The European Parliament has called on the European Commission to adopt new regulations for Europe’s litigation funding sector, including a fee cap on litigation funding. In September 2022, it voted overwhelmingly in favour of adopting a legislative report by German MEP Axel Voss on responsible third-party litigation funding (TPLF). The report seeks to introduce a new regulatory framework for TPFL to ensure that Member States’ justice systems are not ‘exploited by profit-seeking actors’.
Third-Party Litigation Funding
TPLF is an arrangement where a third party, with no prior connection or legitimate interest in a dispute, agrees to finance all or part of the legal costs of a party engaged in legal proceedings, in return for a share of any potential damages awarded. The TPLF market has grown rapidly and is now well-established, but to date has been left largely unregulated in the EU.
Voss Report’s Proposals
The Voss Report seeks to harmonise Member States’ rules concerning TPLF by addressing what it identifies as a ‘regulatory vacuum’ when it comes to third-party funders. It recommends the introduction of a TPLF regulatory regime focused on transparency, fairness and proportionality. Among other things, the report proposed to
- establish limits on the percentage share of a court award or settlement that funders can take
- prevent funders’ from taking control of legal proceedings
- introduce an obligation to disclose the TPLF agreement to all parties and the court
- put in place strong safeguards against conflicts of interest
- impose an independent authorisation system for litigation funders that would include governance and capital adequacy requirements.
Response to the Report
The Voss report has been met with mixed responses. While many have recognised the efforts of MEP Voss to minimise the abuse of TPLF, funders have urged caution, arguing that robust mandatory regulation could limit the availability and increase the cost of funding.
For more information about TPLF, speak to a member of our litigation team.
