Switzerland has an established litigation funding market, with funding of both domestic litigation and arbitration seated in Switzerland permitted by Swiss law.
It is expected that the relevance of third party litigation funding will increase given the steady increase of its popularity in certain common law jurisdictions such as the UK, the United States and Australia.
In 2003 a draft law, proposed by resolution of the Cantonal Council of Zurich, and which, inter alia, prohibited the financing of litigation by any third party, was challenged before the Swiss courts. In a pivotal decision on 10 December 2004, the Swiss Federal Supreme Court ruled that the relevant provision of the draft law prohibiting third party funding should be set aside, on the basis that it would restrict freedom of commerce in a way that was disproportionate to its intended purpose. This effectively made litigation funding in Switzerland permissible.
There are no provisions in the Federal Code of Civil Procedure or in any other Swiss legislation relating to regulation of third party funding. However, the Federal Supreme Court held that some existing general provisions in various parts of the Swiss legislation, would be applicable should a litigation funding agreement violate certain principles of Swiss law.