EU: More stringest measures not needed
There is “no need” for stricter regulation of third-party litigation in the European Union, an umbrella group of 44 independent consumer organisations in both the EU and the UK has said.
BEUC argued that “overly restrictive measures” could “deter funders from taking on riskier cases” and lead them to “select them more carefully, reducing the availability of funds”.
The consumer group was responding to measures proposed by the European Parliament, including an authorisation system for funders, prohibition of unilateral funding termination, and capping funders’ share of awards.
BEUC warned that the measures proposed could “disproportionately disadvantage” consumer organisations relying on litigation funding to bring collective actions.
Among BEUC’s members are the UK consumer group Which? and among its UK affiliate members are Citizens Advice and the Legal Services Consumer Panel.
BEUC said the proposed rules were “likely to increase operational costs for funders, who would likely pass the burden onto consumer organisations and consumers by raising fees” and “could disproportionately affect smaller niche funders specialising in certain types of consumer claims, excluding them from the market”.
There was “no need to add further EU rules” to the existing regulatory framework for litigation funding established by the Representative Actions Directive (RAD).
“In line with the principle of proportionality, new EU rules should be added only if they are strictly necessary to address the issue at stake.”
Since “there is no evidence of abuses” in the European litigation funding market, “introducing additional EU rules would be premature and unjustified”.
Instead, evidence showed that litigation funding “positively impacts collective litigation in Europe – for example all the collective redress actions filed so far in the Netherlands” were backed by litigation funding.
“Similar trends are observed in the UK and Austria, where several collective redress actions would not have been possible without litigation funding.”
BEUC said a “frequent criticism” of litigation funding was that it led to an increase in frivolous or abusive litigation.
However, evidence from the Netherlands showed no increase in meritless collective claims after the arrival of litigation funding, and no evidence of abusive practices has been documented in any EU member state.
The risk of conflicts of interest could be mitigated through disclosure and judicial oversight, while lawyers’ ethical obligations “push them to resist” undue funder influence.
Litigation funding did not offer full compensation, but in cases where no other funding alternatives existed, it “effectively increases consumer compensation from nothing to a significant portion of the awarded amount”.
BEUC said two-thirds of EU member states did not regulate litigation funding beyond the safeguards provided by RAD. Germany was one country that did, including a restriction on funders’ remuneration, while Greece and Ireland completely banned the practice.
The Netherlands regulated litigation funding through a combination of legislation and the ‘Claim Code’, a self-regulatory instrument used by Dutch judges as a way of assessing relationships.
In the UK, litigation funding was “well established with a substantial body of case law affirming its legitimacy” and “despite more than two decades of use”, its system remained largely self-regulated.
BEUC called on funders, claimants’ organisations and others, to agree on best practices that every funder should “strictly adhere” to.
These included transparency of funding sources, full decision-making autonomy for the consumer group and counsel, an “unequivocal understanding” on expenses, “clearly defined” funder’s remuneration and “clear conditions” for funding termination.
It is the third report in the last year to have come out in support of litigation funding, with one commissioned by the Legal Services Board and the other from the European Law Institute.
The Civil Justice Council is currently considering litigation funding in England and Wales, and whether regulation is needed.
