First decision of the Liechtenstein Supreme Court bolsters litigation funding

The Liechtenstein Supreme Court chaired by Univ. Prof. Dr. Hubertus Schuhmacher for the first time addressed the admissibility of litigation funding in a proceeding conducted by our law firm.

In the underlying case, a holder of rights had assigned all of his receivables and claims for damages against a Liechtenstein trust company originating from a mandate relationship to a third party in return for a mere share in the possible future litigation proceeds and the third party subsequently asserted these claims in court in its own name.

The trust company subsequently argued, among others, that the agreement concluded between the claimant and the third party was illegal and void pursuant to § 879 ABGB, since it opposed a legal prohibition of assignment and violated the prohibition of quota litis agreements. The aim of the trust company effectively was to torpedo the proceedings by challenging the litigation funding agreement.

The lower courts already had stated that the contractual relationship between the claimant and the third party was an admissible and valid litigation funding agreement. Due to a further appeal of the trust company, the Supreme Court now for the first time was able to address the admissibility and validity of a litigation funding agreements under Liechtenstein Law.

In its decision, the Supreme Court in particular made the following statements and clarifications:

  • A litigation funding agreement is in principle admissible and valid under Liechtenstein laws.
  • Litigation funding may either be provided in the form of classic litigation funding without assignment of claims, or in the form of assignment of the entire claims and subsequent assertion of the claims in the own name and on the own account of the funder. A litigation funding agreement is a permissible underlying cause for an assignment.
  • In case of an assignment of claims, the payment of a purchase price is not necessary. The assignment of the claims therefore does not have to be made against payment. An agreement that the initial holder of the claims will receive a share in the future litigation proceeds is sufficient.
  • If claims are assigned, any legal or contractual prohibitions of assignment have to be observed.
  • Due to the normative purpose, the prohibition of quota litis agreements according to § 879 para. 2 no. 2 ABGB only applies to members of legal advisory professions. These are attorneys, notaries, trustees, tax advisors and auditors. In addition, the prohibition also applies to persons who carry out such activities without authorization.
  • However, the prohibition of quota litis agreements pursuant to § 879 para. 2 no. 2 ABGB is not applicable to litigation funders which are not active in legal advisory professions.
  • Finally the opponent is not entitled to obtain information about the funding conditions, in particular about the arrangements on the share of the proceeds of the litigation. The Supreme Court made clear that it is simply none of the opponents’ business, in which way a claimant funds his proceeding. According to the Supreme Court the conditions are simply irrelevant for a litigation. The conditions of a litigation funding agreement therefore do not have to be disclosed to the opponent even if the claims are assigned.

The decision of the Supreme Court grants the institute of litigation funding an important role and provides a high degree of legal certainty for this increasingly important area. The Supreme Court has clarified that litigation funding is a legitimate means of financing proceedings and that the claimant and funder are not forced to disclose the conditions of the funding agreement. The decision of the Supreme Court strengthens the position of both the initial holder of the claims and the funder and prohibits that the defendant torpedoes the proceedings and the assertion of the claims by attacking the funding agreement. This clear strengthening of the institution of litigation funding by the OGH is to be welcomed.

Our law firm acted as counsel for the claimant in this case and we regularly work together with various litigation funders.
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