On 25 July 2022 the Committee on Legal Affairs (Rapporteur: Axel Voss) adopted a report with recommendations to the Commission on responsible private funding of litigation (procedure: 2020/2130(INL)). On 13 September 2023 the European Parliament adopted, on the basis of the JURI report, a resolution with recommendations to the Commission on Responsible private funding of litigation. The resolution is based on Article 225 of the Treaty on the Functioning of the European Union (TFEU) which allows Parliament to request the Commission to submit a legislative proposal, and if it does not submit one, to inform the Parliament of the reasons. Parliament adopted the resolution by an overwhelming majority of 504 votes to 57, with 65 abstentions. 

Parliament calls upon the Commission to provide for EU-wide rules regulating commercial third-party litigation funding (TPLF) which consists of private investors (litigation funders), who are not parties to a dispute, investing for profit in legal proceedings and paying costs and other legal fees, in exchange for a share of any eventual award (such as damages, compensation, etc.). The Parliament notes that TPLF is used not only in collective redress (class actions), but also in the areas of arbitration, insolvency proceedings, investment recovery, anti-trust claims and others. 

The Parliament expects the Commission to table a proposal for a directive which would lay down common minimum standards at Union level on commercial third party litigation funding. The Directive should ensure the harmonisation of Member States' rules applicable to third party funders and their activities, thus allowing access to justice, while introducing common minimum standards for the protection of the rights of funded claimants and intended beneficiaries in proceedings financed in whole or in part by third party funding arrangements, which apply in all Member States where litigation funding is permitted.

More specifically, Parliament calls upon the Commission to include in the proposal the following elements:

• an authorisation system for third party funders to ensure that applicants have an effective opportunity to use the TPLF and that adequate safeguards are in place,
• the obligation of third-party funders to act in the best interests of a claimant, without  undue control over the legal proceedings they fund,
• a requirement that funders have sufficient own funds to meet their financial obligations,
• safeguards against conflicts of interests,
• prohibition for funders to abandon the claimants, leaving them solely responsible for all costs of the litigation,
• limits on the part of the reward that the funders would be entitled to; at least 60% of the gross settlement or damages should go to the claimants,
• courts should be informed that the litigation is commercially funded, and should know the funding agreement.

The Commission responded to Parliament's resolution on 30 November 2022 noting that within the area of collective redress, TPFL is addressed in the Representative Actions Directive. Given that the Member States had until 25 December 2022 to implement that Directive within their legal systems, the Commission committed to assessing the need for further regulation of TPLF only once the implementation period has expired. Thereupon, the Commission would launch a mapping exercise to collect information regulations and practices in the Member States, order an external study and organise stakeholders consultations. Only then will the Commission be able to take a more detailed position regarding the initiative by the Parliament.

References:

• EP Legislative Observatory, Responsible private funding of litigation, 2020/2130(INL)

Further reading:

• European Parliament, Representative actions to protect the collective interests of consumers: A new deal for consumers, Briefing, EPRS 

Author: Rafał Mańko, Members' Research Service, legislative-train@europarl.europa.eu