The European Parliament is taking the first steps towards government oversight of third party litigation funding. On June 28, Member of the European Parliament Axel Voss introduced a legislative own-initiative report in the Legal Affairs (JURI) Committee on responsible private funding of litigation, also known as TPLF.
TPLF allows private financiers, like hedge funds, to sign secret deals with claimants’ lawyers to fund lawsuits in exchange for a cut of any settlement or award. These funding agreements are not disclosed to anyone, including the judge, the defendants, and even the claimants in the case. This allows funders to include dubious provisions in the agreements, such as giving the funder control over strategic decisions in the case and charging excessive fees. This global, multi-billion-euro industry is virtually unregulated and rife with opportunities for abuse.
MEP Voss is looking to change that. Voss’ report advocates for the Commission to introduce an EU Directive to address the contractual, ethical, and procedural aspects of TPLF. The report proposes smart safeguards to provide oversight of the industry, including:
- An authorization system for litigation funders
- Capital adequacy requirements as well as an obligation to pay adverse costs
- A duty to act in the best interests of the claimants
- Disclosure of funding agreements to the court, the claimants, and the defendant
- Review of funding agreements by supervisory authorities
- Strong safeguards against conflicts of interest
- A cap for fees to guarantee fair and proportionate returns for claimants
- Prohibition on funders taking control of the proceedings or withdrawing without clear justification
The TPLF market in Europe is growing rapidly. As litigation funders are operating and funding cases throughout Europe, rules for TPLF should be harmonized in the EU internal market. Litigation funding should not be regulated in one Member State and left unchecked in another, offering different levels of protection for EU citizens. The EU should regulate the industry before it gets out of control, as we have seen in Australia and the U.S. Minimum safeguards are needed to protect consumers and businesses across Europe.