Liechtenstein: Litigation Funding Comparative Guide

1 Commercial legal finance basics

1.1 How is commercial legal finance defined in your jurisdiction?

Liechtenstein law contains no explicit provisions on commercial legal financing. Within the scope of contractual freedom, a legal finance contract can be concluded either:

• without assumption of claims; or
• by assumption of the claims and subsequent assertion in the investor's own name and account.

In addition to legal funding, many people and legal entities have legal expenses insurance.

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

The principles of financing are similar in the private and commercial sectors. In the private sector, the statutory regulations on consumer protection must be observed. Furthermore, contingency agreements, insofar as they concern contracts with lawyers, are inadmissible in Liechtenstein.

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;
• Portfolio fees and expenses;
• Monetisation of claims;
• Monetisation of judgments and awards; and
• Other.

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

In general, legal funding in Liechtenstein need not be disclosed. The leading litigation-financed cases of the last few years mainly concerned contractual disputes in the consumer sector, which were brought in the course of a class action. However, litigation financing is also possible in other areas of law. Financing through legal protection insurance is particularly relevant for litigation and the assertion of claims for damages.

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

The prohibition of contingency agreements for members of the legal profession (lawyers, notaries, professional trustees, tax advisers and auditors) essentially excludes them from participating in litigation financing. In contrast, commercial providers can assume a share in the success and financing of litigation costs. There are very few providers in Liechtenstein itself. However, due to the country's very close economic, cultural and especially legal ties with Austria and Switzerland, companies/start-ups from these countries in particular are active on the Liechtenstein market. In addition to these providers, foreign insurance companies offer legal expenses insurance policies that provide for litigation financing.

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?

Apart from prohibition of contingency agreements for lawyers (see question 1), the law in principle imposes no restrictions on the types of litigation that may be financed by third parties. The Liechtenstein market for litigation financiers still offers potential for development, apart from the instrument of legal expenses insurance.

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?

Beside isolated special provisions such as the prohibition of contingency agreements for members of the legal profession (lawyers, notaries, professional trustees, tax advisers and auditors), there are no general norms regulating the financing of litigation. Apart from that, general contract law, consumer protection law and, in the case of insurance, insurance law will apply.

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

The enforcement and observance of the professional code of conduct of lawyers are afforded great importance by the Bar Association and the Princely Higher Court. In this regard, these institutions have disciplinary authority.

The Trade Licensing Authority and the Administrative Court supervise compliance by tradespeople with the provisions of trade law.

The supervision of insurance companies is the responsibility of the Financial Market Authority.

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?

Members of the legal profession (lawyers, notaries, professional trustees, tax advisers and auditors) are prohibited by law from accepting promises of a share in any future proceeds of a lawsuit in order to uphold their professional honour and prevent conflicts of interest. This is also the reason why legal finance may not generally be offered by legal professionals.

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

Legal finance is recognised as a legitimate way of financing proceedings in Liechtenstein case law. In 2020, the Liechtenstein Supreme Court expressly stated in this regard that the way in which one party of the proceedings finances a lawsuit is "simply none of the other party's business" (OGH, 6 March 2020, 08 CG.2018.144, LES 2020, 87).

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

It is possible to structure a contract of legal funding as a loan agreement. In this respect, the rules on consumer credit (set out in the Consumer Credit Act) will apply accordingly. The corresponding regulatory provisions on the part of the lenders must also be observed. However, such arrangements (ie, loans for the purpose of legal funding) are not common in Liechtenstein.

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?

The statutory prohibition on contingency agreements excludes all members of the legal profession from such agreements.

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 not permitted in Liechtenstein.

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?

Such agreements are not permitted in Liechtenstein due to the prohibition on contingency agreements.

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?

Apart from the prohibition on contingency agreements, all instruments which are based on the principles of general civil law and do not violate good morals are admissible and applicable. This is conditioned by the freedom of contract.

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

No. According to Article 36 of the Liechtenstein Lawyers' Act, only lawyers registered with the Liechtenstein Bar Association may hold shares in law companies and participate in the profits.

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?

External litigation financing outside of legal expenses insurance has played a minor role in Liechtenstein to date. By contrast, it can be assumed that many claims are pursued on the basis of coverage by the insurance companies.

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

Ways to effectively reduce the financial risk of legal actions are discussed with the client within the scope of the lawyer's advisory duties on a regular basis. In this respect, it is also common for lawyers to take over, for example, the contact and settlement with the legal protection insurer.

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?

By way of the transfer of claims to a single plaintiff, several related claims may be asserted in one action, even where the facts giving rise to the right are not identical. Unlike in a class action suit, however, the individual claimants must themselves become active and transfer the claims before the suit is filed. The respective form and distribution of the proceeds are regulated within the framework of contractual freedom and the accompanying provisions of consumer protection law and good morals.

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

Due to the country's relatively small size, class actions do not arise frequently in Liechtenstein. The individual assertion of claims is common in Liechtenstein.

5 Securing financing

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

Since legal funders act in a commercial manner by nature and rely on the generation of profits, the main factor evaluated is the likelihood of success. In this respect, they are also dependent on the competent advice of lawyers. The fact that the Liechtenstein legal area is very small and that very few legal funders have expertise in Liechtenstein law makes it almost inevitable that Liechtenstein lawyers will be called in to assess the prospects of success.

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

Experience shows that it is important to have a competent and, above all, easily accessible contact person. The resulting mutual understanding facilitates communication and the handling of the claim, and ultimately boosts the prospects of success.

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

In general, a legal funder is informed of the facts relevant to the case. The financier then examines the claim, issues the corresponding cost coverage and submits an offer for litigation financing. As a rule, no legal action should be taken before this cost coverage has been granted, as this is only covered by the cost coverage after appropriate subsequent approval. This is usually granted if the lawyer's intervention was necessary to secure the claim.

Legal funders often actively solicit claimants in potential prominent class action cases.

5.4 What terms does the legal finance agreement typically include?

The typical terms of a legal finance agreement are:

• the extent of the legal costs and fees covered;
• the involvement of the legal funder (ie, information and documentation obligations ensuring that the legal funder is always fully aware of the current developments of the case);
• the legal funder's entitlements; and
• support services provided by the legal funder (eg, assisting with commercial and strategic issues).

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

There are no special regulations. In general, the rules of contract law must be observed, according to which a contract may not be contrary to good morals.

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?

As the financing of legal costs is a contract under private law, such constellations are conceivable. The Liechtenstein legal system contains no special provisions in this regard. Accordingly, the consequences (under contract law) must be considered individually on a case-by-case basis.

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

There is no requirement for court approval of legal funding.

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?

In its Decision OGH 08 CG.2018.144 (see question 2.5), the Supreme Court clarified most of the issues surrounding litigation funding in the highest courts. In this respect, there are no expected uncertainties or associated litigation risks.

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

There are no statutory obligations that provide for a mandatory assumption. Since legal financing is a matter for the individual party, a counterclaim primarily affects the respective litigant. Of course, agreements can be made in the internal relationship between the financier and the litigant.

6 Purchasing a litigation claim, judgment or award

6.1 Can the funder purchase legal claims?

Yes, Liechtenstein law allows for the acquisition of claims to be enforced by legal action.

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

Claims are part of the realisable insolvency estate and can be sold by the insolvency estate. This is done by means of a judicial auction.

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

Final judgments as the basis for a claim can be disposed of in the same way as causes of action in accordance with the general provisions of civil law.

7 Role of the funder

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

As there are no legal provisions that limit the admissibility of legal financing agreements, such an agreement may, in principle, also stipulate that the litigant must instruct a certain law firm to conduct the litigation. The outer limit of the admissibility of such contractual provisions is Section 879 of the General Civil Code, pursuant to which contractual provisions, may not be contrary to good morals.

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

This depends on whether the funder only provides the financial resources for the proceedings (classic third-party litigation funding) or has the claims to be asserted in the proceedings transferred to it by the party and asserts them in its own name and for its own account. In the latter case, the funder is a party to the proceedings and thus can also attend and/or participate in court proceedings. In the former case, attendance in court proceedings is generally possible only if the public is not excluded by court order, as the funder in this case is to be viewed as a third party which is formally not involved in the proceedings.

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

In principle, such influence can also be explicitly regulated in the underlying third-party legal financing agreement. Thus, the answer to question 7.1 also applies here.

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

As outlined in questions 7.1 and 7.3, the possibilities to influence the litigation can be regulated in the legal financing agreement, to the extent that the respective clauses are not contrary to good morals.

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?

In its Decision 08 CG.2018.144 (see question 2.5), the Supreme Court clarified that the financing is a matter for the party alone and thus need not be disclosed to anyone.

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

A legal finance agreement is a private law agreement in which, in general, no lawyers are involved as parties. Therefore, only contractual confidentiality obligations can be concluded.

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

No. Liechtenstein's attorney-client privilege, which is comparable to the work product rule, only covers communications between attorneys and their clients.

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

Fee-splitting does not affect legal funding options.

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

No. Since these are doctrines practised in common law jurisdictions, they are not directly applicable in Liechtenstein. However, in accordance with the general principles of contract law, it is important to point out that contracts must not be contrary to good morals. If a contractual provision is contrary to good morals, it is deemed null and void pursuant to Section 879 of the General Civil Code.

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

In Liechtenstein, there are no legal restrictions that limit the admissibility of litigation funding to certain types of proceedings.

9 Proceedings

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

In general, Liechtenstein has a very efficient court system. The median time from filing a lawsuit to receiving a first-instance judgment is 12 months. In addition, it is possible to reach a settlement at any time during the proceedings.

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

The Liechtenstein Code of Civil Procedure obliges the parties to attempt to reach a settlement at the beginning of the proceedings. In any case, this provision serves to bring about inexpensive and, above all, quick solutions to conflicts and, as such, is actively used in practice.

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

It is possible to obtain an order that forces the other party to produce certain types of documents in the course of a civil law procedure under certain requirements. The production of the document cannot be refused if:

• the opponent has itself referred to the document for the purpose of providing evidence in the proceedings;
• the opponent is obliged under civil law to surrender or produce the document; or
• the content of the document is common to both parties.

A party may also request the court to order a third party to provide a specific document if:

• that third party is obliged by law to hand over the document in accordance with the provisions of civil law; or
• the document is, in terms of its content, of joint use to the parties (eg, a contract).

Unlike an order addressed to a party to the litigation itself, the court order addressed to a third party is enforceable.

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

Appeals against partial judgments rendered in the course of the trial (dismissal of a part of the claims) are admissible.

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

Appeals against first-instance judgments are not uncommon. In this respect, the period until a final judgment is rendered can be up to two to three years.

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

In general, judgments impose an obligation to pay a sum of money within four weeks of the judgment becoming final. Interim injunctions to secure a claim are permissible. If the judgment is not complied with, the court can take appropriate enforcement measures within weeks through a rapid procedure.

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?

In the case of judgments that may be subject to appeal, enforceability commences at the earliest upon the expiry of the unused period for appeal. Appeals against first-instance decisions are admissible. However, in the case of actions for less than CHF 5,000 (small claims appeals), the grounds for appeal are limited to:

• grounds for nullity (eg, incorrectly constituted court, unjustified exclusion of the public);
• procedural irregularities;
• incorrectness of the case file;
• incorrect determination of the facts due to incorrect evaluation of evidence; or
• incorrect legal assessment.

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 principle, the losing party must reimburse its opponent for all necessary legal costs. However, if each party prevails in part and is unsuccessful in part, the costs:

• will be offset against each other, so that neither party is reimbursed for its costs; or
• will be apportioned proportionately.

This does not apply to court fees or fees for experts and witnesses. With regard to these costs, each party to the proceedings is entitled to reimbursement of the costs of the proceedings to the extent of its actual success in the proceedings.

The legal costs will initially be borne by each party itself. The claim for reimbursement of costs will be asserted by submitting a list of costs to the court. The court will then decide on the reimbursement of legal costs by means of an order, which is included in the judgment.

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

The costs to be reimbursed will be paid to the party within the framework of the court's decision on costs. In doing so, the court will award the costs that are necessary and appropriate for the prosecution of the case. However, the reimbursement of costs is in principle granted only in proportion to the winning percentage. If, for example, an amount of CHF 50,000 is claimed, but the judgment only awards an amount of CHF 25,000, only half of the costs will be reimbursed.

10.3 Can the court order costs against the litigation funder?

This depends on whether the litigation funder has had the party's claim assigned to it and is asserting the claim in its own name and for its own account in the proceedings. As the litigation funder is then to be regarded as a (regular) party to the proceedings, the court may also oblige it to reimburse costs (in accordance with the principles outlined in questions 10.1 and 10.2). However, if the litigation funder solely provides the financial means for the proceedings/litigation without having the party's claim assigned to it, it is not a party to the proceedings and therefore cannot be obliged to reimburse costs.

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?

Foreign plaintiffs/appellants or natural persons not domiciled in Liechtenstein must, in principle, deposit security for costs if security for the costs of the proceedings cannot otherwise be guaranteed (eg, enforceability of the decision on costs in the country of domicile). The same applies to legal entities if the legal entity cannot show assets in the amount of the presumed legal costs that are subject to enforcement by a court decision.

10.5 Is security for costs commonly ordered in funded litigation?

The type of funding has no influence on the deposit of security for costs. Regardless of whether funded litigation is involved, the deposit of a security for costs may be applied for in the cases outlined in question 10.4.

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

The insurance companies operating under a Liechtenstein licence do not offer legal expenses insurance at the present time. Legal protection insurance services are provided by foreign insurance companies (mostly Swiss). In this respect, Liechtenstein insurance law has no experience with or provisions on ATE legal expenses insurance.

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

ATE insurance is not common in Liechtenstein. In this respect, the corresponding empirical values are also lacking.

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?

In Liechtenstein, legal protection insurance policies that cover the costs of a lawsuit are widely available at reasonable rates. However, these policies may contain certain exclusions from coverage. These policies contribute to the rule of law by ensuring low-threshold access to legal assistance for the broad mass of the population while at the same time avoiding the risk of costs.

11 Trends and predictions

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

Legal finance is regularly used in Liechtenstein legal practice. However, currently there are very few Liechtenstein-based litigation funders, which is why commercial litigation funders from abroad are often used to provide the financial resources for proceedings. Since litigation financing agreements are generally not publicly available – after all, they are agreements between private individuals – it is difficult to identify any trends in this regard.

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

No (legislative) developments in the area of legal finance are expected in the next 12 months.

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?

Legal protection insurance is always recommended and is reasonably priced. However, if legal financing must be used, the facts of the case should already be presented as clearly as possible in order to ensure the most precise possible assessment of the prospects of success and ultimately also of the financing prospects.

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.