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Litigation Funding: Are there any particular rules around funding litigation in your jurisdiction?

The following article discusses session two in the IR Global Virtual Series on ' Litigation Funding: Handling commercial and financial disputes

France – MCC In France there are no rules on third party funding. The High Court recognised in 2006 the validity of third-party funding agreements as sui generis contracts. About ten years ago there was a project to add some articles to the civil code, yet the new provisions on obligations within the civil code do not mention third party funding.

The French Comity of the International Chamber of Commerce published in 2014 a practical guide on third party funding.

More recently in February 2017 the Paris Bar issued a resolution recognising the value of third-party funding for both the parties and their counsels, the latter remaining solely accountable to their clients. Attorneys are not allowed to disclose any information to the third-party funder and cannot meet him without their clients, or at least their clients’ consent.

To secure the validity and enforceability of a future arbitral award, the Paris Bar recommended the disclosure of third-party funding.

In practice, the financing agreement usually provides for:

  • The amount granted by the third-party funder;
  • The third-party funder’s level of control over strategic matters in the dispute;
  • The scope of the decision as to a settlement, which in principle rests with the funded party and must be in accordance with certain thresholds or conditions set by agreement with the third-party funder;
  • The remuneration of the third-party funder, which usually consists of a percentage of the amounts awarded to the funded party at the end of the proceedings,
  • The allocation mechanism as to the recovered amounts and the third-party funder’s preferential claim over the amounts granted by the award;
  • The termination of the agreement: some funding agreements deal with the effects of an early termination of the agreement.

US – ES Litigation funding is a growing industry in the US. There are a number of third-party funding companies in the US who advance money if they think the case has merit. They will structure a loan (made to the litigant, however, normally not to the lawyer), charge interest and take a percentage of the outcome. This is a growing area in many large ‘bet the ranch’ cases, negligence cases and business disputes.

The US is one of the countries that does permit attorneys to handle cases on a contingency fee basis, allowing lawyers to handle cases by taking a percentage of the ultimate recovery, if any. Depending on the case, our firm does handle some large damage cases on a hybrid contingency basis, meaning we negotiate a fixed, upfront, minimum fee and then take a percentage of the recovery. Often this allows a client to pursue a claim that it might not otherwise be able to afford on an on-going basis. At the same time, it allows our firm to potentially earn much more than we would on a traditional straight time basis. It is a ‘win-win’ for both our firm and our clients.

One of the reasons there is so much litigation in the US, is that the loser rarely pays a winner’s fees, unless there is a contractual provision or statutory basis that specifically provides for that. Otherwise, each party bears their own legal fees and litigation costs.

If you couple contingency fees with the general prohibition against the loser paying the winner’s fees and costs, there is a great incentive for people in the US to bring litigation. This is why there is more litigation brought per capita in the US than any other country in the world.

Sweden – DE There are no legal rules on third party funding in general, meaning that it is perfectly acceptable. The only restriction is that third party funding cannot be provided by a lawyer or a law firm.

We don’t allow contingency fees in Sweden, or anywhere else in Europe, as far as I know.

US – ES Do lawyers advance the costs for clients – is that usual?

Sweden – DE Normally clients pay out of pocket costs and an advance on costs, then we secure new clients by asking them to pay an advance on costs before we go into the litigation or arbitration phase.

Hong Kong – NG Hong Kong solicitors and barristers may not enter into conditional or contingency fee arrangements for acting in contentious business. The same restriction applies to foreign lawyers who are registered to practice in Hong Kong. These restrictions stem from legislation, professional conduct rules, and the common law.

Third party funding in civil ligation is allowed in Hong Kong in limited categories of cases, such as certain insolvency cases.

In those cases, parties need to consider what amount of funding is required, as compared with how much the case is worth, whereas third party funders generally look at cases from the perspective of the ratio of costs and expected return.

Part of the terms of the funding agreement should specify what happens when the litigants negotiate for settlement. Otherwise problems may arise where the funder may want to compromise the claim in order to settle sooner, or a litigant may want a larger sum from the settlement.

Legal aid can be considered as a source of litigation funding in Hong Kong, and is available for most types of civil cases before the District Court, the Court of First Instance, the Court of Appeal and the Court of Final Appeal. Legal aid is not, however, available for money claims in derivatives of securities, currency futures or other future contracts, unless the claims are made by the person seeking legal aid on the basis that they were induced to deal in the derivatives of securities, currency futures or other futures contracts by fraud, deception or misrepresentation.

The Legal Aid Department is funded by the Hong Kong Government, and the provision for legal costs is not subject to an upper limit. To qualify for civil legal aid, the applicant must pass a merits test and a means test. In assessing the merits of an application, the Director of Legal Aid must be satisfied that the case or defence has a reasonable chance of success.

Spain – DJ In Spain there is no specific regulation on litigation funding, but there is a general concept that it is allowed and legally accepted. It’s a growing market, with several international litigation funds opening offices in Madrid.

Contingency fee arrangements are not common, but are legal. Conditional fees are a lot more common, which fixes an amount and adds an additional percentage of the recovery.

Most third-party funding agreements are subject to US or English law, since all the international funds are from either the UK or US.

Austria – KO It is interesting to learn that contingency fees are allowed in Spain. It was my understanding that, in the major part of European jurisdictions, there was a directive that the lawyer must not accept, ask or agree on a certain percentage of the money recouped in proceedings?

Spain – DJ There was a Supreme Court ruling stating that the directive went against competition laws. Before that it was forbidden.

Austria – KO US colleagues keep asking me how people who are not in a position to fuel their own litigation are able to access courts. Contingency fees would be a valid option to get a case to court, but in Europe there is a totally different system of legal advice. If you don’t have the means to finance litigation, you can request that legal aid be provided, and you will not have to pay for court fees, lawyers or reimbursements.

As far as third-party litigation funding is concerned though, in my experience, what these companies ask is that you draft the lawsuit. They will then look into the market and see if it has merit and sufficient evidence; they will also check whether a decision is enforceable. It is important to check before moving forward whether a German court decision is enforceable in another country or not.

As far as I am aware, they will not finance cases below EUR500,000 and will also hire a credit rating agency to look into the financial background of the opponent. They want to make sure there are sufficient funds available to cover the claim should it be successful.

One of the main points of criticism regarding third party funding is that lawyers can work too closely with the funders, and might be more tied to them than their own client. In this case, the client is not the one who is calling the shots, but rather the funder.

It is very important to make sure that any deal signed with funders also covers the opponent’s costs. I have seen cases where a client ends up losing the case, and are still liable to pay the expenses of the winner.

Sweden – DE Couldn’t that conflict of interest issue raise questions for the lawyer about who is the ultimate client?

Austria – KO Yes, definitely. There is not much case law on this problem yet, but when it comes to a close cooperation between lawyer and third-party funder, opponents should want to know whether the lawyer and client are decision makers as opposed to funders.

Germany – FW In general, contingency fees or conditional fee arrangements with attorneys are not permitted under German law. They are only allowed if the client would otherwise be deterred from proceedings, and thus from access to justice, because of its financial situation. German law also allows for the payment of no attorney fees or fees lower than the applicable statutory fees where a case has been unsuccessful.

Litigation funding by non-parties to the litigation is allowed, provided that the litigation funder does not provide legal services in the litigation. Since litigation funders are neither qualified as banks nor as insurers, any regulatory provisions do not apply. Litigation funding is not regarded as frivolous; therefore, the third-party litigation funder cannot be held liable for any adverse costs of the counterparty.

The minimum funding amount for disputes is approximately EUR100,000. German funders usually structure their remuneration either as a percentage of the amount actually recovered, or as a multiple of the amount invested. Standard terms call for a 30 per cent share of proceeds up to EUR500,000 and a 20 per cent share of any proceeds in excess of this amount.

The civil law principle of common decency should limit the agreeable share of proceeds to be paid to the funder in case of success. Shares of up to 50 per cent of the proceeds are discussed to be safe in that respect. Generally, the funder may terminate the funding agreement at any time and at its sole discretion should the chances of success have been impaired for whatever reason. In such case, the funder will of course lose his right to a share of the proceeds.

The claimant is not obliged to disclose the funding agreement to the court or the counterparty. However, in certain litigation scenarios, for example against directors and officers (D&O) insurers, or generally in settlement negotiations, it might be advantageous to disclose the involvement of a (professional) funder.


Klaus Oblin (KO) Oblin Melichar – Austria

Marie-Christine Cimadevilla (MCC) Cimadevilla Avocats – France

Daniel Jimenez (DJ) SLJ Abogados – Spain

Erwin Shustak (ES) Shustak Reynolds & Partners – US – California

Nick Gall (NG) Gall Solicitors – Hong Kong

Dan Engström (DE) Advokatfirman Nova AB – Sweden

Florian Wettner (FW) METIS Rechtsanwälte – Germany