The boss of one of Europe’s leading litigation funders has warned that proposals to cap fees from successful cases would ‘kill’ large parts of the collective action market.

Erik Bomans, chief executive of international funder Deminor, told the Gazette that a regulation proposed by the European Parliament would be ‘dangerous’ if turned into law.

A report from German MEP Axel Voss this year recommended a fully regulated litigation funding industry with a 40% cap on the amount funders can take from damages and rules about claimants telling the court if they are supported by external funding.

The parliament officially adopted his report in June and called on the European Commission to act on the recommendations within it.

While the US and UK has been quick to embrace litigation funding – and reluctant to regulate it – continental Europe has been more concerned. Bomans said the industry was prepared for regulation and happy to discuss how that might work in practice, but was adamant that caps should not be placed on the amount funders can secure.

‘Proposing that litigation funding would be capped at a certain level is dangerous,’ he said. ‘A lot of cases will not be funded. A litigation funder takes a lot of risk and when you start the case you don’t know what the total investment is going to be. The defendants will push up the cost tremendously by delaying the case and use all possible crazy arguments to have those cases struck down.

‘If you tell someone in advance there is a maximum it will limit the funder’s commitment. If you are in the middle of a case we are asked to fund until the end but then you cap the fees, there is clearly a problem and you kill our cases. Nobody will fund these cases anymore – it is finished. It is extremely dangerous for the industry if it is as proposed.’

Bomans suggested there was a ‘poor understanding’ of the industry and said no attempt had been made by MEPs to talk with those funding group actions. There were ‘a lot of similarities’, he added, between the Voss report and the arguments made by the US Chamber of Commerce, which is vehemently opposed to litigation funding and has lobbied against it.

Erik Bomans_Deminor

Bomans: 'Proposing that litigation funding would be capped at a certain level is dangerous'

Addressing some of the criticisms, he acknowledged there may be times when client and funder interests about settling a case are not aligned, but he denied there was ever any pressure applied to take an offer.

‘It is not the litigation funder who decides – we can facilitate and obviously we may have a preference for settlement but if the consumers don’t like it there will be no settlement – it is as simple as that.

‘In all our contracts the client decides. In large group actions we need a majority of more than 70% to approve a settlement. In reality people act rationally and are represented by counsel and lawyers – in fact there is just the same alignment issue between lawyer and client [about when to settle].’

He added that consumer interests were also protected by the courts and the scrutiny from judges about the amounts due to funders.

Bomans also suggested that any increase in interest rates could benefit the funding industry as investors seek to broaden their portfolio and look for something that is not affected by the markets.

‘There is this one characteristic of litigation funding which is something that investors are looking for. Litigation funding is not cyclical and is independent of the stock market. Long-term investors typically like that and it gives them a diversification of return.’