The litigation funding industry is gaining increasing relevance within the European Union, with an estimated market value of €1.2 billion. However, no European state currently has specific regulations for the sector. The European Commission, prompted by the European Parliament, has launched a study aimed at mapping existing regulations and market practices related to litigation funding.
To explore how the litigation funding market is evolving in Italy and how this relates to the broader European Union, we interviewed Giacomo Lorenzo, senior legal counsel and head of the Italian branch of Deminor. Founded in Brussels in 1990, this leading litigation funding company is also present in Milan, London, Hamburg, New York, Hong Kong, Madrid, Stockholm, and Luxembourg.
The European Commission is conducting a study on the state of litigation funding in different member states. What are your thoughts on this?
I view the European Commission’s approach positively, as it has decided to undertake a mapping of litigation funding across member states. A balanced regulation, capable of protecting the interests of all parties involved while fostering sector growth, must necessarily be based on a deep understanding of the interactions and dynamics between different stakeholders.
Could you remind us what litigation funding entails?
In general terms, litigation funding is an investment activity in which a party, commonly referred to as a litigation funder, assumes the cost of legal expenses for one of the parties involved in a legal proceeding. In return, the funder is entitled to a fee calculated as a percentage of any sums recovered in the event of a successful outcome. If the funded party loses the case, the funder bears the full economic risk, with no obligation for the client to repay the invested amount.
To what extent does litigation funding facilitate access to justice?
Litigation funding enables parties to initiate and sustain legal actions without bearing the full financial burden of legal expenses. Additionally, it provides an opportunity for more efficient cost and risk management associated with legal proceedings.
The concept of selling litigious claims is increasingly discussed. What does it mean?
The litigation funding sector is constantly evolving, offering increasingly sophisticated solutions to meet clients’ needs. One such example is the sale of litigious claims. This transaction provides an effective solution for companies seeking to monetize their compensation claims quickly, avoiding the lengthy judicial proceedings typical of the legal system.
What is the current regulatory and case law framework for litigation funding in Italy?
Currently, in Italy as well as across Europe, there is no specific regulation for litigation funding, which remains a relatively new phenomenon for most member states. However, over the past two years, at least two significant developments have occurred in Italy, both from a legislative and jurisprudential perspective.
What are these developments?
From a legislative perspective, on March 23, 2023, Legislative Decree No. 28/2023 was published, implementing Directive (EU) 2020/1828. This decree amended the Consumer Code by introducing regulations on representative actions to protect collective consumer interests. While it does not define or regulate litigation funding, the decree mentions it twice, recognizing its legitimacy. These references pertain to the obligation for associations to ensure independence and prevent conflicts of interest with litigation funders, as well as the inadmissibility of representative actions if the funder is a competitor of the defendant company.
What about the developments in case law?
In 2024, four significant rulings by the Court of Cassation confirmed the validity of litigation funding contracts through the transfer of litigious claims, even in the absence of the assignee’s registration in the register required by Article 106 of the Consolidated Banking Act (TUB), provided that the funder’s fee is contingent upon the successful recovery of disputed sums. The Supreme Court clarified that a financing agreement exists only when the assignee advances funds by paying for the credit at the time of transfer. If this condition is absent, as in the case of contingent fees, the purchase of litigious claims does not qualify as a financing transaction under the TUB. This stance marks a crucial step for the sector’s development in Italy, providing greater legal certainty for operators.
Returning to the Commission’s study, what aspects are being mapped?
The European Commission’s study focuses on the core aspects of the litigation funding sector. Specifically, the analysis examines existing regulations, often scattered across various legislative provisions, with particular attention to conflicts of interest. Special consideration is also given to operational practices and internal mechanisms adopted by litigation funders to manage such conflicts.
What other aspects of litigation funding are being analyzed?
The study also explores the types of cases funded, the areas of law involved — such as commercial law, consumer protection, and international arbitration — and the investment models used. Finally, the Commission’s inquiry examines case selection processes, contractual structures, and remuneration methods adopted by litigation funders to obtain a comprehensive overview of the sector’s dynamics.
What is Deminor’s contribution to this study?
We have shared our experience in collective actions and B2B litigation funding, providing details on investment strategies, case selection processes, and financial models used to balance risk and return. Additionally, we have outlined our approach to managing potential conflicts of interest, emphasizing transparency and fairness in contracts with clients. We have also highlighted the growing need among businesses, consumers, and public entities for solutions that enable more efficient dispute risk management and economic resource allocation. Finally, we reaffirmed our commitment to supporting a regulation that, while safeguarding all parties' interests, continues to promote the growth and innovation of the litigation funding market.
To read the original article (in Italian) on Legalcommunity here.
Written by:
Giacomo Lorenzo
Senior Legal Counsel
