Overview

Third Party Litigation Funding

Third Party Litigation Funding (TPLF) is an arrangement whereby a third party, who has no other connection to the litigation, finances some or all of a party's legal costs in return for a share of any proceeds of the litigation. In Europe, litigation funding is so far used for a broad range of claims. It sometimes includes taking on board liability for adverse cost rulings even though for that purpose after-the-event-insurance is more common.

Why

In June 2021, MEP Axel Voss presented a first draft of his legislative own-initiative report (INL) on “responsible private funding of litigation”. The report aims to establish a legislative framework at the European Union level to regulate the commercial practice of TPLF, ensure minimum standards for the protection of funded claimants, and prevent conflicts of interest, abusive litigation, and disproportionate allocation of monetary awards to litigation funders. The report seeks to address the lack of clarity and diverging rules and practices in different Member States, which can hinder the functioning of the internal market. This report launched the institutional process to evaluate further regulation of TPLF.

How

On 13 September 2022, the European Parliament adopted the legislative own-initiative report (INL) with a decisive cross-party majority. This vote served as a strong political message to the European Commission, urging them to address the growing global trend of hedge funds and other entities investing in legal proceedings to reap substantial profits at the expense of ordinary individuals seeking justice for wrongs suffered. While recognising the positive aspects of TPLF, the European Parliament put forward a set of safeguards aimed at effectively curbing activities of such investors that clearly go against the interests of claimants. Here are three examples of proposed safeguards:

  • Implementing caps on excessively high and unjustifiable rewards offered by litigation funders to investors.
  • Introducing an authorisation system overseen by supervisory authorities with the support of courts.
  • Enhancing transparency by disclosing the involvement of funders along with funding agreements and making their activities more visible.

Through the proposed regulatory regime, the structures existing as partial and scattered safeguards would be reinforced with additional mechanisms to provide better protection for claimants.

Current status

The Commission has shown interest to review the report and conduct a study to evaluate the situation of TPLF in the European Union. However, this process will only kickstart during the next Commission's mandate, from approximately November 2024 onwards, after the European Parliament elections.

For the national transposition of the Representative Actions Directive, certain EU member states have already decided to go beyond the limited 6 - very generally held - safeguards of the Directive. Some examples on additional safeguards which can be found in the transposing national laws:

  • Not more than 10% of total awards to funders (Germany)
  • Cap on loan fees to the percentage of statutory interest on arrears (Slovenia)
  • Disclosure of funding agreement to court (Bulgaria, Germany, Portugal)
  • Disclosure of the beneficial owner behind funders required – Anti-Money Laundering / AML approach (Czech Republic)
  • Declaration on the honour by Qualified Entity that action exclusively pursues consumer interests (France)
  • No TPLF at all allowed (Ireland and Greece)

Topics

Representative Actions

One of the main objectives of the European Commission through this proposal is to allow each and every EU citizen to have compensatory collective redress tools at national level.

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Members

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Our services are based on three main pillars: policy and legal intelligence, research and academic input, and communication of key messages.

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Mission

Goals

EJF’s goal is to ensure that the Directive on Representative Actions will build a coherent and harmonized civil redress system architecture in Europe.

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Recent

Latest News

Europe is at a cross-roads for product liability rules. Following the proposal on a New Product Liability Directive, EJF and other European organizations urge policymakers, in a joint statement, to consider key issues such as protection against malicious mass-claims and new rules on burden of proof, to ensure a balanced and effective product liability regime that benefits both businesses and consumers. The proposed revision of the PLD, as it stands, would introduce radical changes in the EU legal landscape and it may indeed have unintended consequences for Europe's competitiveness and national justice systems. PLD could signal another move towards a litigation culture in the EU that serves primarily the economic interests of private third-party funders as well as placing an extra burden on already-stretched national court systems and state resources. Let's work together to protect European competitiveness and consumer rights via fair, effective and efficient civil rights systems in the EU.

Read more in our Joint Statement below.

 

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