An extract from The Third Party Litigation Funding Law Review, 5th Edition
Litigation funding is allowed and accepted in Belgium, and it is not currently regulated. However, litigation funding is not yet a mainstream tool of Belgian litigation practice,2 and there are a couple of reasons for this. Firstly, the costs of litigation are relatively low in Belgium, especially compared to other jurisdictions. Secondly, the exposure to adverse party costs is limited to statutorily defined, incremental lump sums depending on claim value.3 These lump sums are, again, quite low compared to other countries with similar statutory regimes (e.g. Germany) and jurisdictions with a more onerous 'loser pays' regime such as the UK. The combination of these two factors means there is less incentive for litigants to seek third party funding than in other jurisdictions where the potential financial exposure is more significant.
From the funder's perspective, the reasons set out above imply that capital deployment in a Belgian litigation matter will be relatively limited and may not meet the minimum thresholds of certain funders. In addition, damages awarded by Belgian courts tend to be comparatively low and so potential returns for funders are also at the lower end of the scale. Historically, therefore, the Belgian market has attracted limited interest from litigation funders.
Nevertheless, there have been several high-profile cases in Belgium where claimants benefited from third party funding. These cases can mainly be found in the field of collective actions – albeit outside of the framework of the Belgian collective redress mechanism,4 which is limited in scope and does not expressly provide for the possibility of third party funding.5 The most notable funded cases concern investor losses:
- A group of approximately 13,000 private investors filed claims in relation to accounting fraud at the speech technology company Lernout & Hauspie during its ensuing bankruptcy. The criminal proceedings led to the conviction of several managers and the auditor of the company. Civil proceedings are still pending against various defendants, including the auditor.
- A group of over 6,000 investors, both institutional and retail, filed litigation before the Belgian courts in the aftermath of the collapse of Fortis Bank (now Ageas NV/SA). This case was ultimately settled as part of the collective settlement agreement declared binding by the Court of Appeal of Amsterdam on 13 July 2018.6 This settlement, for a total amount of €1.3 billion, is the largest ever investor claim settlement in Europe.
- Currently, proceedings are pending in a case brought by approximately 2,200 retail investors in Arco, a financial holding company who invested mainly in the now defunct Dexia Bank. Arco entered into liquidation in 2011. The investors are seeking damages from, inter alia, Arco, the Belgian state and Dexia's successor Belfius Bank.
The major litigation funders with operations in Belgium or a focus on the Belgian market are Deminor, Nivalion, and Liesker Procesfinanciering.
Despite the relatively limited interest in third-party litigation funding in the past, there is potential for it to become (more) mainstream in Belgium going forward. Law firms are becoming more familiar with the concept, and in-house legal teams increasingly see the value litigation funding can bring to corporations. It is expected that litigants will start to explore funding options on a more regular basis in the coming years.
More specifically, the following types of claims could become important drivers for growth in the Belgian litigation funding market:
- Private enforcement of competition law, and more particularly follow-on actions based on the EU Damages Directive.7 For example, damages claims have been brought against Mastercard in the Brussels courts in relation to interchange fees, with claimants benefiting from third party funding.
- Consumer class actions. The new EU Directive on consumer collective redress,8 which includes some provisions on third party funding, may lead to a revamp of the current Belgian collective redress mechanism and create a framework to facilitate the funding of consumer representative actions.
- Asset recovery and enforcement. In cross-border asset recovery matters, Belgium is often unjustly overlooked. Compared to other jurisdictions, the legal framework for freezing assets and bank accounts is cost-efficient and relatively creditor-friendly. In a remarkable judgment handed down in the context of the enforcement of an ECT arbitration award, the Brussels Court of Appeal recently upheld an attachment order against Kazakhstan's sovereign wealth fund.9 This case has put Belgium in the spotlight as a venue for cross-border enforcement and it may stimulate further interest from both litigants and funders.
Legal and regulatory frameworki No regulatory framework
Litigation funding is not a regulated activity under Belgian law. Moreover, as a civil law jurisdiction, the concepts of champerty and maintenance are not part of Belgian legal culture. Therefore, there is no prohibition on litigation funding.
Given the lack of a statutory framework, funding arrangements are governed by the general rules of contract in the Belgian Civil Code. The content of the funding arrangement can be freely agreed upon by the parties, so long as it does not result in a violation of public policy. This means, for example, that the funder's control over the litigation and its involvement in the case management and strategy can be contractually defined by the parties.
As set out above, litigation funding is not yet commonly used in Belgium. Consequently, and to the best of our knowledge, Belgian courts have not yet been asked to resolve questions regarding the admissibility of third party funding or disputes between a funder and its client. Nevertheless, the legality of litigation funding is commonly accepted, and the involvement of the funder in some of the cases highlighted above was openly disclosed and has not generated any criticism.ii Lawyers' ethical rules
Lawyers working on funded litigation need to abide by the ethical rules enacted by the bar association.10 These rules include an obligation to act in the best interests of the client (as opposed to their own interests or the interests of a third party, such as a funder), to act independently, and to comply with attorney–client privilege (professional secrecy). Regarding the latter, lawyers are allowed to share information and case materials with a funder with the clients' express consent. This consent will generally be provided in the litigation funding agreement.iii Contingency fees
Lawyers in Belgium are prohibited from working purely on contingency (pactum de quota litis – see Article 446 ter of the Belgian Code of Civil Procedure). However, fee arrangements providing for a minimal remuneration which is independent of the outcome of the case topped up with a reasonable success fee are permitted.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Disclosurei Disclosure of funding – judicial proceedings
Given that there is no legal framework on litigation funding, there is equally no legal obligation for a funded party to disclose the existence of a funding agreement, let alone disclose the content of that agreement. That said, for the sake of transparency, it may be recommended that a litigant discloses that it is benefiting from litigation funding.ii Disclosure of funding – arbitration
Despite the absence of any express legal provision to that effect, it is generally considered that the existence of a funding agreement and the identity of the funder must be disclosed to the tribunal in arbitration proceedings. Pursuant to Article 1686 of the Belgian Code of Civil Procedure, an arbitrator is required to disclose any circumstance that may give rise to justifiable doubts regarding her or his independence and impartiality. An arbitrator's prior relationships or dealings with the funder may qualify as such a circumstance. The funded party's disclosure of the existence of the funding arrangement, including the funder's identity, enables the arbitrators to comply with their own disclosure obligations. As a result, and in the light of the principle of procedural fairness embodied in Article 1699 of the Code of Civil Procedure, the presence of a third-party litigation funder must be disclosed in arbitration proceedings. However, the terms of the funding or the funding agreement as such should not be disclosed, as this is not relevant for the arbitrators' conflict check.iii No discovery
Civil proceedings in Belgium are governed by the adversarial principle. This means that the parties must provide their own evidence in support of their claims. Discovery or disclosure procedures like those available in the USA and the UK respectively, do not exist in Belgium. Pursuant to Article 877 Code of Civil Procedure, a court can order a party to the proceedings or a third party to disclose certain documents or other exhibits if there are serious and specific indications that: (1) this party is in possession of those documents or exhibits; and (2) said documents or exhibits constitute evidence of a fact that is relevant for the case. A request for disclosure must relate to specifically identified documents and cannot amount to a fishing expedition.
These conditions are applied narrowly by Belgian courts and the burden of proof lies with the party applying for disclosure. Although there is no case law on this point, it is highly unlikely that a claimant would be compelled by the court to disclose a litigation funding agreement pursuant to an application based on Article 877 of the Code of Civil Procedure.
Costsi Judiciary proceedings
As noted above, adverse party cost orders in judicial proceedings are very limited in Belgium. Courts will award the prevailing party a statutorily defined lump sum between €195 to €39,000, depending on the value of the claim and certain other factors (e.g., the complexity of the case). In addition, the prevailing party will be entitled to the reimbursement of procedural costs (court fees, bailiff fees, judicial expert fees). The costs of securing third party funding cannot be recovered from the adverse party.
The Belgian Code of Civil Procedure13 provides a Belgian defendant who is sued by a foreign plaintiff the possibility to request that the claimant posts security for costs (cautio judicatum solvi) unless there is a treaty or convention between Belgium and the claimant's home state exempting plaintiffs from posting security. Because of the large number of foreign states (including all EU Member States) benefiting from such an exemption, security for costs is rather rare in practice. Moreover, in 2018 the Belgian Constitutional Court ruled that Article 851 of the Code of Civil Procedure is discriminatory and, therefore, unconstitutional. It cannot be ruled out that the cautio judicatum solvi will be abolished altogether.ii Arbitration
Pursuant to Article 1713(6) of the Code of Civil Procedure, the final arbitral award must determine the costs of the arbitration and decide which party bears what proportion of these costs. The costs of the arbitration include fees and expenses of the parties, their counsel, and representatives. Unlike judicial proceedings, therefore, the prevailing party can recover its actual costs (or a significant part thereof) from the adverse party to the extent that those costs are reasonable.
The Code of Civil Procedure does not address security for costs in arbitration proceedings. Nevertheless, it is generally accepted that an arbitral tribunal may impose security for costs.iii Liability of funders for adverse costs
Third-party funders usually do not become a party to the proceedings initiated by their clients, whether they are judicial or arbitration proceedings. Therefore, the court or arbitral tribunal cannot order the funder to pay costs, and the adverse party will not have a direct claim against the funder.
The year in reviewi Significant developments in legislation
On 1 November 2020, Book 8 of the new Civil Code entered into force. The purpose of this new Book 8 is to modernise the Belgian rules on evidence in civil matters.
Belgium has also recently adopted legislation applicable specifically to B2B relationships. The concept of the 'abuse of economic dependence' was introduced in the Belgian Code of Economic Law (BCEL) as a new type of competition law infringement. The abuse of such economic dependence between companies can be privately enforced by the victims, inter alia, by claiming damages. Secondly, a set of rules has been introduced in the BCEL that prohibits clauses in commercial contracts that create a 'manifest imbalance' between the respective parties' rights and obligations. These rules include a blacklist of clauses that are always unlawful, a 'grey list' of clauses which are presumed unlawful unless proven otherwise, and an overriding catch-all provision. It is to be expected that this new legislation will generate commercial disputes and litigation, at least until several questions of interpretation are resolved through case law.ii Notable cases
A couple of remarkable decisions have been rendered in the course of 2021:
- In August 2021, the pharmaceuticals company Perrigo obtained a €350 million damages award in a post M&A dispute relating to its takeover of Omega Pharma. The tribunal found that the sellers had wrongfully omitted to disclose important information and had intentionally deceived Perrigo about the company's financial situation. The award was issued by an arbitral tribunal under the auspices of CEPANI, the Belgian centre for arbitration and ADR.
- In June 2021, the Brussels Court of Appeal issued a judgment upholding an attachment on the National Fund of the Republic of Kazakhstan. This judgment relates to the enforcement of an arbitral award awarding over €500 million to investors who issued claims under the Energy Charter Treaty.
- Also in June 2021, the Brussels Court of First Instance handed down judgment in proceedings initiated by 'Klimaatzaak', a non-profit organisation, against the Belgian federal and regional governments. The Court ruled that the Belgian climate policies adopted by the different levels of government violate Article 2 (right to life) and Article 8 (right to respect for private and family life) of the European Convention on Human Rights. Moreover, the court ruled that this qualifies as a breach of the Belgian governments' duty of care, which may give rise to claims for damages under Article 1382 of the Belgian Civil Code. Although the judgment could be considered as a purely symbolic victory – no actual damages were awarded, nor were any policy measures imposed – it is part of a larger trend of climate-related litigation, and the case may set a precedent for future actions.
- In June 2021, several days of trial were held in the Arco litigation (see above). A judgment was not rendered yet at the time of writing but is expected in the last quarter of 2021.
Conclusions and outlook
Although third-party litigation funding has been used successfully in the past, the Belgian market for litigation funding remains relatively underdeveloped. The relatively low litigation costs appear to be a major factor for this. As both clients and legal practitioners become more acquainted with the practice of litigation funding, significant growth can be expected in the coming years, especially in arbitration and follow-on damages claims.
Currently, there is no regulatory framework for litigation funding in Belgium. This may change in the future because of two developments at EU level. Firstly, the transposition into Belgian law of the EU Directive on consumer collective redress may include provisions on third party funding. Secondly, the European Parliamentary Research Service in March 2021 issued a report on 'Responsible private funding of litigation'.14 Although some aspects of the report are subject to criticism, it could prove to be a first step towards a regulatory framework for third party funding at the EU level.