South Korea’s legal finance evolution: Unlocking capital for cross-border disputes and arbitration

Introduction

Legal finance has become a mainstream feature of complex commercial disputes today. The term “legal finance” (more commonly referred to as “third-party funding” in some jurisdictions) encompasses the funding of litigation or arbitration proceedings, asset recovery, as well as other ways to provide financing against legal assets. Across leading arbitral centres and major litigation markets, it is routinely used as a strategic tool to manage risk, enhance liquidity and improve capital efficiency.

As an active participant in the global disputes market, South Korea is increasingly exposed to the growing use of legal finance in international arbitration and cross-border litigation. Korean companies are deeply integrated into cross-border commerce and are frequently parties in high-value international arbitrations and foreign court proceedings. In many such proceedings, legal finance is already a familiar and accepted feature. At the same time, however, the domestic regulatory framework in Korea has not caught up with the fast evolution of this new industry, and there is no express statutory regime governing third-party litigation funding. That said, recent developments, including the revised KCAB Rules and the emergence of local funders, signal gradual progress in the jurisdiction.

This article provides an overview of legal finance in the context of Korea’s developing disputes market. It examines the key legal, regulatory and market considerations relevant to South Korea, and analyses how legal finance fits within Korea’s existing legal framework, evolving arbitration regime and broader dispute resolution landscape.

Overview of legal finance

Traditionally, litigation has been viewed as a cost centre – a necessary but value-consuming function reflected as an expense in the income statement. The central premise of legal finance is that pending legal claims, arbitral proceedings, judgments and awards are assets that represent contingent future cash flows. Companies and law firms can thus treat legal claims as financial assets that can be funded, monetised and structured like other corporate finance tools.

In its most common form, legal finance is used to pay for costs associated with commercial litigation or arbitration (such as lawyers’ fees and case expenses) or to accelerate or “monetise” the value of pending claims, judgments, awards or fees. Financing is provided in exchange for a portion of the ultimate recovery for a single commercial matter or for multiple matters combined in a cross-collateralised portfolio (which can include both claimant and defence matters).

This reframing allows companies and law firms to approach dispute resolution not merely as defensive expenditure, but as a capital allocation decision.

Non-recourse capital

Legal finance is generally provided on anon-recourse basis, as detailed below.

• If the case is unsuccessful, the financed party has no obligation to return the capital advanced.
• The financier assumes the downside litigation risk (including enforcement risk).
• In monetisation structures, the company retains the advanced capital regardless of outcome.

This allocation of risk distinguishes legal finance from traditional borrowing. The funder’s return is contingent on a successful resolution (including the recovery of proceeds upon enforcement of any judgment or award), and pricing reflects case-specific risk, duration, enforceability and collection considerations.

Preservation of control

Legal finance does not transfer control of the dispute. The funded party, typically the claimant, retains decision-making authority over litigation strategy, settlement and counsel selection. The lawyer–client relationship remains intact. Reputable funders operate as passive capital providers and do not interfere with professional independence or case strategy.

Strategic rationale

Legal finance for corporates

Corporations frequently hold unpursued meritorious claims, unenforced judgments or arbitral awards that represent significant but illiquid value. These assets often remain unrealised due to budget constraints, internal risk management considerations or the opportunity cost of deploying working capital into multi-year disputes.

Legal finance addresses these constraints by allowing companies to pursue high-value claims without increasing downside exposure. It can remove litigation costs from the income statement, unlock value embedded in illiquid claims and provide upfront capital rather than requiring companies to wait years for resolution and enforcement.

The financial benefits are particularly pronounced in long-running arbitration or cross-border enforcement contexts, where appeals and collection efforts can lead to prolonged delay and uncertainty. In these circumstances, legal finance functions simultaneously as a risk management tool, a liquidity solution and a balance sheet optimisation mechanism.

Legal finance for law firms

For law firms, legal finance is both a competitive and financial management tool. It enables firms to offer alternative fee arrangements, including hybrid and synthetic contingency models, without assuming the entirety of the economic risk. This enhances their ability to win and retain clients in competitive mandate processes.

Firms with contingency practices often experience irregular revenue patterns as recoveries are episodic and capital may be concentrated in a small number of high-value matters. Legal finance can smooth cash flow, reduce concentration risk and accelerate expected fee recoveries through monetisation or portfolio structures. In more mature markets, it also supports geographic expansion and investment in new practice areas.

Types of legal finance solutions

In markets where legal finance is first introduced, the concept is often associated solely with third-party funding of legal fees and expenses. While this remains a core product, it represents only one component of a broader and increasingly sophisticated set of capital solutions for a range of contexts.

Traditional fees and expenses funding

Under the conventional structure, a funder pays legal fees and case-related expenses as they are incurred. The capital is provided on a non-recourse basis and the funder receives an agreed return only if the case succeeds. If the claim fails, there is no repayment obligation.

For corporates, this structure preserves working capital, removes legal spend from operating expenses and transfers financial downside risk associated with pursuing meritorious claims. For law firms, it enables firms to manage risk more effectively across large or complex matters, smooth earnings volatility and while preserving partner capital and enhancing financial flexibility.

Monetisation of legal claims

Monetisation involves the upfront conversion of a portion of the expected proceeds of a pending claim, arbitration, judgment or award into immediate liquidity. The capital is advanced in a lump sum and may be used for any corporate purpose. The structure remains non-recourse.

This solution addresses liquidity and uncertainty concerns by allowing companies to lock in a minimum value and reduce exposure to prolonged resolution and enforcement timelines.

Monetisation or sale of non-core legal assets

In certain circumstances, particularly in insolvency, restructuring or divestment contexts, legal claims may be structured as asset-backed transactions or sold outright. This allows companies to transfer litigation cost and burden, remove non-strategic disputes from the balance sheet and generate immediate liquidity.

Enforcement and asset recovery financing

Obtaining a judgment or arbitral award does not guarantee recovery. Enforcement can require substantial investment in multi-jurisdictional proceedings, asset tracing and collection efforts.

Legal finance can fund post-award enforcement campaigns and related recovery costs, and in some cases may be paired with integrated asset recovery expertise. This is especially relevant in cross-border disputes involving complex asset structures or recalcitrant debtors.

Portfolio financing

Portfolio financing involves grouping multiple matters, whether claimant-side, defence-side or a combination, into a single facility. By diversifying risk across several cases, portfolio structures can reduce the cost of capital relative to single-case funding.

Corporates may use portfolio finance to offset defence costs with claimant-side litigation or to implement enterprise-wide dispute management strategies. Law firms may use it to support new practice areas, manage firm-level risk exposure and pursue growth initiatives. In mature markets, portfolio structures allow for cross-collateralisation of matters, thereby smoothing volatility in litigation-driven revenues.

Contingency fee arrangements

Contingency fee arrangements are permitted in South Korea and are commonly used in civil and commercial cases (though not in criminal matters). Under such arrangements, a law firm receives a percentage of any recovery and no fee if the case is unsuccessful.

These structures enhance access to justice and align the interests of lawyer and client. However, they can introduce revenue volatility for firms, particularly in complex arbitration or cross-border disputes.

Although portfolio financing may be a less familiar concept among law firms in South Korea, it adopts the same underlying logic of risk diversification. Legal finance may complement contingency practices by funding case expenses or advancing capital against a diversified pool of expected fees, supporting firm-level capital management strategies.

Legal finance in South Korea

As a civil law jurisdiction, South Korea does not currently have a clear statutory or judicial framework addressing legal finance.

Despite this, many Korean conglomerates already use legal finance in disputes outside Korea, particularly in international arbitration and patent litigation in the United States.

Korea’s key industries (construction, overseas infrastructure projects, energy, tech and entertainment) are also routinely exposed to global disputes involving antitrust, product liability, patent infringement and other high-value claims. These types of complex, capital-intensive proceedings – often multi-jurisdictional and prolonged – are particularly well suited to legal finance solutions.

As Korean corporates encounter funded opponents in overseas proceedings more frequently and as global dispute financing markets continue to mature, questions concerning regulatory clarity, competitive balance and access to capital assume greater importance in South Korea.

Considering the Attorney-at-Law Act

One potential regulatory consideration is article 34(5) of the Attorney-at-Law Act, which stipulates that “no fees and other profits earned through services that may be provided only by attorneys-at-law shall be shared with any person who is not an attorney-at-law”.

While the possibility of applying the Attorney-at-Law Act to a third-party funding arrangement remains possible, there should be no issues under article 34(5) as long as attorneys ultimately receive fees and expenses from their client companies.

Momentum for legal finance in Korea

Market momentum suggests increasing openness towards legal finance. Potential reforms include:

• amendments to the Arbitration Industry Promotion Act; and
• clarification or exemption provisions relating to article 34(5) of the Attorney-at-Law Act.

These would be positive developments. Greater clarity regarding the legal status of legal finance would significantly support its growth in South Korea, a jurisdiction home to major conglomerates engaged in complex global operations that frequently give rise to disputes.

In 2017, Korea enacted the Arbitration Industry Promotion Act, recognising arbitration as a strategically growing industry. In other jurisdictions, legal finance has become an important pillar in strengthening arbitration ecosystems.

KCAB International Arbitration Rules (2026)

KCAB International’s revised Arbitration Rules, effective 1 January 2026, represent the first major overhaul in a decade. The amendments are designed to enhance transparency, procedural efficiency and institutional credibility, aligning Seoul with established arbitral centres such as the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC). In particular, the revised Arbitration Rules now include an express obligation to disclose third-party funding arrangements, requiring notification of the existence and identity of any funder.

While the Rules do not substantively regulate legal finance, such express recognition of third-party funding and broader procedural modernisation reflect institutional awareness of global funding practices and aligns itself with other institutional rules such as the ICC and SIAC. This move reduces uncertainty and supports the acceptance of funded cases in KCAB arbitrations, which are often seated in Korea.

Insurance and risk mitigation

After-the-event (ATE) insurance is available in South Korea to protect against adverse litigation outcomes. ATE insurance may cover court fees, expert costs and other expenses incurred if a case is unsuccessful.

ATE products are increasingly recognised, particularly in the context of international arbitration, and may complement legal finance structures by further mitigating risk.

Case studies

Cross-border infrastructure arbitration

Burford worked with a Korean construction company to explore the financing of a Singapore-seated arbitration. The party was a sub-contractor in a Middle East construction project that was in a dispute with the main contractor over certain payment defaults and contract breaches after having made significant investments in equipment and consultancy services during the early phases of the project.

Investment treaty arbitration

A large Korean company in the natural resources sector reached out to Burford to explore funding solutions relating to a claim to be brought under a bilateral investment treaty between Korea and the host country of a large-scale infrastructure investment. The host country withdrew certain licences awarded to the company relating to the critical stages of the project, after the company had incurred substantial costs in its earlier phases. Investment treaty claims are often complex and proceedings could be protracted, resulting in sizeable legal budgets. The company was reluctant to provision for the entire cost of the arbitration and sought to diversify its risks by using non-recourse funding provided by Burford.

Patent infringement proceedings

Through relationships with the company’s external Korean counsel and its intellectual property litigation team in the United States, Burford was brought in to devise funding solutions for the Korean subsidiary of a global bioscience company for patent infringement and trade secret misappropriation proceedings against a competitor. The litigation strategy was multinational in nature, focusing on proceedings in a US district court and the International Trade Commission, but the funding of parallel proceedings in other jurisdictions were also considered as part of the strategy.

Regional comparison

Experience from other leading Asian jurisdictions suggests that the development of a legal finance market tends to occur incrementally rather than through wholesale reform.

Singapore

Singapore legislated for third-party funding in 2017, initially limiting it to international arbitration and related proceedings. The common law torts of maintenance and champerty were abolished but funding was expressly validated only for “prescribed dispute resolution proceedings”.

The scope was subsequently expanded to include domestic arbitration and proceedings before the Singapore International Commercial Court (SICC). Singapore also introduced conditional fee agreements for arbitration, reinforcing its position as a leading arbitral seat.

This staged expansion reflected growing institutional comfort with legal finance, as well as recognition of its role in reinforcing Singapore’s position as a dispute resolution hub.

Hong Kong

Hong Kong adopted a similarly arbitration-focused approach. The Arbitration and Mediation Legislation (Third-Party Funding) (Amendment) Ordinance 2017 abolished champerty and maintenance for arbitration and related proceedings. A Code of Practice governs funders, including capital adequacy and conduct requirements.

Funding of court litigation remains generally prohibited, subject to established exceptions such as insolvency proceedings. Hong Kong has also introduced outcome-related fee structures for arbitration, including conditional and damages-based agreements.

As funded proceedings became more common in Singapore and Hong Kong, the appeal of legal finance also becomes more widely understood by law firms and parties to disputes. Corporates began to view legal finance not only as an access-to-justice mechanism, but as a balance sheet tool – including for award monetisation and risk management in high-value disputes. Awareness also spread among Asia-based companies involved in disputes in other major arbitral centres.

A similar trajectory is likely in South Korea. Given Korea’s significant international arbitration exposure and the global operations of its conglomerates, any reform would likely begin with international arbitration. As in Singapore and Hong Kong, international arbitration provides a commercially sophisticated and internationally aligned starting point before any extension to court litigation.

Market familiarity typically drives adoption. As corporates and law firms gain experience with funded cross-border disputes, funding becomes integrated into broader dispute strategy – including portfolio structures, award monetisation and enforcement financing.

Conclusion

Legal finance reframes dispute resolution as a capital allocation decision rather than a pure expense. Through non-recourse funding, monetisation and portfolio structures, it enables corporates and law firms to treat legal claims as financial assets.

In South Korea, the commercial drivers for legal finance are already present. Korean companies are active participants in complex, cross-border disputes in sectors where funding is commonplace. The arbitration framework continues to modernise, and market familiarity with risk-based fee structures is well established. Recent institutional developments – particularly the 2026 revision of the KCAB International Arbitration Rules and its express introduction of third-party funding disclosure – represent a meaningful and constructive step. At the same time, there is still room for clear statutory guidance to build greater certainty.

Experience in comparable Asian jurisdictions demonstrates that reform need not be sweeping to be effective. Incremental clarification – particularly in the context of international arbitration – may provide a pragmatic starting point. As familiarity grows and regulatory parameters become clearer, adoption is likely to broaden.

With greater clarity and market familiarity, legal finance could play an increasingly strategic role in Korea’s evolving dispute resolution landscape.

---

This article was originally published on Global Arbitration Review here.