GERMANY Law and Practice Contributed by: Tanja Pfitzner, Fabian von Schlabrendorff and Niklas-Arne Hecht, Pfitzner Legal
concludes the financing agreement with their cli- ent, and the client instructs an attorney so that the funder and attorney have no contractual relationship with each other. Except in the case of Representative Actions (see 2.2 Third-Party Funding: Lawsuits and 3.7 Representative or Collective Actions ), there is no obligation to dis- close a funding arrangement in court. One particular variant of third-party funding, used primarily by legal technology companies such as online platforms and service providers that do not finance legal disputes in the con- ventional sense, involves having their customer’s claims assigned to them and then asserting them in court in their own name and at their own risk. In the event of success, the customers receive a certain percentage of the sum awarded. In 2023, the first distressed finance model litiga- tion funding was publicised, in which a lawsuit for the reassignment of company shares was financed, which, if successful, results in the litigation funder taking a share in the company. Such a model can also be applied, for example, to real estate. 2.2 Third-Party Funding: Lawsuits The Federal Court of Justice has classified the profit sharing of litigation funders in profit absorption actions as an abuse of law. Other- wise, there are currently no restrictions on third- party funding for individual actions. Therefore, in general, all types of lawsuits are available for third-party funding. However, there is a limitation to the Model Declaratory Action and the new Redress Action (see 3.7 Representative or Collective Actions ). The new law allows third-party funding for these Representative Actions, but sets rather strict requirements. If the requirements are not met,
the Representative Action will be dismissed. A third-party funder must not be a competitor of the defendant or in any way dependent on the defendant. In addition, the third-party funder’s share must not exceed 10% of the compen- sation awarded. The qualified entity plaintiff is obliged to disclose the origin of the funds to finance the Redress Action as well as any agree- ments with the third-party funder. 2.3 Third-Party Funding for Plaintiff and Defendant Third-party funding is available to both plaintiffs and defendants. 2.4 Minimum and Maximum Amounts of Third-Party Funding There is no limit on the amount a third-party funder can provide. De facto, however, some litigation funders only provide funding above a certain minimum amount in dispute. 2.5 Types of Costs Considered Under Third-Party Funding Third-party funding can cover all fees and expenses, including costs of legal representa- tion and court fees. In addition, the agreements can include any costs of the other party to be borne by the funded party if it loses the case. 2.6 Contingency Fees A contingency fee in litigation that transfers part of the proceeds to the attorney may be agreed: • for (attachable) monetary claims up to EUR2,000; • in summary proceedings for a payment order; • in enforcement proceedings; or • in individual cases if the client’s financial circumstances prevent them from litigating without agreeing a contingency fee.
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