The practice of third-party litigation funding is becoming increasingly prevalent, with investors funding court cases for claimants. This has raised concerns about the potential for manipulation of the legal system for financial gain. In the US, Russian billionaires linked to President Vladimir Putin have been using third-party funding to contest sanctions, while Chinese entities have funded intellectual property lawsuits against companies like Samsung. Major pharma companies have raised concerns about the lack of transparency in this practice, fearing that it could compromise sensitive technologies and national security. Efforts are being made in both the US and Europe to regulate third-party funding, with proposals for legislation and directives in the works.
In Europe, the European Parliament has recommended the European Commission to propose a Directive on the regulation of third-party funding in the EU, aimed at establishing minimum standards for funders and supervisory authorities to monitor their activities. This directive would also impose joint liability on funders, a fiduciary duty of care, disclosure and transparency obligations, and limits on financial stakes. The directive was prompted by a rise in questionable claims that seek to disrupt and cause chaos, with profits being a secondary objective. One notable case involved a $14.9 billion arbitral award demanded by individuals claiming to be heirs of the last Sultan of Sulu, financed by a litigation finance firm. The case was eventually dismissed by Spain’s Supreme Court.
The example of the Sultanate of Sulu case highlights the potential risks and challenges posed by the practice of third-party litigation funding. Despite efforts to regulate and address these concerns, there are still ongoing legal actions in both Europe and the US related to this practice. There is a need to balance transparency with legal access to finance, particularly in cases where national security could be at risk. Allowing judges to determine the level of transparency required on a case-by-case basis may offer a more nuanced approach. However, there are still significant challenges and complexities surrounding the regulation of third-party litigation funding, requiring continued attention and oversight.
The involvement of third-party funders in court cases has raised questions about the integrity of the legal system and the potential for abuse. The non-transparent nature of some funding arrangements has sparked concerns about the influence of foreign entities and access to sensitive technology and information. Efforts are being made to address these concerns through legislative proposals and directives in both the US and Europe. The need for greater transparency and accountability in third-party litigation funding is evident, with a focus on balancing access to legal finance with national security considerations.
Overall, the issue of third-party litigation funding is a complex and multifaceted one, with implications for the integrity of the legal system, national security, and the rights of claimants. While there are efforts underway to regulate this practice in both the US and Europe, challenges remain in balancing transparency and access to legal finance. The ongoing legal actions and controversies surrounding third-party funding highlight the need for continued oversight and scrutiny to ensure that the integrity of the legal system is upheld. It remains to be seen how these issues will be addressed and what the future holds for the regulation of third-party litigation funding.
