Trending Now

Price Control to Ensure the Affordability of Litigation Finance?

Price Control to Ensure the Affordability of Litigation Finance?

The following post was contributed by Guido Demarco, Director & Head of Legal Assets of Stonward. In March 2021, the European Parliamentary Research Service published a study on Responsible Private Funding of Litigation. This study was later supplemented by a draft report prepared by the European Parliament’s Committee on Legal Affairs in June 2021. Both documents, the study, and the draft report, contain certain recommendations to regulate litigation funding and criticize the economic costs that these funds impose on their clients by referring to them as “excessive”, “unfair” and “abusive”. Specifically, on the issue of fees, the study suggests setting a 30% cap on funders’ rates of return, while the draft report recommends that LF agreements should be invalid if they foresee a benefit for the claimant equal to or less than 60% (unless exceptional circumstances apply). In other words, a cap of 40%. While this might be viewed as a logical measure to make litigation finance more affordable, what needs to be considered is that the funders’ expected return is simply a consequence of the risks and costs that arise from litigation, not the other way round. The costs Let us take the case of a foreign national, ‘Citizen Kane,’ who makes an investment in the energy sector in Ruritania[1]. Let us imagine that a bilateral treaty between Mr. Kane’s country of nationality and Ruritania protects Citizen Kane’s investment. The Republic of Ruritania suddenly indirectly expropriates Mr. Kane’s business without due compensation. To claim damages, Mr. Kane will start an arbitration through the International Center for Settlement of Investment Disputes (ICSID). The total cost of the dispute will depend on the complexity and the duration of the case, including the number of pleadings, experts, hearings, and the time incurred by the attorneys. Only the first advance to ICSID can be circa $150,000. If Citizen Kane estimates damages of $30 million, the costs of such a dispute could easily amount to $3 million or more. In investor-state arbitration, the mean costs for investors are about $6.4m and the median figure is $3.8m. The mean tribunal costs in ICSID arbitrations is $958,000 and the median $745,000.[2] Therefore, after years suffering arbitrary measures and pursuing fruitless disputes in local courts, Citizen Kane will now have to invest an additional circa $3 million to file a claim for damages with a completely uncertain outcome. Even if Citizen Kane wins, Ruritania may not be willing to follow the award voluntarily, and he will have to incur more expenses to enforce the judgment. The risks Aware of the prohibitive costs of litigation, Ruritania may play the long game, unnecessarily prolonging the dispute to financially drain the claimant while expecting a future administration will be in office to foot the bill down the road. This might be challenging even for a financially healthy company, as litigation costs are often considered an expense on the profit and loss statement and therefore CFOs are increasingly looking for alternatives to preserve working capital for the company’s main activity. How long will the proceeding take? What will be the final amount of the damages awarded? Will the other party voluntarily follow the award? What if, in the end, I lose? These questions have no exact answers because the answers depend on third parties, including how a judge or tribunal interprets the law and the facts of case, as well as the performance of experts and lawyers in pursuing the claim. The litigation budget and estimated damages will play a key role in the investment decision, together with the merits of the case, liquidity, and reputation of the respondent, as well as the reputation of the law firm chosen by the client. Analyzing the risk is not easy, considering the latest figures that show that investors prevail in only 47% of cases, and that the median amount of damages claimed vis a vis damages awarded is 36%. However, the main factor in determining risk is the structure of non-recourse litigation finance loans. This is not just a typical loan, but a mechanism to transfer risk. It is normal that the greater the risk assumed by the funder, the higher the return expected. Conclusion Limiting a funder’s expected return will not reduce financing costs for clients, and therefore will fail to make litigation more affordable, which is the aim of the EU’s regulation proposal. Funders will not grant funding if they perceive the risk/reward of a case is not worth the given circumstances. However, a cap on the return could have a direct effect on the number of cases taken up by funders – which is already low – since there will be cases in which the combination of factors described above will not make the investment worthwhile, considering the risk tradeoff. Unfortunately, there is a cost floor shared by both large and small cases, and complex claims like Citizen Kane’s expropriation case would be made all the more challenging to finance. A cap could therefore limit Mr. Kane’s litigation options. Should funders charge any profiteering fee? No, but a cap to the fees may not be the solution. In the end, the direct beneficiaries of the proposed regulation could end up being certain states such as Ruritania, which act as defendants in arbitration or judicial cases, rather than the individuals that the EU is attempting to protect. Ironically, states finance their legal firepower with taxes, the same taxes that Citizen Kane has paid for years to the Republic of Ruritania. [1]  Ruritania is a fictional country used as a setting for novels by Anthony Hope, such as The Prisoner of Zenda (1894). Jurists specialising in international law and private international law use Ruritania when describing a hypothetical case illustrating some legal point. [2] 2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration, British Institute of International and Comparative Law and Allen & Overy, available at: Costs, damages and duration in investor-state arbitration – Allen & Overy.
Secure Your Funding Sidebar

Commercial

View All

Loopa Finance Joins ELFA Amid European Expansion Push

By John Freund |

Litigation funder Loopa Finance has officially joined the European Litigation Funders Association (ELFA), marking a significant step in its ongoing expansion across continental Europe. Founded in Latin America and recently rebranded from Qanlex, Loopa offers a suite of funding models—from full legal cost coverage to hybrid arrangements—designed to help corporates and law firms unlock capital, manage litigation risk, and accelerate cash flow.

The announcement on Loopa Finance's website underscores the company's commitment to transparency and ethical funding practices. Loopa will be represented within ELFA by Ignacio Delgado Larena-Avellaneda, an investment manager at Loopa and part of its European leadership team.

In a statement, General Counsel Europe Ignacio Delgado emphasized the firm’s belief that “justice should not depend on available capital,” describing the ELFA membership as a reflection of Loopa’s approach to combining legal acumen, financial rigor, and technology.

Founded in 2022, ELFA has rapidly positioned itself as the primary self-regulatory body for commercial litigation funding in Europe. With a Code of Conduct and increasing engagement with regulators, ELFA provides a platform for collaboration among leading funders committed to professional standards. Charles Demoulin, ELFA Director and CIO at Deminor, welcomed Loopa’s addition as bringing “a valuable intercontinental dimension” and praised the firm’s technological innovation and cross-border strategy.

Loopa’s move comes amid growing connectivity between the Latin American and European legal funding markets. For industry watchers, the announcement signals both Loopa’s rising profile and the growing importance of regulatory alignment and cross-border credibility for funders operating in multiple jurisdictions.

Burford Covers Antitrust in Legal Funding

By John Freund |

Burford Capital has contributed a chapter to Concurrences Competition Law Review focused on how legal finance is accelerating corporate opt-out antitrust claims.

The piece—authored by Charles Griffin and Alyx Pattison—frames the cost and complexity of high-stakes competition litigation as a persistent deterrent for in-house teams, then walks through financing structures (fees & expenses financing, monetizations) that convert legal assets into budgetable corporate tools. Burford also cites fresh survey work from 2025 indicating that cost, risk and timing remain the chief barriers for corporates contemplating affirmative recoveries.

The chapter’s themes include: the rise of corporate opt-outs, the appeal of portfolio approaches, and case studies on unlocking capital from pending claims to support broader corporate objectives. While the article is thought-leadership rather than a deal announcement, it lands amid a surge in private enforcement activity and a more sophisticated debate over governance around funder influence, disclosure and control rights.

The upshot for the market: if corporate opt-outs continue to professionalize—and if boards start treating claims more like assets—expect a deeper bench of financing structures (including hybrid monetizations) and more direct engagement between funders and CFOs. That could widen the funnel of antitrust recoveries in both the U.S. and EU, even as regulators and courts refine the rules of the road.

Almaden Arbitration Backed by $9.5m Funding

By John Freund |

Almaden Minerals has locked in the procedural calendar for its CPTPP arbitration against Mexico and reiterated that the case is supported by up to $9.5 million in non-recourse litigation funding. The Vancouver-based miner is seeking more than $1.06 billion in damages tied to the cancellation of mineral concessions for the Ixtaca project and related regulatory actions. Hearings are penciled in for December 14–18, 2026 in Washington, D.C., after Mexico’s counter-memorial deadline of November 24, 2025 and subsequent briefing milestones.

An announcement via GlobeNewswire confirms the non-recourse funding arrangement—first disclosed in 2024—remains in place with a “leading legal finance counterparty.” The company says the financing enables it to prosecute the ICSID claim without burdening its balance sheet while pursuing a negotiated settlement in parallel. The update follows the tribunal’s rejection of Mexico’s bifurcation request earlier this summer, a step that keeps merits issues moving on a consolidated track.

For the funding market, the case exemplifies how non-recourse capital continues to bridge resource-intensive investor-state disputes, where damages models are sensitive to commodity prices and sovereign-risk dynamics. The disclosed budget level—$9.5 million—sits squarely within the range seen for multi-year ISDS matters and underscores the need for careful duration underwriting, including fee/expense waterfalls that can accommodate extended calendars.

Should metals pricing remain supportive and the tribunal ultimately accept Almaden’s valuation theory, the claim could deliver a meaningful multiple on invested capital. More broadly, the update highlights steady demand for funding in the ISDS channel—even as governments scrutinize mining concessions and environmental permitting—suggesting that cross-border resource disputes will remain a durable pipeline for commercial funders and specialty arbitrations desks alike.