Uncharted Waters
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Uncharted Waters An Analysis of Third Party Litigation Funding in European Collective Redress OCTOBER 2019 © U.S. Chamber Institute for Legal Reform, October 2019. All rights reserved. This publication, or part thereof, may not be reproduced in any form without the written permission of the U.S. Chamber Institute for Legal Reform. Forward requests for permission to reprint to: Reprint Permission Office, U.S. Chamber Institute for Legal Reform, 1615 H Street, N.W., Washington, D.C. 20062-2000 (202.463.5724). Table of Contents Executive Summary .............................................................................................................................................1 Part 1: General Overview of TPLF....................................................................................................................8 Origins and Development of TPLF .......................................................................................................................8 TPLF Defined .......................................................................................................................................................11 TPLF Market Drivers ..........................................................................................................................................14 How Does TPLF Work? .......................................................................................................................................15 Controversies Surrounding TPLF ......................................................................................................................18 Part 2: Legal and Regulatory Framework of TPLF—A Comparative Study ......................................22 Selected Non-European Jurisdictions .............................................................................................................22 Selected European Jurisdictions......................................................................................................................38 Part 3: Regulation of TPLF in Collective Redress in the EU ...................................................................57 TPLF in the First Documents on Compensatory Relief ....................................................................................57 TPLF in Horizontal, Soft-Law Approach to Regulating Collective Redress ..................................................59 TPLF in the 2018 Proposal Directive on Consumer Representative Actions ................................................64 Member State Level—The Case of Slovenia ..................................................................................................71 Part 4: Findings and Recommendations ......................................................................................................75 Recommendations ..............................................................................................................................................82 Glossary ................................................................................................................................................................86 Prepared for the U.S. Chamber Institute for Legal Reform by Mag. Marko Djinovic, Secretary General, Ljubljana Arbitration Centre Dr. Ana Vlahek, Associate Professor at Faculty of Law, University of Ljubljana This paper was prepared in the authors’ personal capacities and by exercising their best efforts. The views, thoughts, and opinions expressed in the paper are the authors’ own, and do not necessarily reflect the posi- tions of the authors’ employers, organizations, committees or other groups or individuals. While the authors made every effort to ensure that the paper is accurate and up to date, such content in no way constitutes the provision of professional advice. Executive Summary Third party litigation funding (TPLF) has become a highly debated topic in jurisdictions around the world. Legislators in Europe, North America, Asia, and Australia have struggled to understand exactly what TPLF is and how it works, as well as the potential for abuses that undermine the advantages of this instrument that is purported to ease access to justice. This is true particularly in collective redress proceedings. At the European Union (EU) level, TPLF existing and proposed EU regulation of was put under the spotlight of policymakers TPLF within collective redress, and to approximately a decade ago. Legislative present ideas for its optimization from the initiatives that include safeguards for TPLF point of view of both substance and have picked up momentum since 2013, regulation. The analytical framework laid with the adoption of the European down in this paper may be taken into Commission’s (Commission) consideration by EU lawmakers beyond the Recommendation on common principles for issue of optimising the 2018 Proposal injunctive and compensatory collective Directive on consumer collective redress. It redress mechanisms in the Member States may also serve as a blueprint for a (MS),1 and more recently, with the adoption horizontal approach to EU regulation of of the Proposal for a Directive on TPLF in collective redress, or for EU MS representative actions for the protection of efforts to regulate TPLF in national the collective interests of consumers.2 The legislation. Commission’s Proposal continues to make its way through the EU’s legislative This paper begins with a general overview procedure, and elements of the 2013 of TPLF focusing on its origins, its Recommendation have only just begun to development, and how it functions. One of be transposed into the MS’ legislation. the starting points was to find a proper Existing national efforts demonstrate the working definition of TPLF, which is pitfalls of EU regulation and struggles with oftentimes not provided by those applying its implementation in national legal orders, the term in literature or in practice. To this as well as its application in practice. end, we have delimited TPLF in its strictest sense from other funding arrangements The purpose of this paper is to evaluate, available to litigants. From this, we from the perspective of comparative discerned the economic rationale of TPLF, regulatory trends, the adequacy of the the structure of a typical litigation funding 1 Uncharted Waters agreement (LFA) and allocation of risks. We have also critically assessed the Comparative analysis controversies surrounding TPLF that are typically at the centre of TPLF regulation reveals“ that in five of the and analysis. At this stage, we also identify world’s leading non-European certain public policy considerations that may call for more attention from regulators litigation venues (Australia, in the future. U.S., Canada, Singapore, and In order to have insight into the TPLF Hong Kong) some level of mechanism and to detect potential best oversight of TPLF, mostly practices, as well as the problems encountered by its application in practice, judicial, already exists. we have made a comparative study of the legal and regulatory framework of TPLF in disclosure, they do not always require” full select jurisdictions. As TPLF is a fast- evolving phenomenon, this part of the disclosure to the parties and the court but paper also aims to introduce current vary in the scope of the disclosure comparative legal and regulatory trends, requirements. initiatives, and perspectives, which might help EU regulators better understand how Comparative analysis of TPLF regulation in TPLF fits into different civil justice systems selected European legal systems follows, in and legal traditions, subject to adequate order to find if and to what extent TPLF has safeguards. already been addressed in the European legal environment, particularly by Common law jurisdictions where TPLF has jurisprudence, legislators, and professional evolved, and in recent decades intensified, associations. In most of Europe, TPLF is a have been analysed first. Comparative rather underdeveloped concept, both in analysis reveals that in five of the world’s terms of jurisprudence and existing leading non-European litigation venues regulation. Exceptions include England and (Australia, U.S., Canada, Singapore, and Wales, and to a limited extent also Hong Kong) some level of oversight of Germany, the Netherlands, and TPLF, mostly judicial, already exists. Switzerland. In most EU MS there is no Regulatory approaches, however, vary reported case law on TPLF, and empirical considerably in scope and legal effect, do data and experience are scarce. To date, not in most instances define penalties for only two MS have specific regulation of breaches of standards, and do not rely on TPLF in place, Slovenia in its 2017 government agencies for oversight apart Collective Actions Act (CAA) and the from the courts. Common law jurisdictions’ Netherlands in the soft-law 2019 Claim regulatory efforts tend to be either court- Code. made, with limitations such as the scope of that court’s jurisdiction (Canada); or they The paper then focuses on the regulation of are soft-law principles or voluntary codes of TPLF in collective redress at the EU level. conduct that are not strictly policed and For this purpose, we analysed EU draft cannot be enforced through sanction. To legislation and other relevant acts on the extent that such efforts cover collective redress. These have emphasised the aim of the EU to protect the collective U.S. Chamber Institute for Legal Reform 2 of the Regions, titled “Towards a European Horizontal Framework for Collective