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Mythbusting the Call for New Regulation of TPLF

By John Freund |
December 2, 2024

Mythbusting the Call for New Regulation of TPLF

The following is a contributed piece from Rupert Cunningham, Director for Growth and Membership Engagement at the International Legal Finance Association (ILFA).

In their call for more EU regulation last week, AmCham EU, Business Europe and their co-signatories make misleading and inaccurate allegations about third-party litigation funding. These calls have been repeated by the same groups over and over again, pushed by big corporations that simply do not want those harmed by their wrongful behaviour to have recourse in the judicial system. ILFA will continue to counter these claims in the strongest terms. Below we unravel some of the most common misleading statements:

Myth: “Third-party litigation funders currently operate in a regulatory vacuum and without any transparency requirements.”

There is no regulatory vacuum. Litigation funders are regulated under company law in the same way as any other business, for example, the Directive on unfair business-to-consumer commercial practices and the Directive on unfair terms in consumer contracts. Specific to litigation funding, activities are regulated by the Representative Actions Directive and the Collective Redress Directive.

Publicly traded funders are further regulated through legislation on securities and financial instruments and by the relevant stock exchanges and financial authorities. This includes publishing annual reports on financial performance. Examples of other EU rules that apply to listed funders include the Shareholder Rights Directive, Prospectus Regulation, MIFID II.

Lawyers engaged in litigation are bound by professional, regulatory, and fiduciary responsibilities to represent the best interests of their clients where they practise.

Myth: “A civil justice climate that is abundant in abusive claims and mass private third-party funded litigation, creates a chilling effect that deters businesses from innovating, investing, competing, and prospering.”

Supporting meritorious litigation does not deter businesses from innovating and prospering – it deters corporate wrongdoing. As long as companies behave responsibly and comply with the obligations set out in the law, they have nothing to fear from litigation funding.

Myth: “If civil litigation remains funded by unregulated private third parties, we expect a surge in speculative litigation in the EU, which would undermine public confidence in the European justice systems at a time when maintaining faith in our democratic institutions is so critical.”

Far from undermining public confidence in the legal system, a recent independent report from the European Law Institute (ELI) concluded litigation funding plays a ‘functionally vital role in facilitating access to justice in many jurisdictions’.[1]

With public funding (legal aid) increasingly concentrated in the criminal justice sphere, litigation funding offers vital assistance to claimants bringing meritorious civil claims to courts. Greater access to justice, supported by litigation funding, leads to the development of better legal jurisprudence – a benefit to our legal system and to the rule of the law.

Myth: “TPLF is a for-profit business model that allows private financiers, investment firms, and hedge funds, to sign confidential deals with lawyers or qualified entities to invest in lawsuits or arbitration in exchange for a significant portion of any compensation that may be awarded, sometimes as much as 40% of the total compensation but can go even substantially higher.”

Litigation funder’s fees reflect the level of risk undertaken (which will vary) and are assessed case-by-case.

Many funded cases are “David vs. Goliath” in nature with well-resourced defendants. This requires substantial upfront financial investment to level the playing field and for cases to proceed. In the UK sub-postmasters’ recent successful claim against the Post Office, the Post Office spent nearly 250m GBP on its defence.

Myth: “The financial incentives of such practices encourage frivolous and predatory litigation, but they also shortchange genuine claimants and consumers.”

Litigation funding is provided on a non-recourse basis, i.e. if the case is unsuccessful, the funder loses their entire investment. There is no logical financial incentive for litigation funders to fund frivolous legal claims. Funders’ due-diligence checks assist the justice system by weeding out unmeritorious claims that have a poor chance of success when put before a court. The approval rate for funding opportunities is as low as 3-5%.

Myth: “The introduction of a purely profit-motivated third party, often non-EU based, into the traditional lawyer-client relationship, raises serious ethical concerns and presents an economic security threat for Europe.”

The letter presents no substantive evidence that litigation funding is being used by ‘non-EU’ entities to destabilise the European economy or legal systems. ILFA suggests that experienced judges and lawyers operating in EU legal systems are more than capable of identifying threats to the integrity of our legal systems and safeguarding against the misuse or abuse of the court system for geopolitical or other aims.

Myth: “Funders are frequently the initiators of claims and may exercise control over decisions taken on behalf of claimants, and in this context, they prioritise their own financial aims over the interests of claimants. Faced with years of litigation brought by claimants with support from well-resourced funders, expensive legal costs, and reputational risk, defendants are often forced to settle even unmeritorious claims.”

Litigation funders make passive outside investments, meaning that funders do not initiate claims or control the matters in which they invest. A recipient of legal funding, and their legal counsel, maintain full control over the conduct of the case, including strategy and ultimate decision-making.

Myth: “If Europe continues to neglect proper oversight of private TPLF we risk our courts becoming profit facilitators for litigation funders, at the expense of European companies, consumers, and the integrity of our court systems.”

The reference to European companies is a curious one. Litigation funders make no distinction between EU or ‘non-EU’ claimants, basing funding awards on factual criteria such as the legal merits of a case, budget, funding required, and any other award and risks associated with the case.

This latest call from big businesses makes clear they continue to side with corporate wrongdoers, diminishing the legitimate rights of businesses and consumers to access justice and exercise their rights before the courts.

“Misleading and inaccurate claims like these appear around the world as part of a global lobbying effort to encourage unnecessary and burdensome regulation of the legal finance sector,” said Rupert Cunningham, ILFA’s newly appointed Global Director for Growth and Membership Engagement.  “Robustly challenging these persistent myths is critical to improving understanding of the sector amongst policy makers and wider industry stakeholders. That is why it is so important that international organisations like ILFA are able to respond to these claims on behalf of the sector, wherever and whenever they appear.”

By enabling the pursuit of meritorious claims, litigation funding levels the playing field and creates an equality of means between otherwise unequal parties.

[1] https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Principles_Governing_the_Third_Party_Funding_of_Litigation.pdf

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John Freund

John Freund

Commercial

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Announcements Case Developments Commercial

High Court Refuses BHP Permission to Appeal Landmark Mariana Liability Judgment 

By John Freund |

Pogust Goodhead welcomes the decision of Mrs Justice O’Farrell DBE refusing BHP’s application for permission to appeal the High Court’s judgment on liability in the Mariana disaster litigation. The ruling marks a major step forward in the pursuit of justice for over 620,000 Brazilian claimants affected by the worst environmental disaster in the country’s history. 

The refusal leaves the High Court’s findings undisturbed at first instance: that BHP is liable under Brazilian law for its role in the catastrophic collapse of the Fundão dam in 2015. In a landmark ruling handed down last November, the Court found the collapse was caused by BHP’s negligence, imprudence and/or lack of skill, confirmed that all claimants are in time and stated that municipalities can pursue their claims in England. 

In today’s ruling, following the consequentials hearing held last December, the court concluded that BHP’s proposed grounds of appeal have “no real prospect of success”. 

In her judgment, Mrs Justice O’Farrell stated:  “In summary, despite the clear and careful submissions of Ms Fatima KC, leading counsel for the defendants, the appeal has no real prospect of success. There is no other compelling reason for the appeal to be heard. Although the Judgment may be of interest to other parties in other jurisdictions, it is a decision on issues of Brazilian law established as fact in this jurisdiction, together with factual and expert evidence. For the above reasons, permission to appeal is refused”. 

At the December hearing, the claimants - represented by Pogust Goodhead - argued that BHP’s application was an attempt to overturn detailed findings of fact reached after an extensive five-month trial, by recasting its disagreement with the outcome as alleged procedural flaws. The claimants submitted that appellate courts do not re-try factual findings and that BHP’s approach was, in substance, an attempt to secure a retrial. 

Today’s judgment confirmed that the liability judgment involved findings of Brazilian law as fact, based on extensive expert and factual evidence, and rejected the defendants’ arguments, who now have 28 days to apply to the Court of Appeal.  

Jonathan Wheeler, Partner at Pogust Goodhead and lead of the Mariana litigation, said:  “This is a major step forward. Today’s decision reinforces the strength and robustness of the High Court’s findings and brings hundreds of thousands of claimants a step closer to redress for the immense harm they have suffered.” 

“BHP’s application for permission to appeal shows it continues to treat this as a case to be managed, not a humanitarian and environmental disaster that demands a just outcome. Every further procedural manoeuvre brings more delay, more cost and more harm for people who have already waited more than a decade for proper compensation.” 

Mônica dos Santos, a resident of Bento Rodrigues (a district in Mariana) whose house was buried by the avalanche of tailings, commented:  "This is an important victory. Ten years have passed since the crime, and more than 80 residents of Bento Rodrigues have died without receiving their new homes. Hundreds of us have not received fair compensation for what we have been through. It is unacceptable that, after so much suffering and so many lives interrupted, the company is still trying to delay the process to escape its responsibility." 

Legal costs 

The Court confirmed that the claimants were the successful party and ordered the defendants to pay 90% of the claimants’ Stage 1 Trial costs, subject to detailed assessment, and to make a £43 million payment on account. The Court also made clear that the order relates to Stage 1 Trial costs only; broader case costs will depend on the ultimate outcome of the proceedings. 

The costs award reflects the scale and complexity of the Mariana case and the way PG has conducted this litigation for more than seven years on a no-win, no-fee basis - funding an unprecedented claimant cohort and extensive client-facing infrastructure in Brazil without charging clients. This recovery is separate from any damages award and does not reduce, replace or affect the compensation clients may ultimately receive. 

Case Developments Commercial

Homebuyers Prepare Competition Claims Against Major UK Housebuilders

By John Freund |

A group of UK homebuyers is preparing to bring competition law claims against some of the country’s largest housebuilders, alleging anti competitive conduct that inflated new home prices. The prospective litigation represents another significant test of collective redress mechanisms in the UK and is expected to rely heavily on third party funding to move forward.

An announcement from Hausfeld outlines plans for claims alleging that leading residential developers exchanged commercially sensitive information and coordinated conduct in a way that restricted competition in the housing market. The proposed claims follow an investigation by the UK competition regulator, which raised concerns about how housebuilders may have shared data on pricing, sales rates, and incentives through industry platforms. According to the claimant lawyers, this conduct may have reduced competitive pressure and led to higher prices for consumers.

The claims are being framed as follow on damages actions, allowing homebuyers to rely on regulatory findings as a foundation for civil recovery. The litigation is expected to target multiple large developers and could involve tens of thousands of affected purchasers, given the scale of the UK new build market during the relevant period. While damages per claimant may be relatively modest, the aggregate exposure could be substantial.

From a procedural perspective, the case highlights the continued evolution of collective competition claims in the UK. Bringing complex, multi defendant actions on behalf of large consumer groups requires significant upfront investment, both financially and operationally. Litigation funding is therefore likely to be central, covering legal fees, expert economic analysis, and the administration required to manage large claimant cohorts.

Case Developments Commercial

UK Court Approves Final Settlements in Car Delivery Charges Class Action

By John Freund |

Final settlements have been approved in a long running UK class action concerning allegedly excessive car delivery charges, bringing closure to a case that has been closely watched by the group litigation and litigation funding communities. The approval marks the end of proceedings brought on behalf of thousands of motorists who claimed they were overcharged by car manufacturers and dealers for vehicle delivery fees.

An article in Fleet News reports that the High Court has signed off on settlements resolving claims that delivery charges applied to new vehicles were inflated and not reflective of actual costs. The litigation alleged that consumers were systematically overcharged, with delivery fees presented as fixed and unavoidable despite wide variation in underlying logistics expenses. The case was pursued as a collective action, reflecting the growing use of group litigation structures in the UK consumer space.

The approved settlements provide compensation to eligible claimants and formally conclude a dispute that has been progressing for several years. While specific financial terms were not positioned as headline figures, the outcome underscores the practical realities of resolving complex, high volume consumer claims through negotiated settlements rather than trial. The court’s approval confirms that the agreements were considered fair and reasonable for class members, a key requirement in representative and opt out style actions.

The case also highlights the important role litigation funding continues to play in enabling large scale consumer claims to proceed. Claims involving relatively modest individual losses often depend on third party capital to cover legal costs, expert evidence, and administrative infrastructure. Without funding, such cases would typically be economically unviable despite their collective significance.