EU Commission Nixes New Litigation Funding Regulation

European Commission Shelves Plans for New Funding Rules

The European Commission has brought a period of uncertainty to a close for the litigation funding sector by confirming it has no plans to introduce new EU-wide legislation. The announcement provides significant regulatory clarity for a burgeoning industry that finances legal disputes in exchange for a share of the proceeds.

Speaking at the final meeting of the EU’s High-Level Forum on Justice for Growth, Commissioner for Justice Michael McGrath stated that the body would not be pursuing new legislative proposals concerning third-party litigation funding (TPLF). He noted that forum participants had also concluded that further regulation was unnecessary at this stage. Instead of drafting new laws, the Commission will now focus its efforts on monitoring the implementation of the existing Representative Actions Directive (RAD), which aims to harmonise collective redress mechanisms across the Union.

Industry Welcomes Regulatory Certainty

The decision has been warmly received by industry stakeholders. Paul Kong, the executive director of the International Legal Finance Association (ILFA), expressed his delight at the Commissioner’s clear statement, saying it ends talk of new regulation “which was completely without evidence and created considerable uncertainty for the sector.”

Mr Kong reiterated the crucial role that litigation funding plays in promoting access to justice. He stressed that the service ensures European businesses and consumers can pursue legitimate claims without being constrained by financial limitations, particularly when facing larger, more financially robust defendants. In his view, new legislation would have severely restricted the availability of this financial support, undermining the principle of a level playing field in legal disputes. “New legislation would have choked off the availability of financial support to level the playing field for claimants,” he stated.

The Irish Exception

While the EU-level decision provides a stable outlook for many, the situation in individual member states remains varied. Ann McGarry, chair of the Law Society Litigation Committee in Ireland, highlighted that the country remains a significant outlier in Europe regarding TPLF. “Apart from a narrow exception for international arbitration, it remains prohibited under Irish law,” she explained.

Ms McGarry indicated that the Law Society Litigation Committee supports a “carefully regulated approach” that would strike a balance between competing interests. However, any potential shift in Ireland’s position is contingent on domestic legislative action, which is expected to follow a forthcoming report from the Law Reform Commission. “While the European Commission is moving toward harmonised rules to improve transparency and consumer protection, any change here will depend on domestic legislation,” she affirmed, underscoring the divergence between Dublin’s stance and the broader European trend towards accepting and utilising TPLF.