The Law Society of Ireland has recently reported that change is now on the horizon regarding third party litigation funding. This change is likely to be seen at both national and European level. As the issue of litigation funding has increasingly been debated and raised before the Irish Courts in recent years, these proposed reforms will be viewed as long overdue by many.
EU wide approach to regulation
The European Parliament recently adopted a resolution on the responsible commercial private funding of litigation. The resolution recommends that the European Commission introduces regulations covering third party litigation funding. The resolution strongly suggests that there are benefits with third party litigation funding, if properly regulated. For example, it can be used as a tool to support access to justice, especially in countries where legal costs are very high or for marginalised groups. It can also ensure the prosecution of public interest cases and better corporate accountability. Conversely, there are obvious limitations also arising such as potential issues around a lack of transparency, as well as the concern that funders would have the ability to run cases in their own economic interests.
Although the resolution notes that third party litigation funding has been limited in Europe to date, there is an expectation that this situation will change imminently. There is also recognition that it is largely unregulated at present. In its recommendations, the European Parliament supported a system of authorisation for litigation funders and argued that third-party funding agreements should be required to observe a fiduciary duty of care to act in the best interests of a claimant. MEPs also urged the European Commission to require litigation funders to demonstrate that they have enough capital to satisfy their financial obligations and to bring in safeguards to prevent potential conflicts of interest.
Among other interested parties, Insurance Europe has welcomed the report and has echoed the call from the European Parliament for appropriate supervision of the third-party litigation funding sector. Indeed, they have suggested that supervision of the sector, which is estimated as a €40 to €80 billion market globally, would create “significant benefits” for both consumers and businesses. The advantages of regulation which they have listed include:
- Regulation could prohibit exorbitant fees and would ensure that funders cannot discontinue financial support without cause;
- Funders could be required to have capital reserves to cover their commitments; and
- The risk of abuse of process would also be reduced as the courts would have knowledge of the existence of a funding agreement and would have oversight powers to oversee conduct.
In addition to the updates at EU level referenced, the Irish Government has also recently indicated that it will legislate to permit third party funding of international commercial arbitration. Although further details have not yet been circulated, it has been reported that this change will likely be made via an amendment to the Courts and Civil Law (Miscellaneous Provisions) Bill 2022.
Immediate next steps
In its recommendations, the European Parliament has requested the European Commission to monitor and analyse the development of third party litigation funding in EU Member States, both in terms of legal framework and in practice. The Commission will then likely be invited to submit a proposal for a Directive to establish common minimum standards at EU level on commercial third party litigation funding. If the Commission proceeds to do so, this could have a profound impact in Ireland by overturning the existing prohibitions against champerty and maintenance. This will represent a very welcome development for many.
You can view our previous article on this topic here. For more information, contact a member of our Dispute Resolution team.
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