An extract from The Third Party Litigation Funding Law Review, 5th Edition

Structuring the agreement

In Belgium, litigation funding agreements are considered as 'sui generis' agreements, and are governed only by the rules of general contract law.

A litigation funding agreement does not qualify as a loan, given that there is no obligation on the funded client to reimburse the funding, which is an essential obligation of the borrower under a loan agreement. The client will only have an obligation to share the proceeds in the event of a successful outcome.

Similarly, a litigation funding agreement cannot be considered 'legal protection insurance' (rechtsbijstandsverzekering or assurance protection juridique).11 Under such an insurance policy, the insured party has the obligation to pay the (usually recurring) insurance premium before the insured risk (i.e. a legal dispute generating legal representation costs) occurs, regardless of the outcome of the outcome of the legal dispute (if any). On the contrary, a claimant will only enter into a litigation funding agreement after a dispute has arisen and the funder will only receive its remuneration if the litigation is resolved successfully.

The parties' respective rights and obligations can be freely defined in the funding agreement. Given the lack of a statutory framework or specific legislation, the funding agreement should be comprehensive and should stipulate all aspects of the parties' relationship. Generally, a funding agreement will include provisions governing the following:

  1. The amount of the investment: the funding agreement will generally define the maximum commitment of the funder, the specific items which are included in the budget (legal fees for first instance and appeal, expert fees, adverse party costs, etc.), and the conditions for drawdown of the budget. To avoid budget overruns, and depending on the type of case, funders may work with capped amounts per item or stage of the proceedings.
  2. Exposure to counterclaims: the funding agreement will specify whether the funding will cover the costs of defending a counterclaim and whether the funder will cover the financial exposure of a counterclaim.
  3. The funder's remuneration: this can be either a percentage of the recovered amounts, a multiple on the invested capital, or a combination of both. The agreement will also set out the 'payment waterfall', which defines the priority of payments to the funder, the law firm (contingency) and the client. Practical arrangements for the distribution of the proceeds will also be provided for.
  4. The exchange of information: correspondence between the client and their lawyer, and any written material drafted for the client are protected by attorney–client privilege. The lawyer, therefore, cannot disclose any of this to the funder without the client's express consent. Consequently, the funding agreement will regulate the exchange of information between the client, the lawyer, and the funder. This enables the latter to be kept abreast of the progress of the case and to monitor its investment.
  5. Control or consent rights: to protect its investment, the funder will generally seek to have some degree of control over important decisions in a case, such as filing appeals, terminating proceedings, or accepting settlements. Under Belgian law, a funder is not prohibited from having a veto right on certain decisions.
  6. Termination rights: in addition to termination for material breach, the funder and the client may also agree on a right for the funder to terminate the agreement if an event occurs which negatively impacts the prospects of the case, an event that makes the case commercially unviable, or the agreement may even allow for termination for convenience.

As explained above, the most notable funded cases in Belgium so far have been collective actions.12 In this type of case, the funder will usually have a much more active role in managing and steering the litigation. The agreements between the funder and the individual clients will then generally be structured as a contract for services rather than a mere funding agreement, including provisions which enable the funder to manage the litigation.