The European Parliament has called on the European Commission to introduce regulations covering third-party litigation funding (TPLF).
The parliament’s committee on legal affairs last week adopted a report by German MEP Axel Voss (pictured) on the issue.
A note by Arthur Cox Of Counsel Stephen D’Ardis said that EU legislation in this area could overturn the centuries-old prohibitions on champerty and maintenance in Ireland.
These terms are used to describe the involvement of third parties in funding litigation – including in cases where they do so in exchange for a share of the proceeds of the lawsuit.
Access to justice
The European Parliament described TPLF as a practice that was developing into a market for litigation services without a specific EU-wide legislative framework in place.
The Voss report pointed out that TPLF could, if properly regulated, be used more often as a tool to support access to justice, especially in countries where legal costs were very high, or for women and marginalised groups.
The committee of MEPs, however, called for common minimum standards on commercial TPLF across the EU, in order to ensure that justice systems did not prioritise “the interests of private investors who might only be seeking commercial opportunities from legal disputes”.
It said that such a directive should harmonise member states’ rules for litigation funders and their activities, and also introduce minimum standards to protect the rights of funded claimants and intended beneficiaries in proceedings.
Capital requirements
The committee backed a system of authorisation for litigation funders, and argued that third-party funding agreements should be required to observe a fiduciary duty of care to act in the best interests of a claimant.
MEPs also urged the commission to require litigation funders to demonstrate that they had enough capital to satisfy their financial obligations, and to bring in safeguards to prevent potential conflicts of interest.
Insurance Europe welcomed the Voss report, saying its proposals would create “significant benefits” for consumers and companies relying on funding agreements, and for businesses defending funded claims.
Sharp contrast with Britain
Gary Barnett, the executive director of the International Legal Finance Association, which represents firms involved in TPLF, said that legal finance played a “critical role” for EU citizens and businesses seeking redress provided to them by law.
The body added that it looked forward to collaborating with EU bodies to ensure that future actions were “fully informed by current and accurate data on the litigation-funding industry in Europe and its positive impacts on justice systems around the world."
The Law Society Gazette of England and Wales said that the EU initiative contrasted sharply with the situation in Britain, where the litigation-funding industry “has been allowed to grow with few constraints from legislators”.