Third-Party Litigation Funding: Movements in the German Marketplace

In the United Kingdom, third-party litigation funding is currently getting some attention in the legal press:  The industry has agreed on a Code of Conduct, which was published by the Civil Justice Council in late November 2011. US litigation funders appear to have an eye on the European market – using the word European in the European sense, i.e. including the UK. What does the German market for litigation funding look like?

Third-party litigation funding may be, for once, a legal service where Germany has had a head start over the UK. German law was not burdened by the equivalent of the common law doctrines of champerty and maintenance (see Lisa Bench Niewveld’s post at Kluwer Arbitration for more background), and no contractual obstacles had to be overcome to offer litigation funding. In addition, no regulatory hurdles exist: Litigation funding does not qualify as insurance or financial service, nor does it fall within the scope of legal services, and hence, is entirely unregulated. The prevailing doctrine views the litigation funding agreement as a kind of partnership (Gesellschaft) between claimant and funder. German litigation funders usually cover the liability for adverse costs, since, under the German statutory fee schedules, these can be predicted with great accuracy in most cases. As a consequence, ATE (after the event) insurance is of little or no relevance in the domestic market. In international disputes or in arbitration however, where the German costs regime does not apply, the need for ATE insurance may arise.

In Germany, since the late 1990s, about ten providers established themselves in the market; the German Bar Association (Deutscher Anwaltverein) provide an overview on their website. The pioneers were FORIS, who are a listed stand-alone entity. Following in their footsteps were some of the major insurance companies. Allianz, DAS and Roland all set up litigation funding subsidiaries.

And is amongst those insurance-backed players that there is now some movement in the market: Allianz, Germany’s biggest insurer, have announced in October 2011 that they withdraw from the market. D.A.S. Prozessfinanzierung, part of the ERGO insurance group, have re-branded as Legial. I am guessing here, but I would not be surprised if this turned out be the preparation of a disinvestment, by way of MBO or otherwise. Conventional wisdom in the market has it that the withdrawal by Allianz was not due to lack of profitable business, quite to the contrary: Business was booming, but at the same time increasingly causing conflict of interest with the core business of Allianz group.

With one of the major players having exited the market, and others undergoing some form of change, it will be interesting to see who steps in. One possibility would be for the management of the (former) insurance-tied management outfits to bring in new, independent funders to get rid of the conflicts of interest. Secondly, we will see to what extent London-based litigation funders are in a position to take advantage of these developments and enter into the market. One London-based player, Calunius, certainly has started to do so. They have a bi-lingual website and German-qualified staff, and are funding a fairly high-profile case, namely Elvis Presley v. RCA Records, an action of the King’s estate against the former record company for royalties, in the Munich District Court.

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