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

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
  • 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

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

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

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 –

Daniel Jimenez (DJ) SLJ Abogados – Spain

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

Nick Gall (NG) Gall Solicitors – Hong Kong

Dan Engström (DE) Advokatfirman Nova AB – Sweden

Florian Wettner (FW) METIS Rechtsanwälte – Germany

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