The challenge of litigation funding: Swiss Re sponsors international conference at Oxford

The political objective of facilitating access to justice by means of instruments of collective redress is contingent upon funding. Given the evident lack of public funding which results from the precarious state of public finances in many countries, the only plausible source of funding can be private. This raises the challenge of how private litigation funding should be regulated so as to prevent conflicts of interest and discourage unmeritorious claims.

Both at EU and at member state level, the introduction of instruments of collective redress is high on the agenda. Driven mainly by consumer protection interests, various legislative projects are currently under way. Italy introduced a new law on consumer class action in 2010. Poland also enacted a class action law in 2010, while draft legislation is prepared in Belgium.

In this context, litigation funding is a key issue. Against the background of the well-known distortions and the overall cost that private litigation funding has caused in the United States, all stakeholders in Europe have a common interest in a regulation of private litigation funding that provides for adequate and effective safeguards against colliding interests and abuse.


Independent academic research to inform legislative debates

On 19 May 2010, a group of eminent experts gathered at Oxford University to discuss the challenges of private litigation funding. Swiss Re supports academic research into the implications of collective redress for companies and insurers. Such research adds value to the political and legislative debates and is crucial in identifying criteria that are critical for a balanced approach to collective redress. The Centre for Socio-Legal Studies at Oxford University provided the ideal platform to address these key policy issues with speakers from government, academia, legal practice, consumers and industry. Robert Hammesfahr, Managing Director and Executive Claims Expert provided the reinsurer’s perspective.


Risks connected with litigation funding

Some key points emerged from the discussion:

  • Third party funding clearly has a potential to encourage weak or frivolous collective litigation.
  • Such funding of collective litigation should therefore not be expanded in new countries. In countries where it is already available, it must be subject to effective regulation and thus be controlled and contained. In particular, any mechanism must me opposed that establishes in Europe attorney fees as a percentage of the plaintiff’s award as in US-style contingency fees;
  • The well-established “loser pays” rule must be upheld, and rules must be defined that ensure that, however funded, unsuccessful litigants have the means, if necessary, to meet the cost of reimbursing the winning party’s costs;
  • Effective safeguards must accompany any third party funding process.


Attractiveness of Alternative Dispute Resolution

As Robert Hammesfahr points out, from a reinsurer’s perspective, litigation funding is a double-edged sword. Therefore, he says, “insurers and reinsurers should have a keen interest in the development of responsible third party litigation financing. The separation of litigation finance from provision of legal services is new and developing. Formal supervision of litigation finance providers - the funders - will be important to protect the integrity of the judicial process, to address conflicts of interest  and to avoid litigation abuses”.  

Thus, while we acknowledge that sources of funding must be found if the goal of improved access to justice is to be reached, it is also clear, that neither companies nor consumers or legislators can have an interest in a framework that bears the risk of deviation or abuse. The way out may lie in an approach that favours out-of-court-based mechanisms – so-called Alternative Dispute Resolution (ADR), which in many cases may serve the goal of providing a working avenue towards resolution and redress, while at the same time being both less costly and substantiall faster than court-based actions.

In its effort to promote a balanced approach to collective redress, Swiss Re therefore advocates the consideration of ADR at the same level as court-based mechanisms.

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