Divergence in Litigation Funding: EU vs UK - What's the Impact? (2025)

Imagine navigating a legal landscape where the rules for funding big lawsuits vary dramatically from one country to the next – that's the gripping reality of third-party litigation funding in Europe right now, and it's fueling intense debates that could reshape access to justice! For those new to this topic, third-party litigation funding, or TPLF, is when external investors or companies provide upfront cash to help people or groups pursue legal claims, usually in exchange for a slice of any settlement or judgment. It's like a financial backer for lawsuits, often stepping in when individuals can't afford the costs themselves. But here's where it gets controversial: this funding model, while empowering claimants, raises eyebrows about potential conflicts of interest and whether it turns justice into a profit-driven game. Stick around as we dive into the stark differences between the EU and UK's approaches, and explore why this divergence matters more than you might think.

Let's start with the European Union's stance, which has just taken a decisive turn. The European Commission has made it clear that they won't be pushing for a uniform set of rules across the EU to regulate third-party litigation funding. This announcement came hot on the heels of European Commissioner for Justice, Michael McGrath, declaring at the final EU High-Level Forum on Justice for Growth that there's simply 'no need' for new laws just yet. Instead, the focus will shift to overseeing how EU member countries implement the Representative Actions Directive 2020/1828, which is designed to make it easier for groups of people to sue over issues like defective products or unfair business practices. Think of it as a directive that empowers consumers to band together for collective action, but now the Commission wants to ensure it's rolled out consistently without forcing a one-size-fits-all funding framework.

This decision builds on a comprehensive report released in March 2025 titled 'Mapping Third Party Litigation Funding in the European Union.' This document, compiled by the Commission, highlights the patchwork of approaches among all 27 member states – from strict legal prohibitions to more permissive environments that encourage funding. It drew on extensive consultations with a wide array of stakeholders, including litigation funders themselves, law firms, businesses, consumer groups, and even public authorities. The goal was to map out not just the laws on the books, but how funding actually works in practice across borders.

By opting out of harmonized regulation, the EU is essentially preserving the status quo of diversity. Some countries, like Ireland, take a hard line against TPLF, barring it through ancient doctrines of 'maintenance' (which prohibits financially supporting someone else's lawsuit) and 'champerty' (which forbids profiting from it). Ireland does carve out one exception – still waiting to be put into action – for international commercial arbitration disputes, where neutral third parties might resolve business conflicts outside traditional courts. On the flip side, nations like the Netherlands embrace TPLF openly, creating a hotspot for what's known as mass tort claims – large-scale lawsuits involving many victims, such as those harmed by faulty drugs or environmental disasters. This permissive vibe in places like the Netherlands has turned it into fertile ground for these group actions, allowing claimants to pool resources and challenge big corporations more effectively.

The lack of a unified EU-wide system means that 'forum shopping' – where litigants choose the most favorable jurisdiction for their case – will likely continue to be a major feature in cross-border battles, especially in product liability and consumer protection claims. And this is the part most people miss: without steady funding, large group actions often stall, as individuals might not have the means to pursue them alone. For beginners, picture this: a group of consumers suing a company for a dangerous product defect – in a regulated funding environment, they get the support they need; without it, justice might be out of reach.

Now, contrast this with the United Kingdom's direction, which is marching toward potential regulation – a move that stands in sharp relief to the EU's hands-off approach. The UK's Civil Justice Council (CJC) Working Group recently dropped its final report on June 2, 2025, packed with recommendations to overhaul how litigation funding is handled. The CJC proposes shifting to a 'light-touch' regulatory framework, establishing a baseline of rules for commercial entities involved in funding. This would apply extra scrutiny for consumer-focused cases, ensuring protections for everyday people. Crucially, they call for reversing a 2023 Supreme Court ruling in the case of R (on the application of PACCAR Inc & Ors) v Competition Appeal Tribunal & Ors, which treated litigation funding agreements (LFAs) as damages-based agreements (DBAs). For simplicity, DBAs are contracts where lawyers get paid based on the success of the case, subject to strict rules – classifying LFAs this way could render many existing funding deals invalid unless they jump through those hoops.

The UK's push for regulation underscores a deep commitment to fair access to justice, balanced with safeguards to protect all sides. It's all about creating a structured system that prevents abuses while enabling funding for valid claims. Currently, the UK government is mulling over these recommendations, so the future could bring real changes.

But here's where it gets really controversial: the EU's choice to let member states go their own way means the TPLF debate will rage on, no matter what guidance emerges. Those who oppose heavy regulation – perhaps seeing it as unnecessary government interference – will likely cheer this development as a win for flexibility and innovation in the legal funding market. After all, why impose rules that could stifle creative funding solutions? On the other hand, critics might argue it's a colossal missed opportunity. A harmonized EU framework could curb the chaos of forum shopping, where claimants pick jurisdictions to game the system, and foster greater legal certainty and fairness across borders. This isn't just abstract; consider how insurers and big corporations might view it in the broader context of recent EU shake-ups, like the updated Product Liability Directive (which makes companies more accountable for defective products) and the Representative Actions Directive (which streamlines group lawsuits). Without uniformity in funding, defending against claims could become a logistical nightmare, with strategies needing to account for wildly different rules.

Looking ahead, coordination will be key for businesses facing parallel lawsuits in the UK and EU, given these funding disparities. As the dust settles, it's worth pondering: Do you think harmonizing TPLF rules across Europe would truly democratize justice, or would it just create more bureaucracy that hinders genuine claimants? Share your thoughts in the comments – do you side with the EU's laissez-faire approach, or the UK's regulatory ambitions? And what about the ethics of profiting from lawsuits – is it innovation or exploitation? We'd love to hear your take!

Related item: A new approach to regulation of litigation funding in the UK (https://www.kennedyslaw.com/en/thought-leadership/article/2025/a-new-approach-to-regulation-of-litigation-funding-in-the-uk/)