In today’s fraught geopolitical world, countries hostile to the West are always looking for ways to influence the West to their own political ends. Sanctions on Russia and its allies have made that more difficult, so the West’s enemies are now finding backchannels to cause disruption to Western economies. Recently, they appear to have found success in clandestinely funding lawsuits, which seem designed to wreak havoc with our economies and political norms.

‘Third-party funding’ of litigation is rife. The litigation funding industry is growing rapidly as unaccountable foreign money pours into our courtrooms. It is worryingly easy for those with deep pockets to tie up large companies in costly legal paperwork by funding spurious civil cases and appeals. China and Russia are both at it. Chinese money is suing Samsung.1 Kremlin-linked Russians are spending billions on US court cases, seemingly to evade sanctions.2 The US pharmaceutical industry has already pleaded publicly for American politicians to take notice.3

This is nothing less than a new front in the twenty-first-century Cold War. We need to get our act together to nip this in the bud. It is already gaining a foothold in European courts, too. In 2022, a Spanish arbitration court awarded $14.9 billion to a group suing the Malaysian government over a land dispute.4 Calling themselves the heirs to the Sultanate of Sulu, which forms part of the Malaysian state of Sabah, and claiming billions in compensation, the group has received $20 million in litigation funding from a London-based company called Therium.5

At first glance, this ought to have nothing to do with Spain or the UK. But thanks to the huge funding given to the case via Therium, it has ended up burdening a European courtroom and, if it were not for Malaysia’s successful pushback, landing a democratic government with a dubious bill amounting to tens of billions of dollars. More recently, the so-called Sulu heirs tried to resurrect their claim—spending yet more Therium money—by appealing to the Dutch Supreme Court but were shot down.

This case contains several major red flags. The origins of the Therium funding are murky, to say the least. The claimants are linked to a terrorist group called the Royal Sulu Forces, which once tried to seize land from Malaysia by force, killing dozens in the process.6 The Spanish arbitration judge in question ended up receiving a criminal sentence of six months behind bars for violating a Spanish court order by moving the case from Madrid to Paris, in the process roping France’s legal system into the chaos too.7

The recent Dutch ruling in particular raises questions about the validity of the claim to begin with. Why is Malaysia being sued on such questionable grounds in European courts? Could this be a test run from the case’s anonymous funders? It is impossible to say if they plan to spend more money on European court cases, and if so, who they will sue and why.

Refusing to take no for an answer, they are now trying to sue the Spanish government for a whopping $18 billion, claiming ‘denial of justice’—when ’the real problem appears to be that they refuse to respect the very foundation of justice in the rule of law.8 That suggests this saga won’t stop with Malaysia. For murky third-party litigation funders, Europe and the entire West are fair game.

This is the crux of the problem with third-party litigation funding. Western legal systems should, on paper, be self-regulating: anyone who launches baseless claims or appeals loses out because they spend lots of money, which they never see again. But many of the West’s enemies have bottomless pockets, meaning there is little downside to launching case after case, appeal after appeal, to see if anything sticks. In the process, they can end up tying up key resources in courts, undermining confidence, and generally sowing frustration and discord, all the while fighting for mega-awards like the Sulu case, which amounted to more than 1% of Malaysia’s GDP.

The unregulated growth in third-party litigation funding therefore, represents an unnecessary, bad-faith interference in the rule of law. It is imperative that Europe preserves the integrity of its courtrooms as fair and impartial. We cannot allow them to be weaponized by those with large wallets and a political axe to grind. Therium, as investors in the Sulu case, stand to pocket a share of any winnings. European courts should be a venue for the law, not profit-making, and certainly not hostile politicking.

The worst of the Sulu case seems to be over. It has been shown up as a baseless claim, and the claimants have been put in their place (and a rogue arbitrator in prison). However, the broader problem remains. Brussels is considering regulation to limit the impact of third-party litigation funding, but the proposal is currently tied up in bureaucratic wrangling.9 As things stand, it looks likely that hostile third-party funders will remain one step ahead. The end of the New Cold War will not come any time soon.

References

1 Samsung Says Chinese Litigation Funder Misused Its Trade Secrets.
2 Putin’s Billionaires Dodge Sanctions by Financing Lawsuits .
3 Insurers Request House Take Lead in Addressing TPLF Practices.
4 Petronas Subpoenas UK Funder Over ‘Rogue’ Arbitration Award.
5 Dutch Court Rules in Favor of Malaysia, Adding to Funder’s Loss.
6 Animation Sulu Fraud vs Malaysia's Truth Malaysia Berjaya.
7 Arbitrator jail sentence and ban raises questions in ‘highly unusual’ case.
8 Spain Hit With $18B Claim Over Massive Malaysia Award.
9 EU Parliament proposes directive to regulate third-party funding.