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International Law
Reference:

Judicial investment (third-party litigation funding) and regional economic integration: in search of legal regulation

Chetverikov Artem

Doctor of Law

Professor, Integration and European Law Department, Kutafin Moscow State Law University (MSAL)

123001, Russia, Moscow, Sadovaya-Kudrinskaya str., 9

rossija-artem@rambler.ru
Other publications by this author
 

 

DOI:

10.25136/2644-5514.2023.2.40715

EDN:

ZGEDJX

Received:

05-05-2023


Published:

12-05-2023


Abstract: In the modern financial capitalism the growing number of private and public goods tend to become a profit-making commodity, i.e. financial asset (Ђfinancializationї & Ђcommodificationї). The latters do not leave aside the judicial protection of the rights and legitimate interests of citizens and legal entities. Nowadays, judicial and arbitration litigations represent abroad one of the most attractive areas of investment for potential investors. Judicial investment (third-party litigation funding) is also developing in Russia. The article examines the current state and prospects of legal regulation of judicial investment in the context of regional economic integration on the example of the proposal of the European Union (EU) Directive on the regulation of third-party litigation funding drafted by the European Parliament at the end of 2022 for the European Single Market. The research is based on historical and comparative legal methods in conjunction with other relevant scientific methods and an interdisciplinary approach. For the first time in Russian jurisprudence the article presents the appraisal of the prospects of legal regulation of judicial investment within the framework of regional integration organizations with common (single) market of goods, workforce, services, and capital. It is proposed to consider establishing standards for judicial investment at the level of the Eurasian Economic Union (EAEU), starting with third-party litigation funding of business disputes in common arbitration institute (ЂEAEU international arbitration tribunalї), the creation of which is being discussed by the EAEU Member States and legal community.


Keywords:

arbitration, mutual recognition, harmonizaton, EAEU, EU, integration, common market, justice, authorization system, judicial investment

This article is automatically translated. You can find original text of the article here.

"Third-party financing is usually defined as the consent of an entity ("third party financing") that is not a party to the dispute to provide funds or other material support to the party in dispute (usually the plaintiff or the law firm representing him) in exchange for remuneration, the amount of which depends on the outcome of the dispute"(United Nations Commission on International Trade Law [1, p. 2-3])

In modern society, the economic system of which is called "financial capitalism" in science, more and more personal and public goods are being turned into a commodity (financial asset) for purchase and sale, resale on stock exchanges, other financial markets for profit, including speculative.

"Three main characteristics of financial capitalism can be distinguished: firstly, a huge increase in the total value of financial assets circulating around the world, as a result of an increase in the number of financial instruments; secondly, the separation of the real and financial economies and the creation of fictitious financial wealth for the benefit of capitalist rentiers; thirdly, a significant increase in the rate of return of financial institutions that have become able to pay large bonuses to financial traders for the growth of capitalist rents." In such conditions, "everyday life is also being financed <...>, which leads to the commodification (transformation into a commodity) of social security, housing, pensions, higher education, medical insurance, etc." [2, pp. 163, 166].

The processes of "financialization" and "commodification" do not bypass such an area as the protection of the rights and legitimate interests of citizens and legal entities in judicial authorities, as well as in non-state justice bodies (arbitration courts, or arbitration). According to the calculations of the American financial news agency Bloomberg, reproduced in the materials of the Research Service of the European Parliament (the study "Responsible private financing of disputes: European added value" 2021), judicial and arbitration processes are today one of the most attractive areas of investment for potential investors, ahead of the profitability of investments in securities, real estate, lending and hedge funds [3, p. 7].

The result is the emergence of a new category of investment intermediaries Ц companies and funds specializing in commercial financing of expenses of potential plaintiffs (less often defendants) to initiate and conduct court and arbitration proceedings. Such financing from here is briefly called "judicial investment" [4].

According to the data provided in the above-mentioned materials of the Research Service of the European Parliament 2021, at the beginning of this decade in foreign Europe, the largest number of companies and funds of judicial investment were located in the UK (44), the Netherlands (24) and Germany (at least 13) [3, p. 8]. This number is gradually growing, as is the expected profitability of judicial investment. According to representatives of one of the French investment firms working in this area of business, "the financing of lawsuits in Europe (excluding the United Kingdom [Great Britain and Northern Ireland Ч Ed.], which represents today [in 2023 Ч Ed.] the potential of financing opportunities of about 0.9 billion. the euro should double within five years." Based on the average "success rate of slightly less than 50%" (about half of the funded cases are won), the firm estimates the profitability of its investments at "12-15% annually" [5].

And this is not the limit. The Standing Commission on Legal Issues of the European Parliament, with references to Dutch government sources, provides the following data: "In Europe, the rate of return for financing third parties can reach 300%, even 3000%" [6, p. 29]!

Of course, the matter is not limited to Europe alone. Australia is considered to be the ancestor country of litigation financing by professional investors, where the relevant types of firms have been operating since the 1990s. Since the 2000s, a significant increase in the scale of the litigation financing market by third parties has also been noted in the USA and Canada [3, p. 7; 7, p. 7-8].

The development of judicial investment raises a question (more precisely, a set of questions) about its legal regulation. Attempts at such regulation go far back in history. According to some modern researchers, the involvement of third parties in the financing of lawsuits probably took place in ancient Greece and Ancient Rome. And it was definitely practiced in the courts of medieval England, where representatives of the nobility "invested" money in other people's lawsuits not only for the purpose of extracting income, but also for the sake of weakening their rivals by defeating in litigation with someone else's hands [8, p. 57-59].

For a long time in England (Great Britain), other countries that emerged from the wreckage of the British colonial Empire and belong together with it to the Anglo-Saxon legal family (common law family), judicial investment was restrained by sanctified judicial precedents, and sometimes by parliamentary laws (for example, in the largest Canadian province of Ontario) the doctrines of Champerty and Maintenance, which prohibit conducting someone else's court case with obtaining part of the subject of the dispute or the amount of the claim in case of a win (English Champerty Ч "champerty") and legitimate support of one of the litigants (English Maintenance) [9, pp. 137, 477]. As indicated in the decision of one of the British courts, issued already in the middle of the XX century.:

"The reason for the application of the common law [prohibition Ч Author] Champerty is the abuse to which it can lead. The common law fears that a third party might try to overstate the amount of damages for their own personal gain, conceal evidence, or even force witnesses to give false testimony. These concerns may be exaggerated, but, one way or another, the law has recognized Champerty as illegal for centuries, and we have no choice but to comply with the law" [8, p. 61].

In the XXI century Ч obviously, not without the influence of modern realities of financial capitalism and the formation of the judicial investment market Ч legal obstacles to the financing of lawsuits are gradually being removed, although not to the same extent and not yet everywhere. Thus, the Swiss Federal Court legalized this financing as a manifestation of constitutionally guaranteed freedom of trade. Thanks to this decision of its highest court, Switzerland, according to the French Lawyers Club, has become a "haven for litigation financing companies" [7, p. 8].

Similarly, the Supreme Court of Canada, in its decision of May 8, 2020 in the Callidus Capital Corporation case (paragraphs 94-95), ruled that "agreements on the financing of litigation by third parties are not unlawful in themselves", for this purpose removing them from the scope of the doctrines on the prohibition of Champerty and Maintenance as follows:

"The approval of agreements on the financing of lawsuits by third parties has previously caused some controversy. These disputes partly stem from the likelihood that such agreements will damage the common law doctrines regarding Champerty and improper support of [one of the litigants Ч Author] (Maintenance). Legally punishable unlawful support means a ban on excessive interference in a case to which a person has nothing to do <...> Champerty is a kind of unlawful support, which includes the conclusion of an agreement on the division of the amount received or any other acquired profit within the framework of the won case <...> Lower courts have gradually come to recognize that agreements on the financing of the trial, as such, are not champerty. This evolution of [legal positions Ч Auth.] occurred, first of all, in the context of the consideration of class actions, becoming a reaction to obstacles, such as unfavorable decisions on the imposition of court costs, which hindered the parties' access to justice" [10].

Facilitating the filing of collective lawsuits in the interests of protecting the rights and legitimate interests of broad groups of individuals is not the only plus from the development of the judicial investment market. As in entrepreneurship (commercial credit), as well as in personal life (consumer credit), the opportunity to receive funds in advance for conducting cases in courts and arbitrations expands access to justice for all those who otherwise would not have had the opportunity (or would not have risked) to seek judicial protection.

However, one should not turn a blind eye to the disadvantages of judicial investment, which are summarized in the above-mentioned materials of the Research Service of the European Parliament as follows:

"The potential negative consequences of such third-party interference are that, if not properly regulated, it can lead to excessive economic costs and an increase in the number of arbitrary, problematic or unreasonable claims <...> ††It can also be used to achieve strategic goals by competing enterprises due to the fact that the money and time wasted on processes for unreasonable requirements, in some cases, can potentially still directly affect overall productivity and competitiveness <...> Some [judicial investors Ч Auth.] also concentrate only on cases where large sums can be won and there is a low risk of losing <...> Finally, the entities providing financing may demand excessive remuneration or enter into a conflict of interest with the plaintiff in the conduct or settlement of the case. A lawyer may also be in a potential conflict of interest with clients, since he usually receives his fees directly from the entity financing the trial" [3, p. 1].

No less serious is the threat of a conflict (conflict) of interests when third parties finance processes in arbitration instances with the granting of the disputing parties the right to independently choose the judges (arbitrators) of their dispute. "Situations that may lead to a conflict of interest," the United Nations Commission on International Trade Law notes in this regard, "include situations where arbitrators act as consultants to the financing parties and when the arbitrator or the arbitrator's law firm maintains a stable relationship with a third party providing financing in connection with proceedings involving this an arbitrator, and such an arbitrator or such a firm receives income as a result of these relations" [1, p. 6].

A serious conundrum is also the question of the legal qualification of the contract (contract), according to which an investment firm or another person provides financing for litigation. Having analyzed potentially possible qualification options based on the norms of the legislation of their country (in particular, loan and credit, insurance, simple partnership, assignment of the right of claim, games and betting, contract, assignment), the experts of the French Lawyers Club came to the conclusion that it is necessary to "consider the contract of financing the trial as a mixed contract (French contrat composite), combining the implementation of various actions in favor of the other party, which may relate to several typical special contracts: contract, assignment, assignment of the right of claim, risk contract, etc.", further noting that Ч based on the principle of freedom of contract enshrined in the Civil Code of France (as well as other countries, including Russia) Ч "the parties are free to design any internally agreed and unified contractual regime, starting from certain parts of the regimes of well-known special agreements of various nature" [7, pp. 12-13, 25-31].

Despite the above and other problems and risks, as well as concerns about the phenomenon of "commodification of justice", i.e. the transformation of judicial and arbitration procedures into an object of purchase and sale and market investment (from the English commodity - a commodity), modern foreign public thought tends to be positive assessment of the existence and further development of this phenomenon:

"Third-party financing is generally positively evaluated in the legal and economic literature, since it is a market-based solution that <...> opens access to justice by transferring court costs and risks from victims [persons defending violated rights in court or arbitration Ч Auth.] to the financing party in exchange for a share in the compensation awarded <...>

The possibility of applying for financing by third parties makes the human right to judicial protection available to individuals and organizations whose claims are able to be satisfied, but who cannot count on state [free Ч Auth.] legal assistance, providing them with the means to do this, whereas otherwise they would not have initiated legal proceedings because of the costs and risks associated with it" [11, pp. 273-274].

Similar arguments in support of judicial investment are expressed by foreign legal practitioners, as evidenced by the comments below by the Council of Chambers of Advocates and Law Societies of Europe dated May 13, 2022.:

"The practice of financing lawsuits by third parties <...> acts as a way to provide access to justice to parties who do not have sufficient means to protect their rights. The financing of lawsuits by third parties can ensure overcoming the imbalance [actual inequality in forces and means Ч Author] between the parties" of the proceedings [12, p. 2].†

It is obvious that the search for the optimal legal, including contractual, regime for judicial investment (financing of lawsuits by third parties), which is currently underway in various countries and legal systems, is a difficult task. Moving away from the prohibitive provisions of the past, States should not allow complete permissiveness, because not only the private interests of plaintiffs and defendants are affected, but also the public interests of society as a whole: the proper functioning of the justice system.

Currently, the legal regulation of judicial investment in the world is still in its "infancy" and mainly concerns arbitration dispute resolution, i.e. non-state justice (or even only international commercial arbitration).

At the legislative level, the rules of judicial investment and the requirements for potential judicial investors, including the minimum amount of authorized capital, are fixed, for example, in Singapore and Hong Kong (2017 amendments to the Law on Civil Law and Legislation on Arbitration and Mediation, respectively). In both cases, according to foreign commentators of these innovations, the underlying motive was the needs of global competition, namely, the desire of the authorities of Singapore and Hong Kong to increase the attractiveness of international commercial arbitration centers located there in comparison with similar arbitration sites in other jurisdictions. The rules on judicial investment have been extended in Singapore and Hong Kong to some other procedures in national courts (in particular, those related to mediation and enforcement of arbitration decisions), and in Singapore since 2021. they also apply to national arbitration [13-15].

The requirements concerning informing about the fact of the conclusion of an agreement for the financing of participation in litigation by a third party can also be found today in the regulations of international arbitration institutions (non-state acts by their legal nature). For example, according to the new version of the Arbitration Rules of the International Arbitration Court at the International Chamber of Commerce (Paris, France) effective from 2021, "each of the parties must inform the Secretariat, the Arbitration Tribunal and other parties as soon as possible about the existence and identity of any third party that has concluded an agreement with it on financing its claims or objections to claims on the basis of which this third party could have an economic interest in a certain outcome of the arbitration proceedings" (clause 7 of Article II "General provisions" of the Arbitration Rules) [16, p. 22].

In the context of the reform of international investment arbitration (the settlement of disputes between foreign investors and the authorities of the host State), the required rules are currently being developed by the United Nations Commission on International Trade Law [17-18]. In terms of disclosing information about financing entities, they are already contained in some bilateral investment agreements Ч for example, the Canada-Chile Free Trade Agreement, which entered into force in 2019, obliges the party receiving financing to disclose this fact at the time of filing a claim or at any subsequent time immediately after the conclusion of the financing agreement or receiving funds during the dispute proceedings [19, c, 9].

Among the acts of international soft law (model laws intended for voluntary application by States), the European Model Rules of Civil Procedure, developed in 2020 by the International Institute for the Unification of Private Law (Unidroit) together with the European Law Institute (hereinafter briefly the Rules), deserve mention [20].

According to the last article of the document (Part XII "Procedural expenses": Article 245 "Financing of proceedings by a third party and fees for the result") a party that receives funding from a professional investor or through a crowdfunding mechanism must initially inform the court and the opposing party about this. The agreement "must comply with applicable law and must not provide inadequate remuneration for the financing third party or allow it to exercise undue influence on the proceedings."

The possibility of attracting financial resources from third parties is also provided for by the Rules when filing collective (group) lawsuits. In this case, the Rules stipulate that the court may require the receiving group plaintiff to report elements of the content of the financing agreement that are relevant to the case under consideration (Section 4 "Procedural costs and financing of class actions" of Part XI "Class actions": Article 237 "Third party financing").

The nature of international soft law for judicial investors themselves has their Code of Conduct 2022, developed within the framework of the international non-governmental organization European Association of Subjects of Litigation Financing (English: European Litigation Funders Association) [21]. Similar acts of selfЧregulation operate at the domestic level in some countries where national alliances of judicial investors operate - for example, the English Code of Conduct for Subjects of Litigation Financing in 2018, addressed to members of the association uniting them [22].

A fundamentally new step in the development of a truly legal, and therefore legally binding, regulation of judicial investment (financing of litigation by third parties) is the recent initiative of the European Parliament, the legislative and representative body of the European Union (EU), to adopt supranational foundations of legislation in this area as an integral part of regional (in this case European) law of economic integration.

The primary basis of European economic integration is the common market of the EU member states (now 27), transformed at the end of the XX century into the "internal market" of the EU as a whole of a state-like nature (unofficial designation - the single European market), which "ensures the free movement of goods, persons, services and capital" (Article 26 of the Treaty on the functioning of the EU in 1957 as amended by the Lisbon Treaty of 2007) [23].

The creation of a single internal market served as a starting point, starting from which other integration projects of economic and other orientation are being implemented in the EU ("economic and monetary union" with a single monetary unit "euro", "space of freedom, security and justice", including the "Schengen space", "European research space", "European union of healthcare", etc.).

Among the newest integration projects of the EU economic integration, in particular, is the one being formed since 2012. The "union of capital markets", which involves the creation of a single legal framework for all providers and recipients of financial services in the EU on the basis of the fullest possible harmonization of national legislation on the status and conditions of exchanges, investment firms, insurance companies, non-state pension funds, operators of crowdfunding platforms, etc., increasingly developing into unification (replacement of national laws and by-laws of the unified regulatory legal acts of the EU) [24].

As it was noted earlier, currently in Europe (and not only there) there are more and more investment funds that specialize in judicial investment, in connection with which the Research Service of the European Parliament in the above-mentioned study "Responsible private financing of disputes: European value added" in 2021 concluded about the formation of the "European market financing of lawsuits by third parties" (English "European TPLF"; TPLF Ц third-party litigation funding) [3, p. 7]. At the same time, she stated that there is generally no regulation of judicial investment at the EU level, with the exception of the legally non-binding recommendation of the European Commission on the financing of class actions by third parties in 2013 and certain provisions of consumer protection legislation (Article 10 "Financing of consumer claims in order to take measures to restore violated rights" of Directive (EU) 2020/1828 of the European of the Parliament and the Council of November 25, 2020 "On representative claims in order to protect the collective interests of consumers" [25]), concerning, again, only collective claims, with the reservation "to the extent that this [financing by third parties Ч Auth.] allows national law" (some member States The EU continues to adhere to a prohibitive approach in this area) [3, pp. 1, 4, 15-17].

Based on the conclusions and proposals of its Research Service, the European Parliament decided to continue "not to wait for the weather by the sea" and push the European Commission (the main executive body of the EU and, at the same time, the official subject of legislative initiative at the European level) together with the EU member states, whose government representatives together form the second legislative body of the EU - the Council of the European union, to practical actions.

The result was the development by the European Parliament in the form of a "directive" of a draft framework legislative act of the EU, the provisions of which, if adopted, will be included in the normative legal acts of its member States. The legislative act is proposed to be called the Directive of the European Parliament and of the Council "On the regulation of the financing of litigation by third parties" (French. Directive du Parlement europ?en et du Conseil relative ? la r?glementation du financing des contentieux par des tiers; English. Directive of the European Parliament and of the Council on the regulation of third-party litigation funding; hereinafter briefly Ч the draft Directive). Together with the explanatory note, it was approved by the Resolution of the European Parliament of September 13, 2022 "On the recommendations of the Commission on Responsible Private Financing of litigation", published in the Official Journal of the European Union on April 5, 2023 [26].

What innovations can be expected from the financing of lawsuits by third parties in the EU if the draft Directive is adopted in the wording proposed by the European Parliament?

The first thing that attracts attention is the sectoral affiliation of the act, its place in the system of supranational legal regulation of the EU. The European Union has experience in harmonizing the procedural law of its member States - both civil and criminal proceedings Ч for example, Directive 2008/52/EC of the European Parliament and of the Council of May 21, 2008 "On certain aspects of mediation in civil and commercial matters" [27] or Directive (EU) 2016/343 of the European Parliament and of the Council dated March 9, 2016 "On strengthening certain aspects of the presumption of innocence and the right to participate in the trial of one's case in the framework of criminal proceedings" [28].

The Directive "On the regulation of the financing of litigation by third parties", however, is designed by the European Parliament not as an act of procedural law, but as a contribution to the development of European economic integration law, improvement of the legal regime of the EU single internal market.

Accordingly, the legal basis for the future Directive is proposed to choose not section V "Space of freedom, security and justice" of Part Three "Internal policy and activities of the Union" of the Treaty on the Functioning of the EU, but section VII of the same part "General rules on competition, Taxation and approximation of legislation". Specifically, we are talking about Article 114 of the Treaty on the Functioning of the EU, which gives the EU legislative authorities the authority to take "measures to bring together the legislative, regulatory and administrative provisions of the Member States that are devoted to the creation or functioning of the internal market."

†The first paragraph of the reasoning part of the preamble of the act also indicates that the draft Directive belongs to the EU economic integration law:

"Discrepancies in the rules and practices of the Member States can act as an obstacle to the functioning of the internal market. The lack of clarity regarding the conditions under which third parties financing litigation on a commercial basis (hereinafter referred to as Уfinancing third partiesФ) can act is incompatible with the normal functioning of the internal market <...> Differences in the legal framework existing in each individual Member State give rise to the risk of discrimination in access to justice between plaintiffs different member states, in particular, in cases with a cross-border element, as well as the risk that financing third parties will enter the race for the most favorable conditions ("forum shopping" [English search for a convenient jurisdiction Ч Author])."

Based on this logic, it would seem that the draft Directive should be limited to the regulation of financing by third parties only in international civil proceedings and (or) international commercial arbitration, i.e. in cases involving different Member States and cross-border economic relations.

However Ч and this is another fundamental feature of the act under consideration Ч there is no binding to cases complicated by a foreign (cross-border) element in the draft Directive:

"This Directive applies to third parties that finance litigation on a commercial basis (hereinafter referred to as "financing third parties"), and to third-party financing agreements on a commercial basis (hereinafter referred to as "third-party financing agreements"), regardless of the nature of the relevant cases";

"financing third party" means any commercial enterprise that enters into an agreement on financing by a third party in the framework of the procedure, although it is neither a party to this procedure, nor a lawyer or any other legal practitioner representing any party in this procedure, nor a provider of regulated insurance services in favor of any party in this procedure, and whose main purpose is to receive income from the investment that it carries out by providing financing under this procedure, or in obtaining competitive advantage in a certain market";

"'procedure' means any civil or commercial legal proceedings, national or crossЧborder, any voluntary arbitration procedure or any other dispute resolution mechanism through which an application for compensation in connection with a dispute is submitted to a court or administrative body of the Union [meaning any EU Member State and the EU itself - Auth.]";

"'court or administrative body' means a court, administrative body, arbitration instance or any other competent authority authorized to make a decision on the procedure in accordance with national law" (chapter I "General provisions" of the draft Directive: Article 2 "Scope of application", paragraphs "a", "c", "e" Article 3 "Definitions").

Thus, the draft Directive makes a conscious choice in favor of establishing for it the widest possible scope of application: national and cross-border cases, judicial and arbitration plus disputes considered by quasi-judicial instances in the structure of the executive branch of government (administrative bodies).

From a substantive point of view, the main innovation of the draft Directive is the introduction of mandatory licensing ("licensing system") for enterprises engaged in judicial investment:

"When third-party financing activities are permitted, Member States establish a licensing and monitoring system for the activities of third-party financiers on their territory. This system includes the appointment of an independent service or an independent control body with the authority to issue, suspend permits to financing third parties or revoke permits from them and monitor their activities" (Chapter II "Granting permits for the activities of financing third parties in the Union" of the draft Directive: paragraph 2 of Article 4 "Licensing system");

"Member States shall ensure that third-party financing agreements concluded with natural or legal persons who have not been authorized to act as a financing third party do not give rise to any legal consequences", i.e. are legally null and void (Chapter IV "Third-party financing agreements and activities of financing third parties" of the draft Directive: paragraph 1 of Article 14 "Invalid agreements and conditions").

Like other types of economic activity, for which a preliminary license is required (for example, licenses for commercial banks, investment firms, insurance companies), a permit issued in any EU Member State to engage in judicial investment must have the character of a European passport, which gives the right to engage in similar activities in the single European market as a whole:"Member States mutually recognize a permit issued to a financing third party in another Member State and, accordingly, automatically allow it to operate on their territory as long as the original permit remains valid" (paragraph 2 of Article 5 "Conditions for obtaining a permit" of the draft Directive).

Also, similar to other types of economic activity, the procedure for which is harmonized or unified in EU legislation, the prerequisite for the transformation of national permits for judicial investment into a European passport is the general rules laid down in the draft Directive for the issuance of permits for judicial investment and the activities of judicial investors. These are, in particular, the requirement for the availability of sufficient financial resources, including through risk insurance (which is especially important in case the funded person loses the case with the obligation to pay court costs) and the moral and ethical requirement for judicial investors to "act fairly, transparently and comply with the duty of decency, prescribing them to act in accordance with in the best interests of the plaintiff" (Chapter II "Granting permits for the activities of financing third parties in the Union" of the draft Directive: Article 6 "Adequacy of own funds", Article 7 "Duty of decency").

For the same purpose, the draft Directive includes harmonized rules for the functioning of regulatory bodies, including on the conduct of investigations and the handling of complaints against judicial investors, as well as rules for the interaction of such bodies among themselves under the auspices of the European Commission (Chapter III "Powers of control bodies and coordination between them" of the draft Directive).

Among the key legal innovations of the act under consideration, an attempt to create a legal regime for third-party financing agreements as a special type of contract should be highlighted (Chapter IV "Third-party financing agreements and activities of financing third parties" of the draft Directive). It 's about establishing:

on the one hand, mandatory rules regarding the essential terms of financing agreements (determining the types of expenses and costs covered by the financing third party, the amount of the share it charges from the amounts won, indicating that the financing third party does not have a conflict of interest, etc.);

on the other hand, the types of agreements or their individual provisions that are recognized as legally void throughout the EU (along with the above-mentioned agreements concluded with persons who have not received permission to engage in judicial investment in the prescribed manner, this includes, for example, agreements that provide for excessive remuneration for judicial investors in such a way that the party, who received funding from them, as a result, 60% or less of the amounts won remains).

There is also a ban on the termination of agreements by the financing third party unilaterally. Such termination is possible only with the consent of the court or the administrative body considering the case.

In order to better protect the rights of both plaintiffs and defendants in cases in which third parties provide financing, the draft Directive prescribes the disclosure of financing agreements to the competent court or administrative body considering the case, with the right of the court or administrative body, on the initiative of any party to the procedure or on its own initiative, to check the agreements for compliance with the Directive and national legislation. legislation (Chapter V "Verification by courts or administrative authorities" of the draft Directive).

Finally, according to the last article of the mentioned chapter, which completes the main part of the draft Directive (the following chapter VI is the "Final Provisions"), plaintiffs who have received funding from a third party are guaranteed payment at the expense of the latter of court costs in case of loss of the case, and the defendants, respectively, compensation for the costs incurred:

"When the plaintiff does not have sufficient funds to pay the expenses of the opposing party, Member States shall ensure that the courts or administrative authorities have the right to impose the payment of expenses on the financing third parties jointly or jointly with the plaintiffs in the event of an unsuccessful outcome of the procedure. In such a case, the courts or administrative authorities may require the financing third parties to pay all relevant expenses of the opposing party" (Article 18 "Liability for expenses of the opposing party" of the draft Directive).

Legal regulation is never perfect, especially if Ч as in the case of judicial investment Ч we are talking about attempts to create it almost "from scratch". Controversial provisions, weaknesses, and problem areas are also present in the draft Directive of the European Parliament and the Council "On the regulation of the financing of litigation by third parties".

First of all, as stated in Article 1 "Subject and purpose" of the draft Directive, it contains only "minimum rules" (=is an act of minimal harmonization), i.e. it does not prevent EU Member States from establishing stricter requirements and restrictions for judicial investment in national law.

Consequently, a truly common legal framework in this area is not being created, and judicial investment enterprises will operate in different parts of the single European market in different conditions, depending on whether (and if so, what) additional regulations will be introduced by the legislation of a particular EU country.

As a result, there may be a situation similar to the one that exists today with regard to the regulation of EU investment funds, where a number of European legislative acts devoted to them remain acts of minimal harmonization for the time being. As noted in this regard in the special report of the European Court of Auditors 2022 with the eloquent title "Investment funds: despite the EU's measures, investors do not yet use a truly single market", in about half of the EU member states, national legislation establishes stricter rules than those introduced at the EU level as a whole.

Member states that simply rewrite the minimum rules of the EU directives into national legislation, therefore, have a "competitive advantage as a country of placement" of investment funds compared to those that "apply more stringent standards". This situation "strongly pushes the investment fund sector to seek more favorable conditions for itself, which entails distortions of competition." Hence the conclusion of the European Court of Auditors, which can also be attributed to the financing of litigation by third parties Ч professional investors:

"We state that the same rules in the form of regulations [European laws of direct effect, the provisions of which replace national laws, and are not transformed into their texts, like the European bases of legislation =directives Ч Auth.], would be more suitable for creating fair competition conditions in the EU" [29, pp. 20-21].

Perhaps the draft Directive also shows excessive caution when deciding on the legalization of the institution of judicial investment itself, the answer to which is left to the discretion of each EU member state separately:

"Member States may determine, in accordance with national law, whether third-party financing agreements can be offered in the framework of procedures proceeding in their jurisdiction in favor of the plaintiffs or the intended beneficiaries residing in their territory" (paragraph 1 of Article 4 "Permitting system" of the draft Directive).

It turns out that a permit for judicial investment obtained by an enterprise in one EU member state and, in principle, being a European passport recognized everywhere in the EU (see above), will actually be valid only in those of its member states that have opted for the legalization of judicial investment, and only in those types of procedures where the interested Member State allows it (in Member State A, these may be some procedures, in Member State B, others, and in Member State C, the financing of litigation by third parties may continue to be prohibited entirely).

The preservation of the mosaic of national legal approaches (to allow Ч not to allow, to be limited by the EU minimum rules Ч to introduce stricter requirements) is difficult to reconcile with the general vector of development of international integration aimed at the formation of a single economic and legal space of the member states of the integration association.

However, the noted weaknesses may well act as a conscious political concession in order to gain support for the draft Directive from the member states, without votes "for" which it, like other EU bills, will not be able to become law (according to the rules of the usual EU legislative procedure, the legislative act must be approved in an identical wording by the European Parliament and the Council of the European Union The Union, consisting of representatives of national governments; in the latter today, the support of a qualified majority of national ministers is sufficient, defined as "55% of the Council members, including at least fifteen of them representing Member States in which at least 65% of the Union's population is concentrated": paragraph 4 of Article 16 of the 1992 EU Treaty. as amended by the Lisbon Treaty of 2007).

In this case, leaving a wide room for maneuver in the draft Directive of the member states can be considered as a manifestation of the strategy of "small things" characteristic of the entire process of European integration: to start with narrower areas, more cautious (possibly minimal) rules, in the future - based on the accumulated experience Ч gradually move to tougher scenarios regulation in the direction of strengthening economic and legal unity up to full legislative unification.

The draft Directive is not free from criticism in other aspects. Perhaps the most controversial and therefore deserving of the most thorough discussion is its key innovation: the introduction of a licensing regime ("permitting system") for enterprises engaged in judicial investment, while prohibiting other persons from engaging in such activities under the threat of invalidation of agreements concluded with such persons on the financing of litigation (see above). At the same time, according to Article 5 "Conditions for obtaining a permit", the financing third party must be located "in one of the member states", i.e. exclusively on the territory of the EU. According to European lawyers Ч opponents of such a model of regulation:

"The obligation to have a permit and have its location in one of the member states for the financing of legal proceedings in Europe [meaning the EU - Auth.] automatically makes it impossible to apply to nonЧEuropean financing entities. Ultimately, such regulation may encourage the parties to appoint arbitration proceedings outside the Union in order to have more freedom if necessary to finance possible legal proceedings. Such regulation over time may also limit the attractiveness of Europe in the eyes of specialized investment funds" [30].

However, if we apply a similar logic to other areas of legal regulation, it turns out that states and regional integration associations with supranational powers, such as the EU or the Eurasian Economic Union, should completely abandon the introduction of new social, environmental, and other mandatory requirements for participants in public relations, including business representatives? After all, in this case, the latter can "escape" to other jurisdictions and legal systems where legal requirements are more lenient or not at all. Is not such a minimalist approach equivalent to the rejection of the development of law, which by definition means the introduction of generally binding rules of conduct, prohibitions, restrictions for the sake of increasing the common good?

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Whatever the fate of the draft Directive of the European Parliament and the Council "On the regulation of the financing of litigation by third parties", its appearance already indicates the possibility of using integration mechanisms to regulate this actively developing business sector.

Judicial investment (financing of lawsuits by third parties) is practiced today in Russia and other member states of the leading integration organization in the post-Soviet space Ч the European Economic Union (EAEU).

Isn't it time to start practical work towards developing a uniform legal framework for judicial investment within the framework of the emerging "common (single) market" of the EAEU, including the "single market of services" with "freedom of trade in services, institutions, activities and investments within the Union", as well as the "common financial market" (art. 2, 65, 70 of the EAEU Treaty, Annexes No. 16 and No. 17 to the EAEU Treaty Ч Protocol on Trade in Services, Establishment, Activity and Implementation of Investments and Protocol on Financial Services)?

The first step in this direction could be the regulation of financing by third parties when considering business disputes within the framework of the general arbitration institute ("international arbitration of the EAEU"), the creation of which has been discussed in recent years by its member states and the legal community [31].

Without seeking to thoughtlessly copy the experience of foreign states and integration associations, we could well use their useful developments, among which the most extensive, comprehensive, ambitious is the projected European Directive "On the regulation of the financing of litigation by third parties", to which this article is devoted.

The research was carried out within the framework of the strategic academic leadership program "Priority Ч 2030"



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