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Legal sector hits back at EU calls for regulation of third-party litigation funders

Lawyers and litigation funders have hit back at EU plans to regulate the third-party litigation financing industry in claiming new rules could limit access to justice.

The clashes come after the EU parliament on Tuesday voted overwhelmingly in favour of adopting a report by German MEP Axel Voss calling for new regulation of Europe’s litigation funding sector.

Third-party litigation funders bankroll lawsuits with a view to taking a cut of any winnings.

The Voss report calls for litigation funders’ fees and payments to be capped at a maximum of 40 per cent of any winnings.

The report says third-party litigation funders should also be required to cover defendants’ costs, including any adverse awards, if litigation is unsuccessful, whilst calling for greater transparency in the sector.

Commenting on the EU parliament’s endorsement, Voss, an MEP with Germany’s Christian Democratic Union, said regulation is needed to cap the “astronomical and unjustified rewards of litigation funders”.

“We must guarantee that our justice system continues to serve the people and is not exploited by profit-seeking actors,” Voss said, as he warned of the “recent and rapidly expanding global trend of hedge funds investing in legal proceedings in order to make enormous profits on the back of ordinary people.”

However, lawyers and litigation funders hit back at Voss’ proposals, as they argued regulation will hinder growth in the legal sector and limit access to justice.

Gary Barnett, Executive Director of the International Legal Finance Association (ILFA) warned stringent regulation “could limit the availability of and increase the cost of funding, which provides access to justice and upholds the rule of law.”

David Greene, head of finance litigation at London law firm Edwin Coe, argued significant “competition in the market” for third-party funding already “regulates” pricing in the sector.

Robert Hanna, managing director at litigation financier Augusta, said prices are also kept low by the relative sophistication of corporate clients, as he noted a large proportion of litigation funders’ clients are large corporations that “know the price they are prepared to pay”.

Hanna warned regulation of the litigation financing sector could hinder the UK’s legal sector’s growth, in the face of “a huge opportunity for UK plc to be the jurisdiction of choice for commercial disputes”.

Julian Chamberlayne, a partner at Stewarts, said regulation could “make it even more difficult” for “David vs Goliath” class-action lawsuits to progress, due to the costs associated with launching a major case against a well-funded corporate entity on behalf of a disparate group of people.

Third party funding paired with new laws allowing “opt-out” lawsuits has seen the UK become Europe’s leading jurisdiction for class action lawsuits, including cases against major firms such as Apple and Mastercard

Greene said many class action lawsuits “would not be possible were it not for the financing industry” due to the complexities of bringing a claim on behalf of a potentially extremely large group of individuals.

Regulation in the EU could however further boost the UK’s leading position as a hub for class action lawsuits, Chamberlayne said, as he suggested law firms may increasingly turn to Britain to file claims.

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