Need for more third-party litigation funding?

While collective redress mechanism and third-party litigation funding (TPLF) are meant to have a positive impact for consumers in facilitating the access to justice, there is the risk – if no sufficient safeguards are put in place – that private funders’ interests (esp. their interest in commercial profit) may be disconnected from – or even opposed to – consumers’ interests. Concrete examples can be seen in the US or in Australia. In Europe we are seeing an increase in cases.

• The biggest issue is the diversion of excessive amounts from 'claimants’/beneficiaries’ compensation by intermediaries, used to generate profit along with funding the litigation. The underlying problem arises out of the disconnect between the private interests of funders, and the right of claimants/beneficiaries to receive full compensation for their grievances. This urges the call for an independent oversight function for those institutions as well as their market activities.
• There is a propensity for conflicts of interests to arise between funders and claimants/beneficiaries. Particularly around whether a settlement offer should be accepted – claimants/beneficiaries may still wish their day in Court, whereas funders may wish to profit from a settlement, giving them a definitive return on investments. An important role should lie here with the court, once seized, being obliged to take care of the interests of the claimants/beneficiaries without any room for maneuver for the claiming QE to simply withdraw the action.
• Specific problems occur with regards to the definition, supervision and scope of funding business, transparency of funding agreements and related independent control as well as the assessment of settlement covering issues like distribution of proceeds and finality. All areas are calling for specific safeguards.
• Another issue for society as a whole is that TPLF - if not properly regulated - could lead to excessive costs, including opportunity claims or “frivolous” claims affecting innovativeness as well as competitiveness of business.

 

How do consumers, as the persons directly impacted, feel about TPLF?

The report of World Thinks, published end of September 2021, is shedding light into this important question. More than 5,000 consumers were interviewed across 5 EU Member States: France, Germany, Netherlands, Poland and Spain.

Some key takeaways:

• 58% of the consumers across markets believe TPLF should be allowed to operate, but only with safeguards in place. Another 25% still consider that TPLF should be banned.
• 74% of consumers support government intervention in the practices of TPLF, for example by designing and implementing safeguards.
• 83% of consumers across the five markets support the introduction of safeguards to ensure that cases funded by TPLF operate in consumers’ best interests. Only 8% oppose the introduction of safeguards.
• A majority of consumers support almost all safeguards tested in the research – except self-regulation.

 

EJF supporting additional effective safeguards against the abuse of TPLF

The European Justice Forum (EJF) is supportive of the recently released legislative own-initiative report authored by Member of European Parliament (MEP) Axel VOSS, and believes that this constitutes a solid basis for more effective regulation on third-party litigation funding (TPLF) in the EU.

EJF has therefore developed points of crucial importance to achieve an effective and coherent legal architecture that safeguards against potential abuses of TPLF. For more information please contact us.