Sweden: Litigation Funding Comparative Guide

1 Commercial legal finance basics

1.1 How is commercial legal finance defined in your jurisdiction?

There is no specific definition of ‘commercial legal finance' or ‘third-party funding' under Swedish law. It is generally understood as an agreement whereby a third party pays attorneys' fees and other costs relating to legal proceedings in exchange for remuneration which is payable only in case of a favourable outcome.

1.2 How does commercial legal finance differ from consumer litigation finance and contingency agreements?

Consumer litigation finance by established professional funders is basically available only for bundled group claims on the Swedish market. Under Swedish law, a funder may acquire and bundle consumer claims to pursue them in its own name, which requires that the funder enters into agreements with consumers on an individual basis. The current group actions statute (opt-in regime) does not set out any explicit mechanism under which a third-party can provide financing in return for a part of the recovery. However, in a 2022 governmental report, it was proposed that the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers should be implemented in Sweden partly through a new statute which should include such a mechanism.

Under the rules of the Swedish Bar Association, contingency fees are generally not allowed, except in extraordinary circumstances. Even if such circumstances may involve representing collective interests in a group action, Swedish lawyers are reluctant to work on a contingency fee basis and group actions have historically been very rare.

1.3 What are the major legal finance products/solutions in your jurisdiction? (a) Single case fees and expenses; (b) Portfolio fees and expenses; (c) Monetisation of claims; (d) Monetisation of judgments and awards and (e) Other

Single case fees and expenses.

1.4 In what areas of law is litigation finance most prevalent in your jurisdiction (eg, competition, insolvency, patents, contracts)?

Litigation finance is rather new in Sweden and statistics on the most common areas of funded cases are not available. However, Swedish funders usually contemplate investments in any and all areas of law.

1.5 Who are the major players in the industry (eg, pure players, multi-strategy firms, start-ups)?

Pure players. Funders with local presence include Kapatens, Therium and Litigium.

2 Legal framework

2.1 How mature is the market for legal finance in your jurisdiction? What types of commercial litigations and/or arbitrations may be funded by a third party?

The market for legal finance is in an early phase in Sweden, but it is growing fast. Any litigation or arbitration in Sweden may be funded by a third party.

2.2 Is there a dedicated legal finance regime in your jurisdiction? What other laws and regulations have relevance to legal finance in your jurisdiction?

No, there is no dedicated legal finance regime and legal finance is not specifically regulated in Sweden. It has been proposed that the future implementation of the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers should include an explicit third-party funding mechanism provided for under statutory law (implementation is scheduled for mid-2023).

2.3 Which public sector bodies and authorities are responsible for enforcing the applicable laws and regulations? What powers do they have?

No public sector body or authority is specifically dedicated to monitoring funders. However, funders may:

• be registered as a financial institution with the Swedish Financial Supervisory Authority; and
• seek a permit as a debt collecting company from the Swedish Authority for Privacy Protection.

2.4 Do the rules and codes of any self-regulatory organisations or professional associations have relevance to legal finance in your jurisdiction? What powers do such organisations and associations have?

There are no self-regulatory organisations or professional associations for legal finance in Sweden.

2.5 What is the general attitude towards legal finance in your jurisdiction among the courts and other relevant bodies?

Neutral.

2.6 Is legal finance considered consumer credit and is it captured by the relevant protective regulations in your jurisdiction?

Legal finance would presumably not be considered consumer credit (if provided on a non-recourse basis), but this issue has not been tried by the courts. General consumer protection laws will apply in case of consumer litigation finance.

3 Other risk-sharing models available to litigants and law firms

3.1 Are conditional (contingent or success) fee agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Contingency fees are not prohibited under Swedish law. However, members of the Swedish Bar Association are generally not allowed to provide services under a contingency fee arrangement, except in extraordinary circumstances. As dispute counsel are usually Bar members, contingency fees are rarely used in disputes in Sweden. Conditional fee arrangements (not providing for a share of the recovery, but with an uplift conditioned on success) may be allowed to the extent deemed reasonable.

3.2 What is the maximum contingency that is permitted (ie, up to 100% of hourly fees or something less)? Is there a cap on the amount of success fees lawyers can receive under such arrangements?

Contingency fees are generally not allowed under the Swedish Bar rules, whereas conditional fee arrangements may be used if the uplift is deemed reasonable. There is no specific cap.

3.3 Are damages-based agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Please see questions 3.1 and 3.2

3.4 What other funding and/or risk-sharing options are available to litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Legal expense insurance is widely available but is usually capped at quite low levels not sufficient for large and/or complex disputes. After-the-event insurance, adverse judgment insurance and other more sophisticated products are not available.

3.5 Are law firms in your jurisdiction allowed to have non-lawyer owners or non-lawyer shareholders?

Law firms regulated by the Swedish Bar Association cannot have non-Bar members as owners or shareholders. Other less established law firms not regulated by the Swedish Bar Association may have any persons as their owners or shareholders.

3.6 How do the available funding and risk-sharing options impact on the attitudes of corporate litigants about affirmative recovery programmes or the pursuit of high-value commercial claims more generally?

Interest in legal finance by blue-chip companies is increasing, albeit from a low level.

3.7 How do the range of funding and risk-sharing options available impact on the attitudes of law firms about their own business?

Swedish law firms' awareness of the potential positive impact of legal finance on their business is steadily increasing. Dispute attorneys and insolvency practitioners are seeking new ways to take on matters using legal finance.

4 Collective actions

4.1 Is it possible to bring collective actions in your jurisdiction? If so, can they be funded by third parties? In those circumstances, how is the amount of the funder's return determined? Are there caps or other restrictions? Do such agreements require court approval?

Collective actions may be sought under the Group Proceedings Act. However, this act does not provide for an explicit third-party funding mechanism and any litigation financing agreement must be entered into on an individual basis. However, it has been proposed that the future implementation of the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers should include an explicit third-party funding mechanism provided for under statutory law (implementation is scheduled for mid-2023). The funder's return would then be agreed between the group representative and the funder. No caps or other restrictions apply, other than what follows from the EU directive.

4.2 How significant is the funding of collective actions in your jurisdiction relative to the use of legal finance by individual commercial litigants?

As the Group Proceedings Act provides for an opt-in regime and as there is no explicit funding mechanism, the funding of collective actions is non-existent. Please also see question 1.2 regarding bundling of claims pursued by a funder.

5 Securing financing

5.1 What factors will a funder generally consider when evaluating whether to fund a case?

A funder will generally consider:

• the merits;
• quantum;
• the legal budget to likely recovery ratio;
• the time to recovery;
• collectability/enforcement;
• the experience of counsel;
• the reputation of the party seeking funding; and
• other factors.

5.2 What should a litigant or litigant's counsel look for in a legal finance partner?

Before engaging a legal finance partner, it may be advisable to review:

• the funder's company structure and where it is incorporated;
• its management's level of experience;
• whether and how the funder is under control or regulated by authorities;
• its access to capital;
• its speed of due diligence;
• its flexibility regarding the structure and price of funding; and
• how much control the funder demands over the case.

5.3 What is the typical process for concluding the legal finance agreement?

An indicative offer is usually presented at an early stage, after which the parties will enter into a conditioned funding agreement, which is subject to the approval of the funder's investment committee. After signing of the funding agreement, the funder will conduct its due diligence.

5.4 What terms does the legal finance agreement typically include?

A Swedish legal finance agreement typically includes clauses dealing with:

• the finance amount;
• the risk of adverse costs;
• the timeframe for and structure of pay-outs under the agreement;
• the level of control over the case (including settlement);
• the recovery waterfall;
• termination; and
• boilerplate clauses relating to issues such as confidentiality and dispute resolution.

In general, the agreement involves similar terms and conditions as are found in other markets, but may be considerably shorter than what is often the case in common law jurisdictions.

5.5 Do any caps apply to the funder's fees?

No.

5.6 Can the funder terminate the legal finance agreement before the litigation has ended? If so, under what circumstances and what are the implications?

The parties to the legal finance agreement are free to agree on the termination rights as they wish – no general restrictions apply under law or other regulation.

5.7 Under what circumstances (if any) must funding be approved by the court in advance?

There is no requirement for funding arrangements to be approved by the court in advance.

5.8 Have there been notable disputes arising from legal finance agreements, and if so, what can a litigant or counsel do to avoid such disputes?

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has stated that there has been one arbitration under the SCC rules regarding a legal finance agreement. No details of the case have been disclosed and there is no public information that other disputes relating to such agreements have emerged.

5.9 Is the funder bound to fund any counterclaims arising from the funded litigation?

No, the parties to the legal finance agreement are free to contract as they wish.

6 Purchasing a litigation claim, judgment or award

6.1 Can the funder purchase legal claims?

Yes, a debt collection permit may be issued by the Swedish Authority for Privacy Protection.

6.2 How does a funder purchase a claim out of an insolvency?

By entering into a claim purchase agreement with the receiver.

6.3 Are final judgments and/or mere causes of action assignable in your jurisdiction and is there a regulatory framework governing this?

Yes, final judgments and mere causes of action are assignable. There is no regulatory framework for such assignments.

7 Role of the funder

7.1 Can the funder influence the litigant's choice of counsel?

The parties to the legal finance agreement are free to contract as they wish. However, funders will be very restrictive in suggesting alternative counsel (if ever) if the litigant already has legal representation.

7.2 Can the funder attend and/or participate in the court proceedings?

Yes.

7.3 Can the funder influence the acceptance or terms of a proposed settlement agreement?

Yes. However, under the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers (if applicable), such influence may not be unduly exercised.

7.4 In what other ways can the funder participate in, and exert influence on, the litigation?

The funder can exercise any and all influence provided for under the legal finance agreement. However, the funder will not enter into any relationship with the litigant´s counsel, who will take instruction from the client only.

8 Ethical considerations

8.1 In what circumstances (if any) is it necessary to disclose a legal finance agreement to the court or to the opposition? What specific information must be disclosed?

There are no disclosure requirements regarding the legal finance agreement. In Stockholm Chamber of Commerce (SCC) arbitrations, the parties are encouraged to disclose the identity of any third-party funder.

8.2 Are communications between the parties to the legal finance agreement subject to privilege in your jurisdiction?

The common law doctrine of privilege does not apply in Sweden. Communications involving counsel are generally protected under the rules of professional secrecy. Further, US-style discovery is not allowed in Sweden, which provides for limited disclosure only. For a court to order the production of documents, such documents should generally be of legal and evidentiary relevance for the requesting party's case as presented to the court; in principle, this will not apply to any communications between the parties to the legal finance agreement (unless the agreement as such is the subject matter of the dispute).

8.3 Does the rule of attorney work product apply to documents generated for the purposes of securing legal finance in your jurisdiction?

The common law attorney work product doctrine does not apply in Sweden. However, documents produced by an attorney are generally protected under the rules of professional secrecy. Further, US-style discovery is not allowed in Sweden, which provides for limited disclosure only. For a court to order the production of documents, such documents should generally be of legal and evidentiary relevance for the requesting party's case as presented to the court; in principle, this will not apply to any communications for the purposes of securing legal finance.

8.4 In what circumstances (if any) do rules about fee-splitting impact on the use and practice of legal finance?

Members of the Swedish Bar Association are not allowed to split fees with non-Bar members.

8.5 Do the doctrines of champerty and maintenance apply in your jurisdiction?

No, the doctrines of champerty and maintenance do not apply under Swedish law.

8.6 Are there any types of proceedings (family, private prosecutions) for which funding is not permitted?

No, there are no limitations as to which types of proceedings that may be funded.

9 Proceedings

9.1 What is the typical timeframe for first-instance proceedings in your jurisdiction?

Approximately 18 months.

9.2 What are the opportunities in the litigation process for a case to be struck out prior to a trial?

Limited; only if and when a claim is deemed to be manifestly without merit or considered frivolous.

9.3 How much party discovery of evidence is permitted in your jurisdiction? Are there procedures for seeking or compelling evidence from non-parties?

Sweden does not have US-style discovery; Swedish discovery may be compared to the level of discovery and production of documents available in international arbitration. For a court or tribunal to order the production of documents, such documents should generally be of legal and evidentiary relevance for the requesting party's case as presented to the court or tribunal. Discovery requests may also be filed against third parties.

9.4 Are interlocutory appeals (appeals of non-final judgments) permitted during proceedings in the first instance?

The main rule is that non-binding decisions rendered during first-instance proceedings may only be appealed together with an appeal of the final judgment.

9.5 Are first-instance decisions commonly appealed in your jurisdiction? What is the typical timeframe for appeal proceedings?

For an appellate court to take on a matter, leave to appeal must be granted, which is usually the case in commercial matters. The timeframe for appeal proceedings varies depending on the case, but generally a judgment is rendered within one or two years of appeal.

9.6 How are decisions typically enforced in your jurisdiction? What is the typical timeframe for enforcement proceedings?

Judgments in Sweden are enforced by the Swedish Enforcement Agency. The timeframe for enforcement proceedings varies significantly (in less complicated matters, one to two months may be expected).

9.7 Is there an automatic stay on enforcement pending appeal or under what circumstances is one granted? Are appeals from first instance granted as of right?

There is no automatic stay on enforcement pending appeal. However, the losing party can apply for a stay, which is generally granted subject to the posting of security.

10 Costs and insurance

10.1 Will the court order the losing party to pay the costs of the winning party? How else might costs be allocated between the parties and under what conditions?

In Sweden, the English rule/‘loser pays' rule applies. If a party partially wins and partially loses, the court will award costs accordingly.

10.2 Are some or all of the costs of funding recoverable by the winning party?

There is no settled law on the issue of whether costs of funding may be recoverable, but the general view is that they are not recoverable in litigation or ad hoc arbitration in Sweden. However, under the Stockholm Chamber of Commerce (SCC) arbitral rules, it may be the case that such recovery could be allowed:

• in exceptional circumstances (eg, if the funded claimant was put in financial distress by the respondent's actions and had no other option than to obtain funding in order to secure access to justice); and
• if the funding fees payable may be deemed reasonable (cf Essar v Norscot).

10.3 Can the court order costs against the litigation funder?

No, a court cannot order costs against the litigation funder. However, if the claim has been assigned to an otherwise empty litigation vehicle owned by the funder for the purpose of avoiding adverse costs, a winning non-funded party can file a subsequent action against the owner of such special purpose vehicle.

10.4 Can the court order security for costs? If so, in what circumstances will it generally do so and how is this calculated and provided?

The court may only order security for costs for foreign plaintiffs seated outside of the European Union/European Economic Area if the respondent so requests.

10.5 Is security for costs commonly ordered in funded litigation?

The fact that a case is funded will not affect whether security for costs should be ordered.

10.6 Is after-the-event (ATE) insurance allowed in your jurisdiction? If so, how mature is the market?

ATE insurance is allowed in Sweden but is rarely, if ever, used. There is no local market for ATE insurance.

10.7 In what circumstances is ATE insurance typically used? What are the advantages and disadvantages?

Please see question 10.6.

10.8 What other types of insurance are available for litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages?

Legal expense insurance (before the event) is very common among both corporate and private individuals, as this is usually part of general business insurance and home insurance, respectively; but it is usually capped at relatively low amounts.

11 Trends and predictions

11.1 How would you describe the current legal finance landscape and prevailing trends in your jurisdiction?

Legal finance in Sweden is at an early stage, with a significant increase in awareness and interest from litigants and their counsel.

11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers must be implemented by mid-2023. As part of the legislative reform, it has been proposed that an explicit litigation finance mechanism be provided for with respect to consumer group claims.

12 Tips and traps

12.1 What would be your recommendations for the smooth progress of funded litigation in your jurisdiction and what potential pitfalls would you highlight?

For a swift litigation funding deal, the party seeking funding should preferably have engaged counsel who can present the risks and prospects of the case in a clear manner. Swedish law provides for a mixture of common and continental law, and it may be wise to approach funders with local expertise and knowledge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.