First decision of the Princely Supreme Court strengthens litigation funding
In proceedings conducted by our law firm and chaired by President Univ. Prof. Dr. Hubertus Schuhmacher dealt with the question of the admissibility of litigation funding for the first time.
In the underlying case, a claimant assigned all of his claims and claims for damages arising from a contractual relationship with a Liechtenstein trust company to a third party in return for a share in any future litigation proceeds, and the third party subsequently asserted these claims in court in its own name.
The trust company subsequently argued, among other things, that the contract concluded between the claimant and the third party was immoral and void pursuant to Section 879 of the Austrian Civil Code (ABGB), as there was a prohibition of assignment on the one hand and a violation of the prohibition of quota litis on the other. The aim of the trust company was to torpedo the process by attacking the financing agreement.
The lower courts were already of the opinion that the contractual relationship between the claimant and the third party was a permissible and effective litigation funding agreement. Following an appeal by the trust company, the Supreme Court has now been able to rule for the first time on the admissibility and validity of litigation financing agreements.
In its decision, the Supreme Court ruled the following in particular:
- A litigation financing agreement is generally permissible and valid under Liechtenstein law.
- Litigation financing can take the form of classic litigation financing without taking over the claims, as well as in the form of taking over the entire claims and then asserting the claims in your own name and for your own account. The litigation financing agreement is a permissible underlying transaction for an assignment.
- If the claims are accepted, it is not necessary for a purchase price to be paid. The transfer of claims therefore does not have to be for a fee. It is also sufficient for it to be agreed that the original claimant will receive a share of the future proceeds of the proceedings.
- If the claims are taken over, any statutory or contractual prohibitions on assignment must be observed.
- Due to the purpose of the provision, the prohibition of quota litis pursuant to Section 879 para. 2 no. 2 ABGB only applies to members of the legal advisory professions. These are lawyers, notaries, trustees, tax consultants and auditors. In addition, the ban also applies to persons who carry out such activities without authorization.
- However, the prohibition of quota litis pursuant to Section 879 para. 2 no. 2 ABGB does not apply to litigation funders who are not active in the legal advisory professions.
- Finally, the defendant has no right to receive information about the financing conditions, in particular about the agreement on the division of the proceeds of the proceedings. The Supreme Court clarified that it is simply not up to the defendant how a plaintiff finances its proceedings. According to the Supreme Court, the terms of the financing are irrelevant to the legal dispute. The terms of a litigation funding agreement therefore do not have to be disclosed to the opponent, even if the claims are assigned
The Supreme Court’s decision assigns an important role to the institution of litigation funding and brings a high degree of legal certainty to this increasingly important area. The Supreme Court has clarified that litigation financing is a legitimate means of financing proceedings and that the claimant and the financier are not obliged to disclose the terms of the financing agreement. The Supreme Court’s decision strengthens the position of both the claimant and the financier and prevents the defendant from torpedoing the proceedings and the assertion of claims by attacking the financing agreement. This clear strengthening of the institute of litigation funding by the Supreme Court is to be welcomed.
Our law firm acted as counsel in the case and regularly works with various litigation funders.