Europe is at a turning point. Still struggling to regain its economic footing after the COVID-19 pandemic—and falling behind competitors like the U.S. and China—the EU is urgently seeking ways to revive growth and attract business investment. Landmark reports by former Italian Prime Ministers Mario Draghi and Enrico Letta have underscored the need for bold reforms to boost the competitiveness of the EU single market.
In response, the European Commission has made competitiveness and simplification top priorities of its mandate. As part of this effort, it launched the “Justice for Growth” (J4G) initiative, led by Justice Commissioner Michael McGrath. J4G aims to enhance EU competitiveness by strengthening justice systems, reducing legal burdens on business, and modernizing EU civil and corporate law.
The Commission has organized a series of high-level dialogues with the goal of determining specific policy priorities for the J4G Initiative. One issue gaining traction is the regulation of third-party litigation funding (TPLF). This fast-growing, multi-billion-euro industry allows hedge funds and private investors to finance lawsuits in exchange for a cut of the proceeds—yet operates with virtually no oversight in the EU.
The risks are clear: funders prioritize profit over justice, often pushing for excessive damages or prolonging litigation. In some cases, they even demand control over litigation strategy, as seen in the Sysco case in the U.S. Without transparency, courts and regulators may be unaware of who is driving claims, enabling speculative or abusive lawsuits that impose unexpected costs on businesses.
Unnecessary litigation is a huge drain on the economy. According to ILR’s latest study, costs and compensation in the U.S. tort system reached $529 billion in 2022, representing 2.1% of the U.S. GDP and $4,207 per American household. Small businesses bear a disproportionate burden, shouldering over $160 billion of those costs, even though they often lack the resources to absorb or defend against lawsuits. Excessive litigation acts as a hidden tax on innovation, job creation, and growth.
It is crucial that the Commission keep the risks posed by TPLF top of mind as it determines J4G’s policy direction. The funding industry is activated in Brussels, with the goal of preventing any EU-level oversight of TPLF from emerging as part of J4G. For instance, the International Legal Finance Association (ILFA) is hosting an event on TPLF targeted at the Member State representatives in Brussels ahead of the J4G high-level dialogue scheduled for mid-October.
The message to the Commission from the business community is clear, though: Introducing balanced, EU-wide rules for TPLF as part of the J4G initiative would bring transparency and predictability to the legal system—ultimately helping boost investor confidence across the single market.
