The Parliament’s report sends an important message to the European Commission – the third party litigation funding industry (TPLF) cannot continue to prosper in Europe without more transparency and a minimum set of safeguards.
TPLF involves hedge funds or other financiers investing in lawsuits in exchange for a share of any proceeds from a settlement or a judgment award. Estimates of the total size of the TPLF industry range from EUR 40 to 80 billion globally.
The litigation funding market is growing exponentially with more than 100 funders operating in Europe. A European Parliament research services report found a 40% growth in the TPLF industry in Europe between 2009 and 2019 and they anticipated it could grow even faster this decade, potentially doubling in size over the next five years. Yet, TPLF is almost entirely unregulated.
The Parliament’s report endorses several reasonable safeguards for TPLF, including:
- Holding funders responsible for adverse costs (loser pays rule);
- Disclosure of funding agreements and their terms to the court and minimum disclosure to defendants;
- No undue funder control over the proceedings;
- Licensing of funders by an independent supervisory authority in the Member States; and
- Ensuring funders have a fiduciary duty to claimants and commit to treating them fairly.
Now it is the Europe Commission’s turn to look into this industry and propose a reasonable and fair EU Directive. The Commission should act without further delay and begin with an impact assessment of this industry, to be completed before the end of its term.