The Landscape of Litigation Funding in France

This is the second article in Clyde & Co’s latest international arbitration series covering the topic of third-party funding (or litigation funding) across various international jurisdictions. In this piece, senior associate Sophie Bayrou and trainee Jeanne Le Bras from our Paris office provide the legal perspective from France.

Third-party funding has long been regarded with suspicion in France. The financing of legal actions by a third party has historically been more prevalent in common law countries such as Australia, the USA and the United Kingdom than in France.¹ This is perhaps due to the fact, that in France, unlike in many of the common law countries the costs of domestic proceedings are more accessible while punitive damages are prohibited.

It is through the development of international arbitration in France that third-party funding has progressively gained more ground and recognition. The possibility of international enforcement, the predictability of the arbitral timeframe and the likelihood of high amounts in dispute and potential returns all explain the substantial role played by international arbitration in the growth and internationalisation of third-party funding on the French market.² This is all the more true, as in the recent years, opting for international arbitration no longer ensures a quicker justice and does not necessarily allow for cheaper proceedings, driving arbitration practitioners and their clients to consider the many benefits to take legal costs of a dispute off their books and diverting the legal uncertainty to a third-party.³

Unlike other jurisdictions, France has adopted for a more “hands-off approach”, with no legislative guidance and relatively limited case law,⁴ leaving the various stakeholders of the sector to shape the contours of the applicable framework.  

1.   Litigation funding contracts are valid under French law

French courts initially acknowledged the validity of litigation financing contracts in a decision rendered on 1 June 2006 involving the enforcement of an arbitral award. The case turned on an unrelated issue but the Court of appeal of Versailles established that such contracts are of a "sui generis" nature, uncommon within European Union member states (except in Germany), but nonetheless legally sound and valid.⁵

French law and the French Civil Code do not address third-party funding per se, but French courts apply the usual French obligation and contract mechanisms to this distinctive type of contract. Further, they are not bound by the legal terms prescribed by the parties.

As such, French courts may reduce a contractually agreed fee if it is considered disproportionate or excessive in comparison to the services rendered. The French Supreme Court (“Cour de Cassation”) previously held that the agreement to pay a physical third-party person as a funder, thirty per cent of all net amounts recovered in an inheritance dispute could, in principle, be subject to a reduction by the courts if found to be disproportionate.⁶ In that case, the French Supreme Court quashed a decision by the Court of appeal of Versailles, which had refused to reduce the contractually agreed fee of thirty per cent. The French Supreme Court referred the matter to the Court of appeal of Paris, which ultimately reduced the remuneration to fifteen per cent, taking into account the relatively short duration of the proceedings and the limited scope of the service rendered by the funder.⁷ Although this case related to a non-professional third-party funder in an inheritance case, it still demonstrates that a litigation funder’s share of the damages may be diminished in the case of a successful claim.⁸

2.   The absence of legislation led to the development of initiatives and rules by concerned stakeholders 

There is no legislation (current or upcoming) in France dealing specifically with the issue of litigation funding – it is only subject to French general laws of obligations and contracts, as mentioned above.

Most of the upcoming regulations can be found at the European Union level. In September 2022, the European Parliament adopted a resolution on ‘responsible private funding of litigation’, where it “recommends the establishment of a system of authorization for litigation funders, thereby ensuring that effective opportunities are provided to claimants to make use of TPLF [third-party litigation funding] and that adequate safeguards are put in place”.⁹ The European Commission is yet to publish a reform proposal.

The lack of legislation prompted concerned stakeholders and practitioners to consider and elaborate rules.¹⁰ 

On 20 and 21 November 2015, the French National Council of Bars (“Conseil National des Barreaux”), issued a resolution encouraging the development and implantation of third-party funders in France, setting out practical guidelines, while reiterating the principle of the independence of the French “avocats” (lawyers) vis-à-vis the third-party funder.¹¹ 

In 2015, the Arbitration Commission of the Paris Bar created a working group. The working group presented its findings in February 2016. They contained an in-depth analysis of the industry together with the benefits of resorting to third-party funding,¹² while addressing the legal and ethical issues at stake:

• French lawyers are subject to an obligation of professional secrecy regarding the information and documents provided by clients. Communicating with a third-party about a client’s case amounts to a breach of the lawyer’s ethical duty and exposes the lawyer to disciplinary and criminal sanctions. As legal privilege is general, absolute and a matter of public order,¹³ a French lawyer may not be released of their obligation, even if the client expressly requests it. This means that the information and documents may only be communicated by the clients directly to the third-party funder;¹⁴   
• French lawyers have an obligation of loyalty and can only receive instructions from their clients, not from a third-party funder.¹⁵  

French lawyers must also maintain their independence.¹⁶ The absence of legislation led the Paris Bar Council to adopt a resolution on 21 February 2017 (the “Resolution”). The Resolution expressly endorsed third-party litigation funding, for the benefit of both litigants and lawyers, especially in international arbitration, while emphasising the importance for French lawyers to comply with their legal, ethical and professional duties and obligations.¹⁷ The Resolution also recommended (but did not require) disclosure of funding arrangements to arbitral tribunals to prevent potential conflicts of interest with the arbitral tribunals, in the sense of Article 1456 of the French Civil Code of Proceedings, and suggested to administer them through the CARPA (“Caisse Autonome des Règlements Pécuniaires des Avocats”) traditionally used to handle client funds.

3.   Current landscape of third-party funders in France

While the French market for third-party litigation funding is still smaller than its Anglo-Saxon or German counterparts, it has significantly grown over the last decade. Many funders have been active on the French international arbitration market for quite some time,¹⁸ with some funders having offices in Paris.¹⁹ French funding companies are also emerging,²⁰ with some companies funding mass "small-scale disputes" initiated by individuals, notably in consumer law.²¹ Investment management companies are also starting to look closely at the issue, with the launch of dedicated litigation finance funds focused on the French market.²²  

Many practitioners do, however, consider that the French “hands-off professional obligations-driven approach” and the absence of formal legislation on the matter, creates a degree of uncertainty which might prohibit the growth and development of third-party funding in France.²³ 

The next article in this series will cover the perspective from the UAE.

¹ Club des juristes, Report, ‘Financement du procès par les tiers’, June 2014, https://think-tank.leclubdesjuristes.com/wp-content/uploads/2014/01/CDJ_Rapport_Financement-proc%C3%A8s-par-les-tiers_Juin-2014.pdf. 

² Olivier Marquais and Alain Grec, 'Do’s and Dont’s of Regulating Third-Party Litigation Funding: Singapore vs. France', in Lawrence Boo and Gary B.Born (eds), Asian International Arbitration Journal, (© Kluwer Law International; Kluwer Law International 2020, Volume 16 Issue 1) p. 50.

³ Id. p. 66.

⁴ Id. p. 49.

⁵ Court of appeal of Versailles, 1st June 2006, n°05/010038.

⁶ French Court of cassation, 1st civil chamber, 23 November 2011, n° 10-16.770.

⁷ Court of appeal of Paris, 17 October 2012, n°11/22443.

⁸ M. De Fontmichel, ‘Les sociétés de financement de procès dans le paysage juridique français’, Rev. Sociétés 2012, para. 18.

⁹ European Parliament, ‘Responsible private funding of litigation’, Resolution, 13 September 2022, para. 6, accessible at https://www.europarl.europa.eu/doceo/document/TA-9-2022-0308_EN.html.

¹⁰ Club des juristes, Report, ‘Financement du procès par les tiers’, June 2014, accessible at https://think-tank.leclubdesjuristes.com/wp-content/uploads/2014/01/CDJ_Rapport_Financement-proc%C3%A8s-par-les-tiers_Juin-2014.pdf. 

¹¹ French National Council of Bars, Resolution ‘Financement du procès par les tiers’, dated 20 and 21 November 2015.

¹² Paris Bar, Report ‘Le financement de l’arbitrage par les tiers (« Third party funding »)’, 21 February 2017, pp. 6-7, accessible at https://www.avocatparis.org/conseil-de-l-ordre/rapport-sur-le-financement-de-larbitrage-par-les-tiers. 

¹³ National Regulations of the lawyer’s profession, Article 2.1

¹⁴ Paris Bar, Report ‘Le financement de l’arbitrage par les tiers’ Report (« Third party funding »)’, 21 February 2017, pp. 9-10, accessible at https://www.avocatparis.org/conseil-de-l-ordre/rapport-sur-le-financement-de-larbitrage-par-les-tiers. 

¹⁵ Id., p. 9. 

¹⁶ Id., p. 9.

¹⁷ Paris Bar Council, Resolution dated 21 February 2017, accessible at https://www.avocatparis.org/conseil-de-l-ordre/rapport-sur-le-financement-de-larbitrage-par-les-tiers. 

¹⁸ Paris Bar Council, Report, ‘Le financement de l’arbitrage par les tiers (« Third party funding »)’, 21 February 2017, pp. 2-3, accessible at https://www.avocatparis.org/conseil-de-l-ordre/rapport-sur-le-financement-de-larbitrage-par-les-tiers.

¹⁹ See for instance: https://www.prnewswire.com/news-releases/omni-bridgeway-expands-in-france-with-new-paris-operations-welcomes-leon-ioannou-301694954.html; Olivier Marquais and Alain Grec, 'Do’s and Dont’s of Regulating Third-Party Litigation Funding: Singapore vs. France', in Lawrence Boo and Gary B.Born (eds), Asian International Arbitration Journal, (© Kluwer Law International; Kluwer Law International 2020, Volume 16 Issue 1), footnote 42.

²⁰ A. Portmann, ‘Le third party funding prend-il en France ?’, LJA, February 2018, accessible at: https://www.lja.fr/lja-mag/eclairage/le-third-party-funding-prend-il-en-france-526009.php.

²¹ O. Akyurek and C. De Perthuis, ‘Third party funding: changement du paysage judiciaire’, Les Petites Affiches, 11 July 2018, p. 20, accessible at: https://www.actu-juridique.fr/civil/third-party-funding-changement-du-paysage-judiciaire/. 

²² See for instance: https://www.ivocapital.com/litigation-finance-2 

²³ Olivier Marquais and Alain Grec, 'Do’s and Dont’s ofRegulating Third-Party Litigation Funding: Singapore vs. France', in Lawrence Boo and Gary B.Born (eds), Asian International ArbitrationJournal, (© Kluwer Law International; Kluwer LawInternational 2020, Volume 16 Issue 1) p. 66.