What is Litigation Funding?
It has become a sort of a buzzword lately. It has gained a lot of popularity and prominence amongst legal financing companies such as BakerStreetFunding.com and many more. It is becoming increasingly influential in the market. But what exactly is it?
Basically, this funding is a type of funding in which a third party finances a claimant’s legal fees (associated with a dispute), in exchange for a portion of the proceeds (if the dispute turns out to be successful.) Therefore, if the case is unsuccessful, the funding party will lose their investment.
Litigation funding is prominent nowadays, but it is not a new concept. It has been around for approximately 20 years, although its reach was not as far-fetched as it is now. Many organizations have benefited from litigation funding including Universities, Fortune 500 Companies, and other businesses.
Parties involved in Litigation Funding
There are 3 primary parties involved in the whole this process. These are Investors, Plaintiffs, and Attorneys. Investors are the ones who fund the Litigation. They invest in the hopes of gaining profit from the proceeds of a successful case. On the other hand, plaintiffs are the companies or the individuals involved in the lawsuit.
Law firms and Attorneys are the ones that perform the overall case evaluation. They do this by connecting with the investors and providing them relevant information regarding the claims. In many transactions, take up the role of the custodians of the funds. When the case is resolved, the attorneys then distribute the funds accordingly. Therefore, it can be seen that attorneys handle the legal side of things and investors handle the financial side.
Types of Litigation Funding
There is a wide range of options available in today’s financial market. Each option is suitable for a different situation. In fact, there are many litigation funding ‘products’ that businesses can choose from, for example, case-specific products.
Most funders in this field only cater for high-value cases. High-values cases are those ones in which the cost to damage ratio is approximately 1 to 10. On the other hand, there is a smaller market for low-value cases.
Talking specifics, success fees are mostly calculated as a percentage of the damages, or a multiple of the investment, depending upon the funding party. Some funding parties make the whole funding payment in on go. However, this is really rare. Most litigation funders provide financial resources in installments.
What are the benefits of Litigation Funding?
There are undoubtedly many benefits that Litigation Funding brings, to various parties. First of all, it ensures that the allocation of resources is more efficient. Not all businesses have sufficient financial resources to pay for litigation. They would rather use that money for other purposes such as investments that could lead to potential business growth. Secondly, this funding reduces the potential risks for companies. Not only it is expensive, but it is also risky as well. There is a high risk that a business can find themselves sinking in legal fees for a case that ultimately turns out to be unsuccessful.
Litigation funding can also cause companies with a lot of valuable time. Even very strong lawsuits can take years until they are successfully resolved. Time is of utmost importance to any business, and this significant amount of litigation time can really be a blow for them. Thus, handing over this responsibility to specialized funders can be a wise thing to do, in this situation. Furthermore, not all companies have great expertise in legal matters. They are not aware of when they should use aggressive legal representation and are not that experienced in affirmative litigation.
Inequality in legal funding
Access to the justice system is not equal in all parts of the world. Some countries are more fortunate, in this regard, and some are less fortunate. In the majority of the world, access to litigation requires a significant amount of financial resources as it is expensive. There are various reasons why it is expensive. These include depositions, research, witness preparation, attorney fees, as well as court and investigation expenses.
The result of all these expenses is that litigants seeking justice often do not pursue their claims. Even those who have a compelling case might choose to abandon it because of the costs. There is undoubtedly an imbalance of resources between wealthy and average litigants. This creates an impediment to judicial access, and the undercapitalized find themselves in a disadvantaged position, as a result.
The importance of Litigation Funding in today’s financial and legal market cannot be denied. It is an innovative idea and does bring a lot of benefits. However, it is certainly not perfect and its access is not equally available to potential litigants. But you should be up-to-speed about it, as its significance cannot be neglected.