On June 30, 2019, Vietnam achieved a significant milestone in its global economic integration by signing the EU–Vietnam Free Trade Agreement (EVFTA) and the EU–Vietnam Investment Protection Agreement (EVIPA) with the European Union. EVFTA entered into force on August 1, 2020, while EVIPA—according to a ruling by the Court of Justice of the European Union—will only take effect once ratified by the parliaments of all EU member states and Vietnam.

Notably, once EVIPA comes into force, the mechanism of “third-party funding”—explicitly provided for in Article 3.28 of Chapter 3 of the EVIPA—may be utilized by Vietnamese investors as a method to mitigate financial risks in the resolution of any disputes in which they are a party.

Some key points on “Third-Party Funding”

Although only recently recognized as a distinct field, “third-party funding” is not a new concept in the global investment and dispute resolution arena.  With its dual nature as both a profit-generating investment and financial support for disputing parties, third-party funding has increasingly become an important tool used in international business and for resolution of investment-related disputes. However, domestically, the concept remains relatively new, not yet clearly defined in Vietnam’s legal system and still unfamiliar to many.

What does “third-party funding” mean? According to Article 3.28 of Chapter 3 EVIPA, a party is considered a third-party funder if: (i). It is not a party to or directly involved in the dispute; (ii). It enters into a funding agreement to cover litigation costs for one party in the dispute (“Funding Agreement”); (iii). It receives remuneration if the funded party wins the case.

Who can be third-party funders? They are typically specialized financial institutions, investment funds, banks, credit organizations, insurance companies, parent or subsidiary companies of the disputing party, or investment firms engaged in litigation and arbitration funding. Example: Burford Capital, Omni Bridgeway, Harbour Litigation Funding, Longford Capital, Aon,…etc.

What forms of remuneration are available? The remuneration a third-party funder may be entitled to depends directly on the outcome of the dispute. Common forms of remuneration include: a fixed amount; a portion of the awarded damages, a percentage of the funded capital, or a combination of these forms. In international arbitration practice, the funder’s return typically ranges from 15% to 50% of the recovered amount[1], or about three times the invested capital, whichever is higher. If the case is unsuccessful, the funded party has no obligation to repay, and the funder bears the risk of losing all (or most) of the investment.

Models of third-party funding: Disputing parties may be financed via several alternative methods, including: (i). Litigation risk insurance. Depending on the structure of the insurance policy, insurance coverage may include the insured party’s own legal fees and costs (as a litigant in the dispute), and/or the insured party’s potential liability for the opposing party’s legal fees and costs in case the insured party loses the case[2], (ii). Financing in form of a traditional loan, corporate financial support, equity-based investment, or a hybrid model as a combination of these financing forms. In this arrangement, the funder may be the parent company, shareholders, financial institutions, or banks etc. (iii). Contingency fees. Lawyers may act as funders by accepting remuneration in form of a contingency fee (i.e., “no win – no fee”). Typically, the client pays litigation costs, while the lawyer’s remuneration is derived from the success fee if the client wins the case. In certain cases, lawyers may even cover all litigation costs upfront in exchange for a higher contingency fee.

Legal issues to consider when entering into a Funding Agreement

Applicable law governing Funding Agreements. Since third-party funding is not yet a concept clearly and widely regulated worldwide, funders and Vietnamese funded parties should carefully consider the choice of governing law for the Funding Agreement. Depending on the model and nature of the funding, it is advisable to select the law of a jurisdiction with transparent protective mechanisms in order to safeguard the rights of both funders and funded parties.

Criteria for selecting a funder. When choosing a funder, investors should clearly identify criteria such as financial capacity, reputation, and experience suitable for the case. In addition, depending on the governing law of the Funding Agreement, investors should pay attention to certain criteria that may be stipulated in the agreement, such as minimum capital requirements for the funder and the right to engage legal counsel to review the agreement before signing.

Disclosure of the funder[3]. To minimize the risks of potential conflicts of interest arising from the involvement of a third-party funder in addition to the litigants, EVIPA requires litigants to notify all the concerned parties and the Arbitral Tribunal of the existence and nature of the Funding Agreement, along with the name and address of the funder.

Confidentiality of case information. EVIPA contains no provisions regarding confidentiality obligations for third-party funders. Therefore, investors should consider including confidentiality obligations for funders within the Funding Agreement to protect their rights and interests.

Conclusion

Overall, the introduction of third-party funding under EVIPA can be seen as both an “opportunity”—opening new avenues for funding arrangements in the resolution of disputes and unlocking a new investment stream for Vietnam’s economy, and a “potential risk” if Vietnamese investors are not fully aware of their entitlements and obligations. Facing such challenges, it is crucial for Vietnamese businesses and investors to proactively adapt themselves to and embrace this innovation.

[1] Civil Justice Council, Review of Litigation Funding – Interim Report (2025), Part 4, Section B, pages 37-47, available at https://www.judiciary.uk/wp-content/uploads/2024/10/CJC-Review-of-Litigation-Funding-Interim-Report.pdf

[2] International Council Commercial Arbitration, Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), Chương 2 – Overview of Dispute Funding, pages 33-34, available at https://cdn.arbitration-icca.org/s3fs-public/document/media_document/Third-Party-Funding-Report%20.pdf

[3] According to Article 3.37, Chapter 3 EVIPA.

by Ms. Nguyen Mai Phuong & Ms. Vu Thien Kieu