EU Perspectives on Third Party Litigation Funding: Legal Landscape and Scope for Reform

Introduction

In March, the European Commission published Mapping Third Party Litigation Funding in the European Union, an in-depth report detailing the varying approaches to third party litigation funding (TPLF) across EU Member States and the potential impact of any future regulation at an EU level¹ (Mapping Report).

This article summarises the findings of the Mapping Report and provides an overview of the likely impact of EU regulation of TPLF on a selection of EU Member States.

 

EU

In September 2022, the European Parliament passed a resolution² calling on the European Commission to submit a proposal for a Directive to establish common minimum standards at EU level on commercial third party litigation funding, along the lines of the draft Directive annexed thereto (European Parliament Resolution).

The publication of the Mapping Report acts as a first reply by the European Commission to this request. The introduction notes that “the results of the study will be used by the European Commission's services to prepare future policy decisions concerning third-party litigation funding”, particularly as a way of following up on the European Parliament Resolution.

The initial part of the Mapping Report looks at the legal landscape of TPLF in all 27 EU Member States and extracts some common trends. It concludes that, in some jurisdictions, there is a general opinion that “the absence of regulation creates a certain degree of confusion and uncertainty” but notes that the extent to which TPLF should be regulated at EU level is the subject of debate.

The later sections of the Mapping Report look at the opinions of various stakeholders regarding the need for regulation of TPLF at EU level. Stakeholders interviewed include litigation funders, lawyers, businesses, consumer organisations, public authorities, the judiciary and academics. 29% of respondents believe there is a need for regulation at EU level, while 25% believe there should be regulation at both national and EU level, bringing the total number of respondents who believe there is a need for regulation at EU level to 54%.

There are differing views among the various stakeholders. For example, more than two thirds of the judiciary, business, academics and arbitrators and more than half of lawyers see a need for regulation at EU or national level or both. By contrast, only a minority of consumer organisations and litigation funders favour any form of regulation. This may be due to concerns that regulation could limit flexibility or increase costs, which these stakeholders believe could hinder access to funding and justice.

Certain businesses are in favour of comprehensive regulation (along the lines of the draft Directive in the European Parliament Resolution) while consumer organisations and litigation funders are leaning toward a lighter touch approach.

The conclusions of the Mapping Report indicate that it is not a matter of “if” but “when” the European Commission will take action to regulate TPLF at EU level. It remains to be seen how such regulation will impact TPLF regimes in EU Member States. Harmonised regulation could help reduce forum shopping and ensure a consistent legal framework across Member States, enhancing legal certainty and fairness.

 

Ireland

The Mapping Report notes that “most jurisdictions do not prohibit TPLF, apart from Ireland on the grounds that it constitutes maintenance and champerty”.

Indeed, in the 2017 case of Persona Digital Telephony Limited v Minister for Public Enterprise³, the Supreme Court stated that that the ancient concepts of maintenance and champerty remained part of Irish law, thus making third party litigation funding illegal, and that any reform would have to come from the legislature. Maintenance occurs when a person who is not party to a legal dispute and has no independent legitimate interest in the outcome of that dispute assists a party in bringing or continuing it. Champerty is maintenance with the added element that the litigation funder stipulates that they will receive a share of any award granted to the funded party. While agreeing with the majority decision, Clarke J added that he was concerned about the possibility of a case of public importance not proceeding due to lack of funding and the implications for the constitutional right of access to a court.

Following this case, the Oireachtas (Irish parliament) had the opportunity to legislate for TPLF when transposing the EU Collective Redress Directive via the Representative Actions for the Protection of the Collective Interests of Consumers Act 2023, but it chose not to do so.⁴

Though TPLF remains prohibited, there are indications of a shift, albeit slight, in approach. In 2023, the Law Reform Commission (LRC) began a review of TPLF in Ireland. Following the publication of a Consultation Paper⁵ and an invitation for submissions from interested parties, the final report setting out the LRC's recommendations is due to be published this year and will likely be the basis for any future reform.

In another indication that the landscape may be changing, the recent Courts and Civil Law (Miscellaneous Provisions) Act 2023⁶ excluded international commercial arbitration from the offences and torts of maintenance and champerty, allowing TPLF for these kinds of proceedings. A private members bill was tabled in June 2024⁷, which proposed to permit TPLF in certain proceedings, including insolvency proceedings and proceedings concerning environmental protection, climate change and consumer interest. Despite this bill lapsing with the dissolution of the Oireachtas in November 2024, it reflects the overall view that change is coming in this area.

In two recent judgments, the Irish courts also signalled a potential shift in the legal stance on TPLF. In Campbell v Irish Light⁸, the High Court declined to strike out proceedings funded through charitable online donations, distinguishing them from unlawful maintenance or champerty. In Scully v Coucal⁹, the Supreme Court overturned a refusal to enforce a Polish judgment based on champerty concerns, emphasising that Irish public policy does not automatically override the obligation to recognise judgments from other EU Member States. These cases suggest a more flexible judicial approach and may indicate a gradual move toward liberalisation of TPLF in Ireland.

Although, Ireland remains an outlier among EU Member States in relation to its position on TPLF, recent jurisprudence of Irish courts and a move by the European Commission to regulate TPLF at EU level would likely be the push that Ireland needs to finally abolish the torts and offences of maintenance and champerty once and for all and permit TPLF. Such a move would likely lead to a reduction in forum shopping on the basis of TPLF and a more even increase in the use of TPLF across the EU, including Ireland.

 

The Netherlands

In general, the Mapping Report gives a clear overview of the legal framework and the doctrinal issues regarding TPLF in the Netherlands. As noted in the Mapping Report, TPLF is not specifically regulated by statute in the Netherlands. In the context of class actions, some soft rules and statutory rules are applicable, but only to claimant organisations that make use of TPLF, and not to third party funders themselves. The limited regulation of TPLF increases the attractiveness of funding proceedings in the Netherlands. The applicable rules concern mainly the influence of funders, the size of the agreed funding and the fees of funders.

Scholars are currently conducting an evaluation of the Dutch class action system on behalf of the Ministry of Justice and Security. The results of this evaluation will be published soon . The evaluation may lead to further regulation of TPLF in the context of class actions, however, the Dutch legislator may also decide to await further developments at the European level.

Unfortunately, there is a lack of publicly available data regarding the actual use of TPLF in the Netherlands except in the context of class actions, which are required to be registered in a public register. According to analyses based on this register, class actions for damages are mostly funded by (non-Dutch) third-party funders such as Fortress, Therium, Woodsford and Innsworth, and U.S. claimant law firms such as Hausfeld, Scott+Scott, Pogust Goodhead and Milberg. Class actions are likely funded by U.S. law firms for the following two reasons:

• As mentioned by the Mapping Report, the Code of Conduct for Dutch lawyers prohibits contingency fees, however, this prohibition does not apply to (U.S.) law firms that fund class actions brought by other law firms.
• U.S. law firms funding Dutch class actions already have experience with conducting similar class actions in their own country. In that respect, funding of Dutch class actions afterwards seems to be an attractive 'next step'.

The funding of class actions by non-Dutch parties such as U.S. law firms and by third-party funders from abroad underscores the international nature of Dutch class actions. This is a substantial risk for multinational companies conducting business in the Netherlands and in other countries with a class action system that is attractive for funders, such as the United States, the United Kingdom, Portugal, and Australia.

The measures proposed in the draft directive of the European Parliament will no doubt lead to further regulation of TPLF in the Netherlands. As stated in the Mapping Report, in the Netherlands there is no legislation on the proposed authorisation system and the conditions regarding it. Among Dutch stakeholders interviewed for the Mapping Report, there is “general agreement that minimum regulation, especially rules around transparency requirements, could provide for much needed clarity regarding the rules governing litigation funders and result in a level playing field”. Moreover, all respondents “agree that, since the TPLF market is international by nature, any regulation should reflect that, and it should also be done at the supranational level”.

 

Germany

As demonstrated in the Mapping Report, TPLF is, in principle, not regulated and therefore permitted under German law. To date, there are only very specific regulations governing TPLF. For example, the Act of Enforcement of Consumer Rights (Verbraucherrechtedurchsetzungsgesetz, VDuG, which was introduced in 2023) limits a litigation funder’s share in the gains to 10% which is widely considered economically unattractive. The Federal Lawyers Order (Bundesrechtsanwaltsordnung, BRAO) also prohibits German lawyers from acting as litigation funders for their clients.

Alongside these specific rules, broader regulations such as the German Legal Services Act (Rechtsdienstleistungsgesetz, RDG) and Section 138 of the German Civil Code (BGB) - immoral legal acts - limits the possible forms of TPLF arrangements in Germany. The latter, in particular, prevents TPLF arrangements that offend common decency in any way, e.g. by charging excessive fees. Arrangements where consumers only keep 5% of their claim - which sometimes happens in consumer claims - are likely to breach Section 138 and be deemed invalid.

Since “Dieselgate”¹⁰, TPLF has become increasingly popular among consumers, particularly in cases of mass harm. Unlike “classic” TPLF cases (e.g individual high-value claims), mass harm cases are not necessarily claims with a high value and therefore don't generate high legal costs. In such cases, a large number of individual lawsuits can be filed based on identical facts. As the cases do not have to be handled individually, the costs for lawyers and litigation funders are kept within reasonable limits. Prominent examples of such mass claims involving TPLF are those seen in Dieselgate. the reimbursements of online gambling losses and data protection claims.

Unfortunately, there is no data to support the frequency with which TPLF is used in civil litigation in Germany. However, based on the experience of DLA Piper lawyers handling consumer mass claims, an estimated 80-90% are externally financed.

As mentioned in the Mapping Report, the German legislator has no plans to regulate the litigation funding industry in the near future. Nevertheless, the interviews with German stakeholders show that the regulatory framework proposed in the draft directive at the EU level would be generally welcomed.

 

Italy

As correctly pointed out in the Mapping Report, in Italy TPLF is still in its early stages. It is not prohibited nor is it regulated by specific legislation.

TPLF falls within the scope of the application of the general law provisions in Article 1322 of the Italian Civil Code, which regulates the so called “atypical” contracts.

Under Italian law, parties to legal proceedings are not required to disclose agreements concluded with third parties to finance their dispute or those relating to the fee agreed with their lawyer. Therefore, it is hard to have a clear picture of how much and in which kind of disputes TPLF is used.

In a recent decision, the Italian Supreme Court acknowledged the atypical, yet legitimate nature of assignment agreements of disputed claims, further specifying that such litigation funding (performed only in the event of a successful outcome of the dispute) does not fall within the scope of the financing activity governed by TUB (Testo unico delle leggi in materia bancaria e creditizia), which would require, amongst the other things, the registration of the lending entity in the appropriate register of the Bank of Italy.¹¹ This case is particularly relevant as it confirms the trend outlined in the Mapping Report that TPLF in Italy is becoming more popular for consumer claims and through claim or credit assignments, rather than the typical third party funding agreements.

TPLF's legitimacy has been further confirmed by the Italian Tax Authority (Agenzia delle Entrate), which provided useful clarifications on the applicable tax regime.¹²

Given the lack of available data, it is hard to predict what the future holds for TPLF in Italy. Based on the experience of DLA Piper lawyers in Italy, TPLF is being used mostly in higher value State Court litigation and international arbitrations.

In 2019, the Milan Chamber of Arbitration (CAM) - which is the leading arbitral institution in Italy - introduced a specific rule concerning third-party litigation funding. Article 43 of CAM Arbitration Rules states that “the party that is funded by a third party in relation to the proceedings and its outcome shall disclose the existence of the funding and the identity of the funder.”¹³

This reform raises two key points:

• CAM has aligned with the rules of other in-demand arbitral institutions in regulating an instrument which is widely diffused in other jurisdictions.

• CAM has tackled one of the main critiques to TPLF, which is the need for its disclosure to preserve the independence and impartiality of the Arbitral Tribunal. As set out above, such a disclosure obligation is not expressly required by the Italian Code of Civil Procedure or the Italian Civil Code.

In addition, the recently enacted Legislative Decree 28/23 (implementing the EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers) amended the Italian Consumer Code. Specifically, it introduced specific rules for representative actions for the protection of the collective interests of consumers (Article 140-ter and ff. of the Italian Consumer Code) and, among other things, provided that:

• in the appeal, the entity entitled to bring the action must indicate the funding for the action received or promised by third parties (Article 140-septies, paragraph 5, Italian Consumer Code); and
• the application shall be declared inadmissible, inter alia, where the action is brought in a conflict of interest, in particular if it appears that the person who financed the action is a competitor of the defendant or it is dependent on the latter (Article 140-septies, paragraph 8 (e), Italian Consumer Code).

At the moment, there is no planned legislation that specifically addresses litigation funding in Italy. Yet, the case law mentioned above indicates that there might be a place for it in the future.

 

Conclusion

It is clear that there is appetite among stakeholders for EU regulation of TPLF. The Mapping Report serves as a useful document to capture where we are with TPLF in Europe and how supranational regulation would affect various Member States. This could also be indicative of a broader shift toward harmonised rules at EU level, aimed at ensuring transparency, consistency, and fairness in class action or other collective redress mechanisms across Member States.

For further information on the regulation of TPLF across the EU, get in touch with the authors or your relevant DLA Piper contacts.