What is Litigation Funding?

Are you currently involved in a legal dispute, but the cost of litigation is putting a financial strain on you or your company? If so, you may have come across the term “litigation funding.”

Understanding Litigation Funding

Definition and Overview

Litigation funding, also known as legal financing or third-party funding, is a process by which a third-party investor funds a legal dispute in return for a share of the proceeds if the case is successful. In other words, the funder takes on the financial risk of the litigation in exchange for a potential financial reward.

While legal funding has existed for centuries, it has recently gained popularity due to rising litigation costs and the increasing prevalence of class action lawsuits. By providing clients with the financial support they need to pursue their claims, litigation funding levels the playing field and ensures that individuals and companies can access justice regardless of their financial resources.

One of the advantages of litigation funding is that it allows plaintiffs to pursue their claims without having to worry about the financial burden of litigation. This can be particularly important in cases where the plaintiff is facing a large corporation or other well-funded opponent.

Another advantage of litigation funding is that it can provide plaintiffs with access to top-tier legal representation. This is because funders typically require that the plaintiff hire experienced and reputable attorneys in order to increase the chances of success.

The History of Litigation Funding

The concept of litigation funding dates back to the ancient Roman era, where wealthy individuals would finance lawsuits in exchange for a share of the proceeds. However, the modern litigation funding industry as we know it today began in Australia in the 1990s. Since then, litigation funding has become increasingly popular in the UK, US, and other countries around the world.

One of the reasons for the growth of the litigation funding industry is the increasing complexity of legal disputes. As legal cases become more complex, they require more resources and expertise to litigate effectively. Litigation funding provides plaintiffs with the financial resources they need to hire experts, conduct extensive research, and prepare a strong case.

Key Players in the Industry

Today, there are a handful of major players in the litigation funding industry, including Pravati Capital, Burford Capital, and IMF Bentham. These funds invest in a wide variety of legal cases, including commercial disputes, personal injury claims, and intellectual property disputes. In recent years, there has also been an increase in consumer litigation funding, which involves funding individual cases such as medical malpractice lawsuits.

One of the challenges facing the litigation funding industry is the lack of regulation. While some countries have implemented regulations to protect plaintiffs and ensure that funders act ethically, many jurisdictions have yet to do so. This has led to concerns about potential conflicts of interest and the exploitation of vulnerable plaintiffs.

Despite these challenges, the litigation funding industry is likely to continue to grow in popularity as the cost of legal disputes continues to rise. As more individuals and companies become aware of the benefits of litigation funding, it is likely that the industry will become more mainstream and widely accepted.

How Litigation Funding Works

Litigation funding, also known as legal financing or third-party funding, is a practice where a third-party funder provides financial support to a party involved in a legal dispute. This type of funding can be used to cover legal fees, expert witness fees, and other expenses related to the litigation process.

The Application Process

The application process for litigation funding typically begins with the client submitting an application to the funder. The funder will review the case to determine whether it is likely to be successful and whether the potential reward is worth the financial risk. If the case meets the fund’s criteria, the funder will offer to finance the litigation in exchange for a percentage of the proceeds if successful.

It is important to note that not all cases are eligible for litigation funding. Funders typically look for cases with strong legal arguments, credible parties, and potential damages or settlement amounts that are significant enough to justify the financial risk.

Funding Criteria and Evaluation

When evaluating a case for funding, funders typically consider a wide range of factors. These may include the strength of the legal argument, the credibility of the parties involved, and the potential damages or settlement amounts. Funders may also consider the complexity of the case, the stage of litigation, and the anticipated duration of the trial or settlement negotiations.

Additionally, funders may conduct their own due diligence to assess the merits of the case. This may involve reviewing legal documents, consulting with legal experts, and conducting background checks on the parties involved.

Funding Agreement and Terms

Once the funder and client have agreed on the terms of the investment, they will enter into a funding agreement. This agreement sets out the terms of the funding, including the percentage of proceeds the funder will receive, the repayment terms, and any fees or interest charges. The agreement will also typically set out the conditions under which the funder can withdraw from the investment.

The terms of the funding agreement can vary widely depending on the specifics of the case and the preferences of the parties involved. In some cases, the funder may take a larger percentage of the proceeds in exchange for assuming a greater share of the financial risk. In other cases, the funder may charge lower fees but require repayment regardless of the outcome of the case.

Repayment and Return on Investment

If the client wins the case or reaches a settlement, the funder will receive a percentage of the proceeds as set out in the funding agreement. This can range from a small percentage to a significant portion of the total award or settlement amount.

If the case is unsuccessful, the client will typically not be required to repay the funding unless the agreement contains a provision for adverse cost liability. This means that if the case is unsuccessful, the client may be responsible for paying the funder’s legal fees and other expenses related to the case.

If the funder decides to withdraw from the investment, they may receive a smaller percentage of the proceeds or no proceeds at all. This can occur if the case becomes less promising or if the funder decides to reallocate their resources to other cases.

Overall, litigation funding can be a valuable tool for parties involved in legal disputes. By providing financial support and assuming some of the risk associated with litigation, funders can help level the playing field and improve access to justice for all parties involved.

Types of Litigation Funding

When it comes to legal cases, the cost of pursuing justice can be a major barrier for many individuals and businesses. Fortunately, litigation funding provides a solution for those who need financial support to pursue their legal claims. Here are some of the different types of litigation funding available:

Consumer Litigation Funding

Consumer litigation funding is a type of funding that provides financial support to individuals who are pursuing legal cases against companies or institutions. These cases can range from medical malpractice claims to personal injury claims and product liability claims. With the high costs and time-consuming nature of these cases, litigation funding can provide consumers with the financial support they need to access justice and ensure that their rights are protected.

For example, imagine a consumer who has been injured by a faulty product. Pursuing legal action against the company responsible for the product can be a daunting prospect, especially if the consumer does not have the financial means to do so. With consumer litigation funding, the consumer can obtain the financial support they need to pursue their case and seek compensation for their injuries.

Consumer litigation funding is known as pre-settlement funding or mistakenly referred to as a lawsuit loan. The product is not a loan because if the plaintiff doesn’t win their case or settle it, then there is no repayment of the funding.

Commercial Litigation Funding

Commercial litigation funding is similar to consumer litigation funding, but it is designed for businesses that are pursuing legal action against other businesses or individuals. These cases can include breach of contract claims, intellectual property disputes, and antitrust litigation. By providing businesses with the financial support they need to pursue complex, high-stakes litigation, litigation funding provides a level playing field for businesses of all sizes.

For example, imagine a small business that has been unfairly treated by a larger corporation. Pursuing legal action against the corporation can be financially challenging for the small business, but with commercial litigation funding, they can obtain the financial support they need to pursue their case and seek justice.

Law Firm Portfolio Funding

Law firm portfolio funding is a type of funding that provides financial support to law firms that are handling multiple cases. This type of funding can provide law firms with the financial stability they need to take on complex, high-stakes cases and can help them to finance their operations in a non-traditional way.

For example, imagine a law firm that specializes in personal injury cases. The firm may have several cases that require significant financial resources to pursue. With law firm portfolio funding, the firm can obtain the financial support they need to handle these cases and ensure that their clients receive the best possible representation.