Is third-party litigation funding permitted? Is it commonly used?
Third-party litigation funding (TPLF) is available and is legally permitted in the Netherlands – both in state court litigation and in arbitration. TPLF constitutes a growing field, especially for arbitration and mass (tort) claim litigation.Restrictions on funding fees
Are there limits on the fees and interest funders can charge?
As Dutch law recognises the principle of freedom of contract, the parties are in principle free to agree on the fees and interests that the funder can charge. Certain limitations may be found in the general law of contracts (eg, where the agreed-upon fees and interests would contravene the rules of public policy, good morals or reasonableness and fairness). In addition, certain limitations imposed on claim vehicles, in general, apply to external funding of claims. There are no precedents publicly available where courts have in fact limited or amended a funder’s fees and interests on such grounds. Dutch case law has confirmed that the mere fact that a third-party funder charges a higher amount of fees and interest than other TPLF providers does not result in a violation of public policy or good morals (ECLI:NL:GHAMS:2011:BU8763).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 directed specifically at TPLF in the Netherlands.
However, where third-party funders are involved in cases initiated by a claim vehicle under the Act on Redress of Mass Damages in a Collective Action (WAMCA), article 3:305a, paragraph 1 of the Dutch Civil Code (DCC) provides that the interests of those represented by the claim vehicle should be sufficiently ensured for the claim vehicle to be admissible. Article 3:305a, paragraph 2 of the DCC further specifies this requirement with regard to TPLF by, for instance, providing that:
- those represented by the claim vehicle have appropriate and effective mechanisms to participate in the decision-making of the claim vehicle (article 3:305a, paragraph 2, subsection b of the DCC); and
- the claim vehicle should have sufficient funds to pursue the claim while retaining sufficient control over the collective action (article 3:305a, paragraph 2, subsection c of the DCC).
The parliamentary papers relevant to article 3:305a of the DCC indicate that the requirement under the aforementioned paragraph 2, subsection c in combination with the more general requirement under article 3:305a, paragraph 1 of the DCC, being that the interests of those that are represented by the claim vehicle are sufficiently taken account of, may provide a court with the possibility to review the funding structures between a claim vehicle and a third-party funder. The third-party litigation funder may not have a decisive influence over the claims or control over the lawsuit.
Further, Directive 2020/1828 on representative actions for the protection of the collective interests of consumers, which is currently subject to a legislative proposal for its implementation, adds additional requirements for the funding of claims (for instance, that funding cannot be used for claims against the funder’s competitors or persons the funder is dependent on).Legal advice
Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?
No specific professional or ethical rules apply to lawyers advising clients in relation to TPLF. Professional rules of conduct applicable to lawyers impose certain restrictions on the remuneration arrangements that may be agreed between a lawyer and their client. A ‘no cure, no pay’ arrangement or an arrangement under which the lawyer’s remuneration is defined as a part of the value of a judgment or award (quota pars litis) are generally prohibited under the Dutch professional rules of conduct for lawyers, although success fees are permitted provided they cover costs. However, such restrictions do not extend to third-party litigation funders insofar as these funders do not act as counsel representing the funded party.Regulators
Do any public bodies have any particular interest in or oversight over third-party litigation funding?
The Dutch Ministry of Justice and Security has taken an interest in TPLF specifically in the context of mass claim litigation, but does not exercise oversight as would a regulator. Otherwise, no public bodies in the Netherlands have expressed a particular interest in or conduct oversight over TPLF.