Litigation Funding: A Quick Guide
- 04 Oct 2023
Litigation finance means a litigation funder supports plaintiffs, typically businesses or individuals, by investing in their lawsuit. In return, they get a share of any monetary recovery.
Types of Litigation Funding
In the world of traditional litigation funding, you've got these third-party folks who pitch in some cash to help cover legal expenses. In return, they snag a slice of the pie if the case goes your way.
It's a pretty standard setup where these funders are willing to shoulder a bit of the financial risk that comes with going to court.
In this approach, the litigation funding firms would provide for a specific lawsuit or legal matter.
Instead of funding individual cases, this type involves financing a portfolio of cases. It spreads the risk across multiple lawsuits and may offer more stability to both the funder and the litigants.
You might hear it called "pre-settlement advances." It's basically where they front plaintiffs some cash upfront, betting on their eventual settlement or judgment. If things go their way, the funders take their cut as agreed upon.
Once a case is settled, folks or businesses might need money before the settlement cash comes in. Post-settlement funding steps in, giving them a quick cash infusion, and when that settlement arrives, the funding company takes its agreed slice.
This type of litigation financing is specifically for cases that are going through the appeals process. The funder provides funds to cover appellate costs and legal fees, with a share of any eventual recovery.
Commercial Litigation Funding
Businesses frequently turn to commercial litigation finance to handle the expenses tied to commercial disputes.
Class Action Funding
Class action lawsuits can be expensive to pursue. Litigation funders may provide financing to the plaintiffs or law firms handling these cases, often in exchange for a percentage of the eventual settlement or judgment.
International Arbitration Funding
This is tailored for international disputes that are resolved through arbitration. Litigation costs include things like lawyer fees, arbitration expenses, and other related bills.
Legal Expense Insurance
While not traditional litigation finance, legal expense insurance policies are designed to cover legal claims, including attorney fees and court expenses, in the event of a lawsuit. Policyholders pay regular premiums, and coverage kicks in when they need legal representation.
The Litigation Funding Process
The litigation funding process usually involves the following steps:
1. Application for Funding
In a lawsuit, one party, often the plaintiff, applies for litigation funding from a third-party provider.
2. Case Evaluation
The team handling litigation finance takes a good look at the case, weighing its odds of success, the possible financial gains, and the risks involved.
3. Funding Agreement
In litigation finance, we discuss and agree on funding details, including the amount, the share the funder receives upon success, and what happens if the case doesn't go as planned.
4. Case Progress
Once the funding is in place, the person bringing the lawsuit can go full steam ahead. This means they can hire lawyers, collect evidence, and actively participate in the legal process.
The litigation finance provider usually stays involved, keeping tabs on how the case is progressing, and offering guidance or support whenever necessary.
When the case succeeds, whether through a judgment or settlement, the litigation finance provider gets its agreed share of the monetary recovery. This can be a portion of the award or a set amount.
When the case succeeds, the plaintiff pays back the litigation finance provider according to the terms of the funding agreement.
If the case doesn't work out and there's no monetary recovery, the plaintiff typically isn't obligated to repay the funding.
Advantages of Litigation Funding
A. Legal Equity
It makes things fair, giving everyday folks and small businesses a chance to stand up for their rights, even if they couldn't do so before. This way, we protect everyone's legal rights in our community.
B. Risk Mitigation
In the world of lawsuits, third-party funders step in to offer vital financial support to plaintiffs. It takes away the stress of dealing with legal expenses, and if the case doesn't go their way, plaintiffs won't be left with the financial strain of legal costs.
C. Cost Management
For law firms and their clients, going through a lawsuit can be quite expensive. Litigation funders can step in to help distribute some of that financial risk, enabling law firms to handle cases they might have otherwise turned down.
D. Leveling the Playing Field
Litigation funding evens the odds, giving smaller players a fighting chance when they're up against formidable opponents in legal disputes.
E. Encouraging Meritorious Claims
Litigation funders are motivated by the success of the cases they back. This drives them to choose and support strong, deserving claims, ultimately fostering ethical and responsible practices in litigation.
Litigation funding is like a financial safety net, giving regular folks and businesses a fair shot at seeking justice without getting swamped by hefty legal bills.
It evens the odds, gives a boost to those who need it most, and promotes ethical legal battles. Having various funding choices available makes a big difference in making the legal system fairer and more equitable.