Litigation Funding

The availability of adequate funding schemes is a significant precondition to attaining effective judicial consumer protection, as litigation costs are often high compared to the consumer’s personal finances.[1] Despite this, the subject of funding, in particular for collective actions, still remains underexplored. This section aims to fill this gap, assessing traditional and innovative financing models. While some of these models, such as legal aid and legal insurance, already exist in many Member States, they do not always fit the particular requirements to fund collective redress actions. Thus, complementary funding tools, such as contingency fees and collective action funds, are evaluated to improve the capability of consumers to access justice.

The fundamental right to legal aid

Public funding through legal aid is one of the classic solutions to facilitate access to justice. In 2003 the EU adopted a directive that sets minimum standards concerning legal aid for individuals who do not have sufficient resources for court proceedings.[2] This directive aims to improve access to justice in cross-border civil cases. Legal aid usually includes the services of a lawyer, exemption from the costs of the proceedings, and provides cover for additional cross-border costs, such as interpretation and travel funding.

The right to legal aid is also recognized as a human right that helps to improve access to justice and is explicitly mentioned in a number of human rights documents. Article 6(3)(c) of the European Convention on Human Rights guarantees the right to legal assistance where the defendant ‘does not have sufficient means to pay for legal assistance’. This legal aid has to be provided ‘free of charge when the interest of justice so requires’. In addition, Article 47 of the Charter states that ‘Legal aid shall be made available to those who lack sufficient resources in so far as such aid is necessary to ensure effective access to justice’. At the policy level Commissioner Reding acknowledged legal aid as a fundamental right in 2010 and emphasized its key role for citizens’ access to justice.[3] [4]

The ECJ affirmed the importance and broad scope of legal aid as a fundamental right. In DEB Deutsche Energiehandels- und Beratungsgesellschaft the ECJ ruled that the principle of effective judicial protection also applies to companies seeking legal aid. In this case the application for legal aid of a company was refused by the German Government, owing to an absence of public interest. 1 45 The ECJ held that effective judicial protection, as enshrined in Article 47 of the Charter, must be interpreted as meaning that it is not impossible for legal persons to rely on that principle of effective judicial protection and legal aid may cover the assistance of a lawyer and dispensation from advance payment of the costs of proceeding. In its fundamental rights analysis the ECJ referred to a large extent to the ECHR provisions and related case law, to remain consistent with the ECHR in its decision-making.[5] The ECJ ruled that it is for the national court to assess whether the requirement for granting legal aid constitutes a limitation on the right of access to the courts. However, the Court provided precise directions on which points the national courts have to consider in their analysis: ‘In making that assessment, the national court must take into consideration the subject-matter of the litigation; whether the applicant has a reasonable prospect of success; the importance of what is at stake for the applicant in the proceedings; the complexity of the applicable law and procedure; and the applicant’s capacity to represent himself effectively.’[6]

Since 2003, many EU Member States have enacted local rules which allow some form of legal aid to fund lawsuits. In general, in the event that an individual is eligible for legal aid, he or she has to substantiate that the case has a reasonable chance of success, and that the result would be proportionate to the costs which would have to be spent on the case. The lawyers providing legal aid receive their fees from a fund or from the losing party at commercial rates provided the case is won.

Today, however, the legal aid scheme is often under pressure because of its cost and limited public resources.[7] In the UK for example, although a large part of the financial risk involved in a dispute remains with the legally aided person (who in most cases is liable to pay the costs of adversarial parties if the case is lost), the costs of legal aid have increased considerably. As a consequence, these schemes are available under strict merit conditions and only for a small number of individuals (lowest-income consumers).

Another reason why the legal aid scheme is losing popularity is the unintended consequences it may generate. In particular, the application of legal aid for the purpose of collective actions is sometimes contested, as it might raise unmeritorious claims.[8] This could have a major impact on the defendant entity, such as a loss of confidence in a public authority or company, because large-scale litigation usually receives high media attention.[9] Thus, allocation of legal aid to multi-party claims needs to be carefully assessed.[10]

This can be achieved through strict scrutiny of the reasonable prospects of success of the case by the legal aid authority. However, as shown in the case above the ECJ applies a broad definition to legal aid. This indicates that collective actions entities may qualify if they have no sufficient means and show a reasonable chance of success.

  • [1] Funding difficulties are one reason for the limited use of collective redress in the MemberStates, Leuven Study (n 22), p. 267.
  • [2] Directive 2003/8/EC of 27 January 2003 to improve access to justice in cross-border disputesby establishing minimum common rules relating to legal aid for such disputes, OJ L 26, 31.01.2003.
  • [3] See the 2010 speech by Reding, who is Vice-President of the European Commission responsible for Justice, Fundamental Rights and Citizenship: ‘Legal aid: a fundamental right for citizensto access justice’ for the joint CCBE-ERA conference on the occasion of the CCBE’s 50th anniversary, Brussels, 26 November 2010: .
  • [4] Case C-279/09, DEB Deutsche Energiehandels- und Beratungsgesellschaft [2010] ECR I-13849.
  • [5] The Charter provisions that originated from the ECHR have the same meaning and scope asthose included by the ECHR; see the Commission’s explanation on the application of the Charterat DG Justice: .
  • [6] Case C-279/09 DEB Deutsche Energiehandels- und [2010] ECR I-13849, para. 61.
  • [7] C. Hodges, S. Vogenauer, & M. Tulibacka, The Funding and Costs of Civil Litigatim.A Comparative Perspective (Oxford: Hart Publishing , 2010), pp. 21-5; see also the Report of theCivil Justice Council in the UK, Improved Access to Justice, Funding Options and Proportionate ,2007, Appendices, fnn 26 et seq.
  • [8] D. Collins, c Public Funding of Class Actions and the Experience with English GroupProceedings’, (2005) 31 Manitoba L. J., pp. 211 et seq.
  • [9] For the discussion on damages for antitrust actions, see I. Riley and J. Peysner, ‘Damages inEC Antitrust Actions: Who Pays the Piper’, (2006) 31 E.L. Rev., pp. 748-61.
  • [10] Collins, ‘Public Funding of Class Actions and the Experience with English GroupProceedings’ (n 149), p. 211.
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