Snapshot: litigation funding costs and insurance in Luxembourg

Costs and insurance

May the courts order the unsuccessful party to pay the costs of the successful party in litigation? May the courts order the unsuccessful party to pay the litigation funding costs of the successful party?

Under Luxembourg law, any person who mandates an attorney to defend their interests in legal proceedings must, in principle, pay the attorney’s fees in full.

Nevertheless, the judge may order the unsuccessful party to pay a procedural indemnity under certain conditions. The judge may only make such an order if the successful party has made a request to that effect, expressly asking for the opposing party to be ordered to pay a lump sum for costs, either in the summons initiating the proceedings or at a later stage, especially if required by the defendant.

If such a request has been made, it is for the judge to assess whether it is well grounded. Article 240 of the New Code of Civil Procedure provides that the judge may order a party to pay a certain amount where appropriate. These sums concern mainly the attorney’s fees. Only the prevailing party can obtain compensation on the basis of such article. Thereby, the judge will also consider whether the successful party has taken prior steps to avoid court proceedings and may take into account the good or bad faith of the losing party. The determination of the amount is in the sole discretion of the judge. In any event, the procedural indemnity is systematically only symbolic and covers a part of the lawyer’s fees (usually the procedural indemnity ranges from €500 to €5,000).

In accordance with case law of the Luxembourg Court of Cassation, a claimant may claim full compensation for its actual legal costs if it can be demonstrated that, in addition to the conditions of damage and causation, there is a fault on the part of the defendant in relation to the legal basis of its action.

Finally, unlike attorneys’ fees and expenses, the costs directly incurred by the claimant with regard to the initiation of the proceedings (such as bailiffs’ fees and translation costs) can be recovered from the unsuccessful party without further conditions. No specific request in this respect is needed; the judge must, however, expressly specify who must bear the costs.

Can a third-party litigation funder be held liable for adverse costs?

As third-party funders are not a party to the proceedings, no legal basis exists that could be used by courts to order a third-party funder to pay for adverse costs (or more specifically the procedural indemnity.

If the funding agreement provides for the funder to cover adverse costs, the funder has a contractual obligation to pay for them. The successful adverse party, however, not being a party to the litigation funding agreement, has no enforceable right against the funder.

May the courts order a claimant or a third party to provide security for costs? (Do courts typically order security for funded claims? How is security calculated and deposited?)

In Luxembourg, a defendant cannot request the court to order the claimant to provide security for costs. However, if the claimant resides in a foreign country that is not a member of the European Union, or that has not signed a specific convention with Luxembourg, the defendant may request the court to order the deposit of a certain sum of money (caution judicatum solvi) with the Caisse de Consignation (the Consignment Office). The amount of the deposit is calculated after an assessment of the costs of the proceedings and the potential damages, and usually remains low to ensure that the right to access to justice is preserved.

If a claim is funded by a third party, does this influence the court’s decision on security for costs?

As there is no requirement to inform the courts of the existence of funding, the courts are usually unaware of such funding. This being said, the existence of a funder should remain without consequence on the court’s decision on security for costs. Indeed, national courts are bound by the rule of law.

As there is no such requirement under the New Code of Civil Procedure for arbitration either, the same would apply. However, if specific arbitration rules apply (eg, IBA, ICC, Luxembourg Chamber of Commerce), it would be necessary to determine if there are specific provisions provided by such rules, and if so, to apply them.

Is after-the-event (ATE) insurance permitted? Is ATE commonly used? Are any other types of insurance commonly used by claimants?

ATE insurance is not commonly used in Luxembourg, although no legal or regulatory restrictions limit this type of product. However, several insurance companies as well as third-party litigation funders offer their clients solutions for the coverage of adverse costs by way of ATE insurance.