion of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, Apr. 2018. The ICCA Reports No. 4. at 81.

27 id.

28 id.

29 Chapter, 18, Section 1 of the Swedish Code of Judicial Procedure. This also applies to arbitration proceedings (see Stefan Lindskog, Skiljeförfarande: En kommmentar [Arbitration: A Commentary] (2nd edn), p. 1023).

30 Case reported on p. 144 in NJA 2000.

31 The cases reported on p. 420 in NJA 2006 and p. 887 in NJA 2014.

32 The trustee in bankruptcy can ask the creditor in bankruptcy to provide security for any compensation payable for the defendant's legal fees and litigation costs. However, if the creditor in bankruptcy is unwilling or unable to provide the security, the trustee in bankruptcy can still bring an action. However, if there is a risk that the bankruptcy estate will not be able to pay the defendant's legal fees and litigation costs if the claim is unsuccessful, an action should not be brought against the creditor in bankruptcy (see Lars Heuman, Specialprocess [Special proceedings] (6th edn), p. 227, and the cases reported on p. 131 in NJA 1999 and p. 420 in NJA 2006).

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