Third-party litigation funding

20 February 2024 | Knowledge, News

Although they impose a heavy financial burden on the companies involved, disputes are an integral part of doing business. And what effectively enables parties to meet the costs associated with litigation is third-party funding, or TPF.

Who is third-party funding for

Third-party funding is a good solution not only for those who do not have sufficient funds to engage in lengthy litigation, but also for all participants in court or arbitration proceedings.

TPF makes it possible to minimise the economic risk of conducting protracted litigation and removes the requirement to pay for the costs of the proceedings, even if the funded party loses.

Moreover, TPF can be used by both the claimant and the defendant. It should be noted, however, that the availability of funding depends on the possibility for the fund to recoup its investment if the case is won.

TPF in practice

Third-party litigation funding can be attractive for a number of reasons.

Firstly, it enables the use of the best lawyers and experts.

Secondly, it allows for a sound assessment of the merits of the claim by an independent body, usually before the case even starts.

Finally, it can influence the attitude of the litigant’s opponent by encouraging them to settle.

The fund usually charges a percentage of the amount awarded in return for its support. In addition, access to external funding may be subject to certain conditions, such as consent to settle or reporting requirements.

The main disadvantage of TPFs is their limited availability, as they tend to be allocated to support high-value cases. However, in each case funding bodies will analyse the potential return on investment.

How TPF works in the European Union

 The litigation finance market remains largely unregulated.

In 2022, the European Parliament adopted a resolution calling on the European Commission to regulate TPF in the EU. However, this initiative has been put on hold while the Commission conducts an in-depth study of the litigation funding market.

As a result, there is no uniform law on TPF in the Union, which means that these issues are regulated at the national level.

In Poland, too, there is no specific legislation on TPF and the domestic courts deal with the issue only sporadically. There are, however, a few isolated court judgments declaring TPF admissible.

Recently, we have seen that third-party funding has started to be used for lower value disputes, which opens up new opportunities, particularly for those whose claims would previously have been insufficient, for example in the case of class action.

Third-party funding is becoming more common in Europe, both in litigation and arbitration.

According to Burford Capital, the European TPF market reached a value of approximately EUR 2.8 billion in 2023, an increase of 21.7 percent compared to the previous year.

TPF for non-profit organisations

The growing popularity of third-party litigation funding for non-profit organisations (NFP-TPF) is also noteworthy.

This is likely to be a significant phenomenon in the near future in environmental, social and corporate responsibility disputes, particularly in the context of the growing importance of ESG reporting.

Source: Rzeczpospolita

Date: 2.02.2024

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