Is Third‑party Litigation Funding Legal in Switzerland in 2026? Disclosure, Costs & Success Fees

Who this is for: in‑house counsel, CFOs, claims managers, litigation funders and claimant law firms assessing whether to use third‑party funding for Swiss commercial disputes. The practical focus is on legality, disclosure, cost allocation, after‑the‑event insurance, drafting and court practice in 2026.

Litigation funding Switzerland remains one of the most frequently misunderstood areas of Swiss dispute resolution, and the question practitioners ask most often is simple: is third‑party funding of commercial claims actually legal here? The short answer in 2026 is yes, there is no express statutory prohibition in Swiss law, and the Swiss Federal Supreme Court has confirmed its permissibility, but the detail matters, because Swiss courts decide questions of disclosure, cost liability and security for costs on a case‑by‑case basis. For high‑value commercial claims and international arbitrations with a Swiss seat, the use of external capital has grown markedly, and with it the sophistication of funders and the scrutiny applied by opposing parties.

This guide explains the legal status, disclosure expectations, cost‑shifting and security mechanics, the permissibility of success and contingency fees, the availability of ATE insurance, and the drafting points that make a funding arrangement enforceable under Swiss law.

Legal status and overview: what the law says on litigation funding Switzerland in 2026

There is no Swiss federal statute that expressly prohibits third‑party litigation funding, and the Federal Supreme Court has recognised its lawfulness in its case law. The Swiss Civil Procedure Code (Zivilprozessordnung, ZPO) governs how civil proceedings are conducted, how costs are allocated and when security may be ordered, but it does not address the lawfulness of a claimant financing its claim through an external funder. The default position therefore flows from the general principles of Swiss private law: parties enjoy broad contractual autonomy under the Swiss Code of Obligations, and a funding arrangement is, at its core, a contract that will be valid provided it does not offend mandatory law or public policy.

That contractual autonomy is the foundation on which the whole market rests. A funding agreement is ordinarily analysed as a form of investment or financing contract rather than as an assignment of the claim itself, although structures vary. Because the arrangement is private between claimant and funder, it does not require court approval, and it does not, of itself, change the identity of the party of record. The funder is not a party to the proceedings; the claimant remains the claimant.

Swiss federalism introduces nuance. Civil procedure was unified under the ZPO, which entered into force in 2011, so the core procedural rules are now federal, but cantonal court organisation and the discretion of individual courts still shape how funding‑related questions, particularly disclosure and security, are handled. Practitioners should therefore expect some variation in how a Zürich commercial court and a Geneva first‑instance court approach the same request.

There is also a regulatory dimension that is easy to overlook. Where a funder is structured as a regulated financial entity, or where a funding vehicle resembles a collective investment scheme or an asset‑management arrangement, the regime overseen by the Swiss Financial Market Supervisory Authority (FINMA) may become relevant. Most pure third‑party litigation funding of a single commercial claim will not trigger FINMA supervision, but funders aggregating capital from multiple investors into a pooled vehicle should take advice on whether collective investment or financial‑institutions rules apply.

Academic commentary and 2026 market practice both reflect a settled consensus that third party litigation funding Switzerland is permissible and increasingly mainstream. Swiss law faculties have published comparative analyses supporting access‑to‑justice arguments for funding, and the policy posture of the federal authorities has been broadly facilitative. The practical consequence is that the legality question is no longer the real battleground, the contested terrain is procedural: disclosure, cost exposure and enforceability.

Disclosure of funding Switzerland: courts and practice

Swiss courts have not historically required automatic disclosure of the existence or identity of a third‑party funder. There is no standing rule in the ZPO that compels a claimant to announce that its claim is externally financed, and in the ordinary commercial case a funded claimant may proceed without any disclosure of funding Switzerland obligations arising at all.

That said, disclosure is not off the table. A court or an opposing party may seek disclosure where specific concerns arise, typically around:

• Conflicts of interest. Where the funder’s involvement might affect the independence of a judge, an arbitrator or an expert, disclosure may be necessary to preserve the integrity of the proceedings.
• Control over the litigation. If the funding arrangement gives the funder effective control over strategy or settlement, a court may wish to understand who is actually directing the claim.
• Settlement authority. Where a settlement veto or approval right sits with the funder, the opposing party and the court may legitimately want clarity on who can bind the claimant.
• Undue influence. Concerns that the funder is improperly steering the case can prompt a disclosure request.
• Security for costs. A defendant seeking security may ask about the funder’s identity and solvency as part of demonstrating the need for protection.

In the arbitration context, disclosure expectations have become more pronounced than in domestic court litigation, driven by arbitrator conflict‑checking. A Swiss‑seated arbitration will often involve voluntary or tribunal‑prompted disclosure of the funder’s identity precisely so that arbitrators can confirm the absence of any relationship that could compromise impartiality. The revised Swiss Rules of International Arbitration reflect contemporary practice on funding‑related transparency.

A practical disclosure protocol for litigation funding Switzerland

Because disclosure is discretionary rather than automatic, the sensible approach is to prepare for it in advance rather than to resist it reflexively. A workable protocol has three elements. First, decide early what you would disclose if asked, typically the fact of funding and the funder’s identity, while protecting the commercial terms. Second, prepare a redacted version of the funding agreement that removes economic terms, pricing and litigation strategy but preserves anything relevant to control or settlement authority. Third, where sensitive material must be shown, request a protective order or confidentiality ring so that disclosure to the court or arbitrator does not become disclosure to the opponent.

A short sample disclosure wording for the funding agreement itself might read: “The Funded Party may disclose the existence of this Agreement and the identity of the Funder to a court, tribunal or opposing party where required by procedural order or to meet a disclosure obligation, and may disclose a redacted copy of this Agreement omitting commercial and strategic terms, subject where possible to appropriate confidentiality protection.”

Practical do’s and don’ts:

• Do anticipate disclosure at the outset and build a redaction‑ready version of the agreement.
• Do keep settlement and control provisions clean and defensible, because those are what courts care about.
• Don’t bury broad control rights in the funding agreement and then resist disclosure, that combination invites adverse inferences.
• Don’t volunteer commercial terms; they are rarely relevant to the procedural question the court is addressing.

Cost recovery, cost shifting and security for costs in Switzerland

Swiss litigation costs follow a loser‑pays logic. Under the ZPO, the unsuccessful party generally bears the court costs and is ordered to compensate the successful party’s costs. It is important to distinguish two categories. Court costs (the fees levied by the court) are allocated to the losing party, while party compensation covers the winner’s legal representation. Crucially, the party compensation awarded is calculated according to cantonal tariffs and will frequently fall short of the actual legal fees incurred, a point that materially affects funding economics, because the recoverable amount on a win may not match the real spend.

This gap between cost shifting Switzerland awards and actual costs is one of the central reasons claimants turn to funding and insurance. A claimant who wins may still be out of pocket on the difference between tariff‑based compensation and real fees; a claimant who loses faces both its own costs and the opponent’s party compensation.

Can a funder be liable for the other side’s costs?

Because the funder is not a party, it is not automatically exposed to an adverse costs order under the ZPO. The funder’s liability to the opposing party is governed by the funding contract and by the risk it has agreed to assume, not by the ZPO’s costs provisions directly. In practice, most funding agreements expressly provide for the funder to meet adverse costs as part of the funded package, so the claimant is protected and the opponent is paid, but that is a contractual outcome, not a procedural inevitability.

Where a funder’s involvement is so pervasive that it is effectively conducting the claim for its own benefit, the risk profile shifts, and defendants will press harder on both disclosure and security.

Security for costs Switzerland: when courts order it

The ZPO empowers courts to order a claimant to provide security for the defendant’s anticipated party costs in defined circumstances, for example where the claimant is resident abroad (subject to applicable international treaties), appears insolvent, or where other grounds set out in the ZPO suggest the defendant’s costs may be irrecoverable. The presence of a third‑party funder is relevant to a security application in two ways. It can strengthen a defendant’s argument that the claimant itself lacks the means to meet an adverse costs order (prompting security), and it can also be the answer to that argument, if the funder provides a solvent and enforceable backstop.

Funders and claimants typically manage security exposure through one of several mechanisms. The table below sets out the common options.

The practical lesson for anyone structuring litigation funding Switzerland arrangements is to decide the security strategy before proceedings begin. A funder that has pre‑agreed a bank guarantee or has an ATE policy in place can defuse a security application quickly, whereas a funded claimant scrambling to respond to a security motion mid‑stream is in a weaker negotiating position.

Success fees and contingency fees in Switzerland (2026)

The permissibility of outcome‑based lawyer remuneration is a distinct question from third‑party funding, and the two are frequently conflated. Swiss lawyers’ fee arrangements are governed by the Federal Act on the Free Movement of Lawyers (the Lawyers Act / BGFA) together with professional conduct rules and cantonal bar supervision, within the framework of the Swiss Bar Association. The guiding principle is that a lawyer’s independence and the client’s interests must be protected, and fee structures that would compromise that independence are not permitted.

The traditional prohibition is on the pure pactum de quota litis, an arrangement under which the lawyer’s entire fee consists of a share of the proceeds and the lawyer receives nothing if the claim fails. That kind of pure contingency has long been treated as incompatible with professional ethics in Switzerland. However, success fees Switzerland arrangements are more nuanced than a blanket ban suggests. A model in which the lawyer is paid a base fee covering costs and reasonable remuneration, supplemented by an additional success‑related uplift, is generally accepted, because the lawyer is not left wholly dependent on the outcome.

For corporate clients and law firms, the practical guidance on contingency fees Switzerland and success‑based uplifts is:

• Avoid pure contingency. A fee that is entirely outcome‑dependent risks being unenforceable and exposing the lawyer to disciplinary consequences.
• Structure a base plus uplift. Combine a sustainable base fee with a success element so the arrangement stays within ethical limits.
• Document transparently. The client must understand the fee model; disclosure and informed consent are essential to enforceability.
• Check the applicable cantonal rules. Supervision is organised at cantonal level, so confirm the position of the relevant bar before finalising terms.

These domestic fee constraints are precisely why third‑party funding is attractive: a funder can take the outcome risk that a Swiss lawyer cannot, allowing the claimant to pursue a meritorious claim without either paying fees upfront or asking its lawyers to act on an impermissible pure contingency basis.

After‑the‑Event (ATE) insurance in Swiss proceedings

After the event insurance Switzerland cover is available from specialist insurers, although the market is narrower and less commoditised than in some common‑law jurisdictions. ATE insurance is purchased after a dispute has arisen and is designed to protect the claimant against adverse costs exposure, principally the opponent’s party compensation and, depending on the policy, the claimant’s own disbursements if the claim fails.

Premiums are driven by the usual risk variables: the merits of the claim, the quantum at stake, the identity and resources of the opponent, the forum, and the stage at which cover is sought. Because Swiss party compensation is tariff‑based and often lower than the claimant’s actual spend, the adverse costs figure an ATE policy needs to cover can be more predictable than in jurisdictions with full indemnity cost recovery, a feature that can make underwriting more straightforward.

Two practical points determine whether an ATE policy delivers value in a Swiss case. First, the policy wording must align with the Swiss cost‑shifting regime: it should expressly respond to an order to pay the opponent’s party compensation as assessed under cantonal tariffs, not merely to some abstract notion of “costs.” Second, where the policy is intended to support a security for costs position, its enforceability and the insurer’s standing matter, a court or defendant will want comfort that the insurer will actually pay. For cross‑border claims, consider whether the policy and the insurer sit in a jurisdiction from which enforcement is realistic.

Procurement timing is strategic. ATE is generally cheapest and easiest to arrange early, before the risk picture deteriorates, and having cover in place at the outset can strengthen the claimant’s hand against any later security application.

Comparison of funding models for litigation funding Switzerland

Claimants frequently weigh third‑party funding against other ways of financing or de‑risking a claim. The following table contrasts the principal models.

Practical drafting checklist and sample clauses for funding agreements

A well‑drafted funding agreement is what makes litigation funding Switzerland arrangements robust in practice. Because the agreement is a private contract, the parties have considerable freedom, but certain provisions deserve particular attention under Swiss law.

• Control and decision‑making rights. Define clearly who directs the litigation. Over‑broad funder control invites disclosure and undermines lawyer independence.
• Confidentiality and disclosure. Set out how the existence and terms of funding may be disclosed to courts, tribunals and opponents, and what stays protected.
• Cost allocation. Specify which costs the funder covers, court fees, legal fees, experts, disbursements, and the cap.
• Adverse costs and security. State expressly whether the funder meets the opponent’s costs on a loss and funds any security ordered.
• Termination. Address when the funder may withdraw and the consequences for costs already incurred.
• Settlement and approval rights. Balance the funder’s legitimate interest in a reasonable settlement against the claimant’s right to control its own claim.
• Assignment. Clarify whether rights under the agreement, or the claim itself, may be assigned.
• Governing law and dispute resolution. Specify Swiss law and an appropriate forum or arbitration seat for disputes under the funding agreement.

Short sample clauses illustrate the drafting approach:

• Scope of funding. “The Funder shall fund the Funded Costs as defined in Schedule 1 up to the Funding Limit, in consideration of the Funder’s Return payable solely from Proceeds recovered in the Claim.”
• Disclosure protocol. “The Funded Party may disclose the fact of funding and the Funder’s identity where required by a court or tribunal, and may provide a redacted copy of this Agreement, subject to confidentiality protection where available.”
• Adverse costs funding. “The Funder shall pay any adverse party compensation or court costs awarded against the Funded Party in the Claim, up to the Adverse Costs Limit, and shall provide or procure any security for costs ordered by the court.”
• Settlement and veto. “The Funded Party shall not settle the Claim without first consulting the Funder; the Funder may not unreasonably withhold consent to a settlement recommended in writing by the Funded Party’s counsel.”

Where the dispute is or may be arbitrated with a Swiss seat, confirm that the funding agreement’s choice of Swiss law and the disclosure protocol are compatible with the applicable arbitration rules and arbitrator disclosure expectations.

Practical steps for in‑house counsel before accepting a funder

Before signing with a funder, in‑house counsel should run a disciplined due‑diligence and negotiation process.

• Funder due diligence. Assess reputation, track record, solvency and capital adequacy, and regulatory status. A funder that cannot actually meet its funding and adverse‑costs commitments is worse than no funder.
• Control versus protection. Negotiate the minimum control the funder needs rather than the maximum it asks for, to preserve independence and reduce disclosure risk.
• Conflict checks. Confirm no relationship exists between the funder and the opponent, the tribunal or key witnesses.
• Insurance alignment. Decide whether ATE insurance should sit alongside the funding and how the two interact on adverse costs.
• Evidence preservation and budget oversight. Ensure early evidence preservation and agree a realistic budget with oversight mechanics.
• Involve litigation counsel early. Swiss commercial litigation counsel should review the funding agreement and the cost strategy before signature, not after.

Special situations: multi‑party, insolvency, arbitration and cross‑border enforcement

Several scenarios carry a distinct risk profile. In multi‑party claims, the funding agreement must allocate control and proceeds fairly among co‑claimants and address the risk that their interests diverge, particularly on settlement. In insolvency, a funded claim may be an asset of the estate, and the insolvency administrator’s powers and duties under the Federal Debt Enforcement and Bankruptcy Act will shape who can contract with a funder and on what terms; funders must confirm the authority of the counterparty.

Arbitration with a Swiss seat presents a different disclosure dynamic from domestic court litigation. Arbitrator conflict‑checking means the funder’s identity is more likely to be disclosed, and tribunals may address funding when deciding on security and costs. The flexibility of arbitration can be an advantage for funders, but it also means fewer bright‑line rules than in court proceedings.

Finally, cross‑border enforcement deserves early attention. The enforceability of a Swiss cost order abroad, and the ability to enforce the funding agreement itself against a foreign funder, depend on the relevant treaties, such as the Lugano Convention within its scope, and the funder’s location. Building enforceable security, a Swiss bank guarantee or a well‑rated insurer, reduces reliance on uncertain cross‑border enforcement.

Conclusion: a practical checklist for litigation funding Switzerland

Litigation funding Switzerland is lawful, established and increasingly used for substantial commercial claims and Swiss‑seated arbitrations, but success depends on getting the procedural detail right rather than on the legality question alone. The following checklist summarises the key actions.

• Claimants: confirm the merits, run funder due diligence, negotiate limited funder control, secure adverse‑costs funding and consider ATE, and prepare a disclosure‑ready, redacted funding agreement.
• Funders: verify counterparty authority and solvency, structure control to avoid triggering disclosure and cost liability, pre‑arrange security mechanics, and confirm no FINMA‑relevant pooling issues arise.
• Defendants: probe whether the claimant is funded, assess grounds for security for costs, and scrutinise any funder control that could affect settlement authority or conflicts.

For a tailored funding assessment, find a Swiss commercial litigator on the Switzerland, lawyer directory.

This article provides general information on litigation funding Switzerland and is not legal advice. It reflects the position as understood in 2026 and will be reviewed periodically. Obtain advice from qualified Swiss counsel before acting.

Sources

1. Swiss Civil Procedure Code (ZPO), Federal consolidated text
2. Swiss Code of Obligations (OR/CO), Federal consolidated text
3. Swiss Federal Supreme Court (Bundesgericht / Tribunal fédéral)
4. Swiss Bar Association (Fédération Suisse des Avocats / Schweizerischer Anwaltsverband)
5. FINMA, Swiss Financial Market Supervisory Authority
6. Federal Office of Justice (FOJ)