Litigation is costly, time taking, and can be costly to companies and individuals that have few resources. That is where Litigation Finance is needed .It is also called Third-Party Funding, as it provides funds to the litigants in the lawsuits in return of getting a percentage of the recovery gained through the suit.
Definition of Litigation Finance:
Litigation Finance is the activity of the third party (in majority cases a dedicated funder) giving money to pay the cost of litigation (lawyers, court fees, expert fees) in return of a share of the outcome of the case in case of a win. It allows parties that have superior law claims and weak financial status attain justice.
How Does Litigation Finance Work?
- Case Assessment:
The donor appraises merits, risks and returns of the case. - Funding Agreement:
In case it is accepted, the funder and the litigant enter into a legal agreement agreement of financing the terms. - Funding Disbursement:
Money is given out to take care of legal fees. - Case Outcome:
- If Successful: The stakeholder, the funder, gets a settled portion of the settlement or award.
- If Unsuccessful: Most litigation finance is non-recourse and thus the litigant owes nothing.
Key Benefits of Litigation Finance:
- Access to Justice: Allows ordinary citizens and small representatives to make claims that they would not afford to take.
- Risk Sharing: In the event of failure of the case, the financing party will take the financial risk.
- Financial Flexibility: Claims allow business to proceed without losing working capital.
- Better Case Strategy: Parties with adequate finances are able to recruit experienced lawyers and specialists.
Risks & Considerations:
- Throwing of a stake of your winnings.
- The funder can affect the major juridical determinations.
- All expenses associated with cases might not be funded.
- Close monitoring and permission requirement by the funders.
Who Can Use Litigation Finance?
- People possessing highly personal or business relationships.
- Small and medium size companies (SMEs).
- Business firms engaged in court battles.
- Claims handling as insolvency professionals going to claimants on behalf of creditors.
Common Cases Eligible for Litigation Finance:
- Commerce Contract Conflicts
- Arbitration Matters
- Intellectual Property (IP) Disputes
- Cases In Antitrust & Competition
- Class Action Law suits
- Insolvency and Bankruptcy Claims
Litigation Finance Process Flow:
- Put documentation of a case in front of a funder.
- Funder evaluates the merits and the risks.
- Documents to be negotiated (funding terms) Term sheet.
- Due diligence and legal review.
- Agreement signed on financing.
- Money paid; lawsuits set on foot.
Is Litigation Finance Legal in India?
Yes, litigation funding does exist in India but it is not regulated in India. In most instances, courts have accepted its legitimacy most especially in commercial disputes and arbitration.
However:
- The ethics rules of advocates prohibit the direct finance of litigation by the lawyer himself or herself.
- Such funding is usually provided by specialized third party funders also known as financiers.
Conclusion:
This practice is making the Litigation Finance an enormous game changer in the legal field since it makes justice more accessible to people and decreases the financial impediments to take a case to court. It enables companies and individuals gain access to seeking claims without jeopardizing their own funds and exposes the funders to an opportunity to invest into legal outcomes.