Third-Party Litigation Funding: Statement by LPI

In June 2021 the European Parliament Committee on Legal Affairs launched an initiative, issuing recommendations to the Commission on responsible private funding of litigation.

Third-party litigation funding is fairly new in Europe and its potential to disturb existing litigation arrangements and vitalise claims that formerly would not have been pursued is clear. At the same time, third-party litigation funding provides the money injured claimants need in order to pursue their rights and often it is the only way for them to get access to justice.

Legal protection insurance as well as private litigation funding are tools to facilitate access to justice for claimants and defendants. Ultimately, in order to defend or pursue a right, insurers and funders transfer risks associated with civil litigation, provide parties with funds they would otherwise lack and sometimes constitute the only chance for claimants to access justice in the first place.

Insurers have assumed these kinds of risks for over a century. Third-party litigation funders and their products and business models are still evolving while working around and arranging with legal and factual impediments. The potential for conflicts between or among claimants, funders, and claimants’ attorneys must be admitted, but similar, conflict-related concerns, exist on the insurance side and the legality of shifting the financial responsibility is broadly accepted while it warrants prudent regulation to ensure the functioning of either tool.

Consequently, in the view of Legal Protection International aisbl (LPI), regulation must not stop this innovation in its track but must implement safeguards, similar to those in the area of insurance, which allow funders to assume the financial risk of litigation and protect the interests of injured claimants. The recommendations tabled by the European Parliament Committee on Legal Affairs appear to be in parts too restrictive. Therefore, if the EU Commission comes to the conclusion that this area needs to be regulated, LPI requests the EU Commission to launch a proper consultation with all stakeholders to develop a balanced set of rules.

Read the LPI’s full statement here.