Key elements and status of the European parliament resolution of 13 September 2022 with recommendations to the Commission regarding the responsible private funding of litigation.
On 13 September 2022, the EU parliament adopted the resolution with recommendations to the Commission on the responsible funding of litigation.
The main thrust of the directive that parliament expects the Commission to adopt is to allow access to justice, while introducing common minimum regulatory standards in all member states.
The key elements of the directive include:
- Introduction of an authorisation system for third-party funders to ensure that applicants have an effective opportunity to use third-party litigation funding (TPLF) and that adequate safeguards are in place.
- An obligation on third-party funders to act in the interests of the funded claimant, without control over the legal proceedings they fund. A specific declaration may be contained in the agreement.
- Financial requirements that funders should meet and demonstrate on an annual basis.
- Safeguards against conflicts of interest (e.g. the funding agreement can be invalidated if enables the funder to influence decisions regarding the proceedings).
- A prohibition on funders abandoning claimants and leaving them solely responsible for the costs of litigation.
- Limits on the reward that funders are entitled to – at least 60% of the gross settlement or damages should go to the claimants.
- Introduction of defined circumstances whereby the funder can terminate the agreement. The agreement cannot be terminated at the will of the funder.
- Disclosure and transparency obligations. Courts should be informed if the litigation is commercially funded and should know the funding agreement.
When the resolution of the European parliament was initially presented, the Commission replied that – before providing a regulatory framework for TPLF – it would need to wait for member states to implement the Representative Actions Directive, which addresses the matter of the TPLF within the area of collective redress. The Representative Actions Directive should have been transposed into national law by 25 December 2022, but only a few EU member states met the deadline. At this stage, transposition is ongoing.
The Commission is now collecting information on regulations and practices among member states to gain a clearer understanding and detailed opinion on the directive proposal.
Opinion on the directive proposal
The European parliament's proposal for a directive raises doubts about the effective incentivisation of TPLF.
In fact, the directive proposal places a series of strict limitations that restrict the freedom that has allowed the TPLF to spread and grow, both abroad and in EU countries like Netherlands and Germany.
According to a critical approach, the EU parliament's proposal would deter investors/funders from investing in litigation financing, given the tight regulation that would result (especially regarding the reward). Moreover, the regulations tend to be focused on consumer protection (i.e. class actions), and not the funding of high-value cases (i.e. international arbitration) where the parties need a more flexible tool.
For this reason, the Commission is taking time to respond to the European parliament's proposal. A detailed analysis of the practice of this instrument in member states, as well as the involvement of market participants, would give a more practical slant to a regulation that is unlikely to accommodate all the rules proposed by the European parliament.
Italian perspective on Third-Party Litigation Funding
Litigation funding in Italy is not regulated by any law or regulation, and there is currently no reform on the horizon. Despite this, the Italian Supreme Court recently ruled on the issue – finding that TPLF is fully permissible and comparable to the assignment of a litigated receivable/claim.
The Supreme Court’s position ensures a more open approach to litigation funding and may mark the way for the sustained growth of TPLF, which is currently common in only a few areas of our legal system.
Ethical criticisms raised by the National Bar Council
There are likely to be numerous potential criticisms surrounding the ethics of TPLF. For example, the National Bar Council emphasised that lawyers cannot use agencies or procurers to acquire clients. A lawyer does not receive an assignment directly from the client but through the funder (who will directly pay the lawyer’s fees).
The National Bar Council may be concerned that TPLF could prevent a lawyer from complying with the principles of autonomy and independence throughout the dispute. By virtue of the Deontological Forensic Code, a lawyer must act only with consent of, and in the sole interest of, the assisted party.
Practical developments and case-law pertaining to this institute will help to clarify what kind of conduct is in conflict with the ethical rules in force and what remedies should be adopted to avoid the violation of these rules.
French perspective on Third-Party Litigation Funding
In France, TPLF operates without explicit legislative regulation but is generally considered permissible under existing legal frameworks. Although the practice remains limited compared to other jurisdictions, it has gained traction in international arbitration, where it provides under-resourced parties with the means to pursue claims.
Notably, entities such as Omni Bridgeway, Burford Capital and Vannin Capital have supported French clients in complex, high-stakes litigation, particularly in cross-border disputes.
The National Bar Council (Conseil National des Barreaux or CNB) and the Paris Bar Association (Ordre des Avocats de Paris) have acknowledged the potential benefits of TPLF, particularly in facilitating access to justice.
Yet, concerns persist regarding the need to preserve lawyer independence and avoid conflicts of interest. In a 2015 resolution, the CNB called for a balanced approach to encourage the development of litigation funding while safeguarding ethical standards. Similarly, in 2017, the Paris Bar emphasised the importance of ensuring that third-party funders not interfere with the lawyer-client relationship or compromise professional conduct.
The European parliament’s proposed directive on responsible private funding of litigation could significantly affect TPLF practices in France. By establishing minimum standards across member states, the directive would enhance transparency and consistency.
Its restrictive measures, however, particularly the proposed cap on funders’ returns, have drawn criticism from French stakeholders. Leading legal professionals warn that such provisions may deter funders from entering the French market, thereby limiting access to funding for large-scale commercial disputes and international arbitration.
Nevertheless, harmonisation through the directive could provide clarity and stimulate innovation, particularly in areas such as international arbitration, where TPLF is already gaining ground. If carefully implemented, the directive may create new opportunities for growth while ensuring robust ethical safeguards.
As of September 2024, the European Commission concluded its public consultation on TPLF practices, gathering input from member states and legal professionals. France’s active engagement in these discussions is essential to ensure that the resulting framework reflects its legal traditions while addressing the practical needs of litigants. The directive presents a valuable opportunity for France to formalise and expand TPLF, provided that the final measures strike an appropriate balance between regulation and market viability.
