Collective redress

EU should develop rules on third party litigation funding


Several European associations — including Insurance Europe — have issued a joint statement calling for the EU to develop appropriate rules on third party litigation funding (TPLF).

TPLF allows private financiers, like investment and hedge funds, to sign confidential deals with lawyers or qualified entities to fund lawsuits and arbitration in exchange for a cut of any settlement or judgment/award. TPLF is an estimated €40 to €80 billion market globally. There are more than 100 litigation funders operating in Europe, yet TPLF is largely unregulated in the EU, unlike other financial and legal commercial activities. Private TPLF is not a public service, and funders can decline cases, even meritorious ones, if they do not offer a sufficient financial return.

The introduction of a profit-motivated third party into the traditional attorney-client relationship presents a host of ethical issues and other public policy considerations. Funders may prioritise their bottom-line interests over the interests of the claimants and can unduly influence the decisions in a case. Funders can also arrange to be paid first and take a disproportionate share of any award, leaving claimants who suffered harm with little or no redress.

With no obligation to see cases through to the end and no responsibility for adverse costs, funders can pursue opportunistic claims for a high reward with low risk. Faced with years of litigation, expensive legal bills, and reputational risk, defendants may be forced to settle even unmeritorious claims.

The signatories are, therefore, supportive of the European Parliament’s legislative own-initiative report on responsible private funding of litigation, which calls on the European Commission to propose sensible safeguards for effective oversight of TPLF in all areas of law and types of litigation.

It is important for the investment climate in Europe that the EU supports justice systems that are effective, build trust, and dissuade a culture of litigation. These are essential ingredients for the ‘Justice for Growth’ strategy embraced by the Commission.