In June 2021, the Legal Affairs Committee of the European Parliament released its proposal to bring transparency and commonsense safeguards to third party litigation funding (TPLF) in Europe. Among other elements, the proposal would put a cap on the fees litigation funders charge their clients, to ensure a fair return for claimants; it would create a fiduciary duty for funders to act in claimants’ best interests; and it would mandate the disclosure of funding agreements in cases to the court, the claimant(s), and the defendant(s). Unsurprisingly, many funders have come out against the proposal – and recently, so has the German Legal Tech Association (GLTA). As reported by Artificial Lawyer, the GLTA released a statement in opposition to the proposal, arguing that the Committee made a “very far-reaching, tough regulatory proposal” on litigation funding that would have wide-ranging impacts, and that this proposal is unnecessary.
GLTA argues that TPLF would impede access to justice – they even say that “litigation financing is what makes legal enforcement possible in the first place.” Hyperbole aside, this argument ignores a fundamental truth about litigation funding – that it’s a component of the finance industry, and its sole purpose is to make money for investors. TPLF firms only back cases that offer high returns, and the substantial fees they charge often drastically diminish claimant recoveries. TPLF firms do not invest millions of euros in the altruistic pursuit of “access to justice.”
Then, there are the industry’s secretive practices. This global, multi-billion-euro industry is largely unregulated in Europe (or almost anywhere else) and operates with a near-total lack of transparency. That means funders can freely choose to prioritize their profits over what is in the best interest of claimants with minimal risk and no effective oversight, leaving the door wide open to abusive conduct.
Finally, GLTA fails to address one of the most important and relevant facts about the European Parliament’s project: European citizens overwhelmingly support the creation of safeguards for the TPLF industry. According to a September 2021 poll from international research firm WorldThinks, 83% of respondents support the introduction of safeguards to ensure that cases funded by TPLF operate in consumers’ best interests. The study, which covered over 5,000 participants in France, Germany, Netherlands, Poland, and Spain, also showed that strong majorities supported caps on funder fees, a fiduciary duty for funders, a requirement for funders to disclose their investments, and several other potential measures. Clearly, the Legal Affairs Committee’s proposal is in line with the protections that Europeans want in their court systems. Opposing those protections may be good for lawyers and funders – but it certainly isn’t good for “access to justice” or the interests of European consumers.