Litigation Funding Overview - Belgium

 Olivia de Patoul [1]

Introduction

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.

First, 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.

For these reasons, 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:

1. 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.
2. 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.
3. Currently, proceedings in appeal are pending in a case brought by thousands of retail investors in Arco, a financial holding company that 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.

Arbitration cases might also be suitable for funding, whether they are submitted to the proceedings of the Belgian Centre for Arbitration (CEPANI) or not.

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. The same applies for arbitration proceedings brought before the CEPANI, the Belgian centre for arbitration and mediation.

More specifically, the following types of claims could become important drivers for growth in the Belgian litigation funding market:

1. 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.
2. 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.
3. Asset recovery and enforcement. In cross-border asset recovery matters, Belgium is often overlooked while major banking institutions or central securities depositaries have their European headquarters in Brussels (e.g., Euroclear, The Bank of New York Mellon). Compared to other jurisdictions, the legal framework for freezing assets and bank accounts is cost-efficient and relatively creditor friendly. Attachments on the fees collected by the 41 member states of Eurocontrol, the European air traffic management system based in Brussels, are frequent.

Year in review

i Significant developments in legislation

A resolution was passed on 13 September 2022 by the European Parliament, which includes recommendations to the European Commission to propose a Directive to regulate litigation funding within the European Union.

These recommendations may be the start of a legislative process at the European level aimed at regulating the litigation funding sector for court proceedings, commercial arbitration and investor–state arbitration.

The Voss Report pushes for:

1. transparency (e.g., an active obligation to disclose the existence and identity of the funder to the court);
2. a cap on the fees (40 per cent, unless in exceptional circumstances);
3. regulation of the management of the claim, with the funder having little influence in the conduct of the proceedings;
4. regulation of conflicts of interest; and
5. oversight (e.g., the authorities shall conduct mandatory annual assessments of each funder; the funders must have sufficient capital).

Each Member State shall be free to decide whether at all to allow third party funding. We note the absence of distinction between claimants that are professional and those who are consumers (a 'one size-fits-all' approach).

It remains to be seen whether the European Commission will follow the European Parliament's recommendations, and within what time frame.

ii Notable cases

A judgment in first instance was rendered in the Arco case in November 2021, denying the investors' claim on the basis that the investors failed to demonstrate on an individual basis that they were misled. An appeal is pending.

Legal and regulatory framework

i 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.[9] 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 that 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. Also, some specific provisions governing the lawyer–client relationship might indirectly affect the funding contract (such as the obligation for a lawyer to remain independent, or conflict of interest provisions).

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.[10] 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 that 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 clients and their lawyers, and any written material drafted for a 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 that negatively impacts the prospects of the case, or 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.[11] 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 that enable the funder to manage the litigation.

Disclosure

i 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 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.

Furthermore, there is a general tendency in arbitration worldwide towards the disclosure of funding agreements in arbitration proceedings, evidenced by recent amendments to institutional rules of arbitration providing for the disclosure.

For example, the International Chamber of Commerce issued new rules in 2021, including under Article 11(7) that:

'each party must promptly inform the Secretariat, the arbitral tribunal and the other parties, of the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration'.

In conclusion, although it is not mandatory to disclose the existence of a funding agreement in an arbitration submitted to Luxembourg law, it would be recommended to do so.

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 US and the UK, respectively, do not exist in Belgium.

Pursuant to Article 877 of the 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 this party is in possession of those documents or exhibits; and 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.

Costs

i 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 Code of Civil Procedure [12] 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.

Outlook and conclusions

Although third party litigation funding has been used successfully in the past, the Belgian market for litigation funding remains relatively underdeveloped. The country's relatively low litigation costs appear to be a major factor in 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 enforcement, arbitration and follow-on damages claims.

Footnotes

1 Olivia de Patoul - former general counsel at Deminor for France and Belgium and author of this article.

2 There is no publicly available data on the use of litigation funding in Belgium, therefore, this section is based on the author's monitoring of the funding market.

3 See Article 1022 Belgian Code of Civil Procedure and the Royal Decree of 26 October 2007. The maximum amount of adverse party costs, for claims above €1 million, is currently set at €39,000.

4 See Article XVII.35-70 Belgian Code of Economic Law.

5 Although third party funding is not prohibited or excluded, some of the provisions of the current collective redress mechanism make it difficult to structure a funding arrangement that meets funders' requirements.

6 The Dutch Law on the Collective Settlement of Mass Claims (WCAM) was applied.

7 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance.

8 Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC.

9 See, e.g., the ethical code enacted by the Flemish Bar Council: https://advocaat.be/DipladWebsite/media/DipladMediaLibrary/Documenten/Deontologie/Codex-Deontologie.pdf.

10 In Belgium, this type of before-the-event (BTE) legal insurance coverage is commonly included as part of a broader insurance policy. After-the-event (ATE) insurance to cover adverse party cost risks is rather rare in Belgium.

11 i.e., direct actions initiated by a large group of plaintiffs, not a representative action or class actions.

12 Article 851.