Regulation

Overview

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

There are currently no specific rules concerning the financing of a dispute by a third party. Furthermore, the admissibility of third-party litigation funding has never been, as such, reviewed by the Luxembourg courts. However, recent practice shows that third-party litigation funding is in fact increasing in Luxembourg.

Restrictions on funding fees

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

Due to the lack of legislative or regulatory provisions in the field of third-party funding, explicit limits on the fees and interest funders can charge do not exist. Indeed, the determination of fees and interest is subject to the parties’ freedom of contract.

However, French case law, to which Luxembourg judges often refer in contractual matters, considers that funders run the risk that courts could eventually reduce the contractually agreed funder’s fee if the fee is considered excessive or disproportionate in comparison to the services rendered.

Specific rules for litigation funding

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

In Luxembourg, there are currently no specific regulatory or legislative provisions applicable to third-party funding. The general law of contracts therefore governs third-party funding agreements. Furthermore, specific rules of professional conduct governing the attorney-client relationship affect the third-party funding relationship.

Legal advice

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

Attorneys in Luxembourg must carry out their activities in compliance with the very strict ethical rules laid down by both the amended law of 10 August 1991 on the legal profession and the ethical rules provided by the Bar.

In that regard, the prohibition on charging contingency fees, the duty of professional secrecy and the duty of independence are the most relevant in regard to advising clients in the field of third-party funding.

The duty of professional secrecy applies to any type of communication (written or oral) or information exchanged between an attorney and his or her client. It is an absolute rule. Thus, the duty of professional secrecy can be considered as a public freedom participating in the democratic state of law, the violation of which, moreover, constitutes a criminal offence.

However, the amended law of 10 August 1991 on the legal profession allows, under certain conditions, the attorney to disclose information covered by professional secrecy. Furthermore, a client is also free to independently communicate documents or information received from attorneys to third parties, including third-party funders.

The funder’s information rights regarding privileged information should, however, be precisely defined in the litigation funding agreement.

Thus, attorneys also have a duty of independence to their clients. This means that an attorney must have all the means and freedom to determine what must be done to effectively carry out his or her functions of assistance, advice and defence in the service of the client. This duty applies to any strategic advice throughout a proceeding, including the choice of whether to settle or withdraw an action.

Regulators

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

At present, since third-party litigation funding is not regulated under Luxembourg law, third-party litigation funding generally escapes any type of supervision by public bodies.

However, it cannot be excluded that in future, depending on the structuring of the funding agreement, a specific funding model may be considered as a regulated service falling under the supervision of the Luxembourg financial regulator (CSSF).

Furthermore, since the financing of a dispute by a third party is indirectly subject to compliance with the attorney's ethical or legal obligations, the Bar Council too could be considered as a competent regulator.