Regulation

Overview

Is third-party litigation funding permitted? Is it commonly used?

The legality of third-party litigation funding is well established in France.

Nevertheless, the French market for third-party litigation funding is still comparatively small. Among other factors, this may be attributed to the fact that French law traditionally did not recognise class actions or punitive damages and that civil and commercial courts generally grant only limited cost awards for legal fees.

However, recent practice shows that third-party litigation funding has increased in specific market segments, such as antitrust damages litigation or small mass consumer claims.

In addition, the resort to third-party funding has grown significantly in the field of international arbitration over the past 10 years. Professional organisations support this evolution. The Paris Bar Council has explicitly endorsed the use of third-party funding, noting that third-party funding ‘is favourable to the interest of litigants and attorneys of the Paris Bar, particularly in international arbitration’ (Paris Bar Council, Resolution dated 21 February 2017, the Paris Bar Council Resolution or the Resolution).

Restrictions on funding fees

Are there limits on the fees and interest funders can charge?

There are no explicit limits on the fees and interest funders can charge. The determination of fees and interest is therefore subject to the parties’ freedom of contract.

That said, limited case law suggests that if seised of a dispute over a funder’s remuneration, French courts may reduce the contractually agreed funder’s fee if the fee is considered disproportionate or excessive in comparison to the services rendered by the funder. The French Court of cassation has previously held that the agreement to pay a physical person funder 30 per cent all net amounts recovered in an inheritance dispute could, in principle, be subject to judicial reduction if found to be disproportionate (Cass. 1ere civ., 23 November 2011, No. 10-16.770). In that case, the Court of cassation quashed a decision by the Versailles Court of Appeal, which had refused to reduce the contractually agreed remuneration of 30 per cent. The Court of cassation remanded the matter to the Paris Court of Appeal, which ultimately reduced the remuneration to 15 per cent, taking into account the relatively short duration of the proceedings and the reduced scope of the service rendered by the funder (Paris Court of Appeal, Pole 3, 1st chamber, 17 October 2012, No. 11/22443).

Specific rules for litigation funding

Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?

There are no specific legislative or regulatory provisions applicable to third-party funding. Third-party funding agreements are therefore governed by the general law of obligations. That said, French courts are not bound by the qualification given by the parties to a third-party funding agreement. They have the power to requalify a contractual relationship whenever the actual relationship between the parties is found to resemble that of a contract governed by a specific legal regime, such as an insurance contract, a banking contract or a partnership agreement. In the case of a requalification, the funding agreement would be subject to the relevant specific legal regime and the applicable regulatory provisions governing such contracts.

In addition, the specific rules of professional conduct that govern the attorney-client relationship will impact (at least indirectly) the third-party funding relationship.

Lastly, there is quite a substantial amount of soft law and legal doctrine pertaining to third-party litigation funding in France (see, eg, Club des Juristes, Commission financement de procès par les tiers, Raaport sur le financement du procès par des tiers, June 2014; Barreau de Paris, Le financement de l’arbitrage par les tiers (third-party funding), 21 February 2017 (the Paris Bar Association Report)).

Legal advice

Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?

Attorneys advising clients in relation to third-party funding must abide by the rules of professional conduct that govern the exercise of the legal profession in France (ie, Law No. 71-1130, dated 31 December 1971 as amended by Law No. 90-1259, dated 31 December 1990 and Implementing Decree No. 91-1197; Decree No. 2005-790, dated 12 July 2005; and the National Internal Regulations adopted by the National Council of French Bar Associations, the CNB).

The rules that are most relevant to advising clients in relation to third-party funding include the duty of professional secrecy, the duty of independence and the prohibition to charge contingency fees in litigation and domestic arbitration.

Under French law, the duty of professional secrecy is a rather broad one. It applies to any type of communication (written or oral) or information exchanged between an attorney and her client. It is a mandatory rule that may neither be waived by the client nor otherwise derogated from. Violation by the attorney is subject to disciplinary and criminal sanctions. A client is, however, free to independently communicate documents or information received from attorneys to third parties, including third-party funders.

Attorneys also have a duty of independence to their clients. This duty applies to any strategic decision throughout a proceeding, including the choice of whether to settle or withdraw an action. An attorney may thus not receive instructions from a third-party funder, as explicitly reiterated by the CNB in its Resolution relating to third-party litigation funding, dated 20-21 November 2015. This duty also implies that an attorney advising a financed party may not simultaneously advise the funder. For the avoidance of doubt, French law allows for third-party funders to pay attorney fees directly to the funded party’s attorney. This does not impact the attorney-client relationship.

Moreover, French law prohibits attorneys from charging fees on a full contingency basis. This restriction is not considered to apply to international arbitration.

In addition to the afore-mentioned rules of professional conduct, the Paris Bar Council Resolution specifically addresses attorneys advising clients in relation to third-party funding by making various recommendations. Specifically, the Paris Bar Council Resolution:

  • reiterates the prohibition for attorneys advising a financed party to provide legal advice to the funder;
  • emphasises the prohibition for attorneys to communicate documents or information directly to third-party funders (without, however, prohibiting clients from sharing any documents, including legal advice received, with their funder) and notes that attorneys should avoid any meeting with the third-party funder without the funded client present;
  • advocates in favour of revising the rules that govern disputes with respect to attorney fees (ie, articles 174 et seq of Decree No. 91-1197 dated 27 November 1991), such as to extend these rules explicitly to third-party funders who would then be considered subrogated to the rights and obligations that funded clients may have vis-à-vis their attorneys. This recommendation is based on the Paris Bar Association Report (which provided the basis for the Paris Bar Council Resolution) and which observed that the applicability of articles 174 et seq of Decree No. 91-1197 to third-party funders could also potentially be provided for in the funding agreement;
  • invites attorneys advising clients in arbitration to encourage them to disclose the existence of third-party funding and advise them with respect to the consequences that could potentially arise in the absence of a disclosure (notably the potential setting aside of an arbitral award and potential impediments relating to its execution in the event that links between the funder and an arbitrator are subsequently discovered);
  • invites attorneys to recommend to their clients that the management of the third-party funding agreement, the distribution of costs and fees and the recovery of any monetary awards in their favour be done with the aid of the Caisse des Règlements Pécuniaires des Avocats, an entity established within each French bar association, which monitors the payment of attorney fees.
Regulators

Do any public bodies have any particular interest in or oversight over third-party litigation funding?

At present, there is no public body with any particular interest in or oversight over third-party litigation funding.

Law stated date

Correct on

Give the date on which the information above is accurate.

16 October 2020.