Litigation Financing
What is Litigation finance?
Litigation Finance is a financial arrangement in which a third party funder provides capital to the claimant or defendant to cover the legal costs and expenses associated with pursuing the law suit. This funding is typically provided on a non-recourse basis, meaning the funder will only receive the return when the case is successful.
Litigation finance also known as “THIRD PARTY LITIGATION FUNDING” (Aka TPLF) allows qualified litigants or law firms to receive upfront funds to cover legal costs, court fees, and associated expenses.
Litigation finance is distinct from traditional loans because it is not consider debt, it operates more like an investment where there is no payments are due until there is a financial recovery.
The funds can be used to cover all legal expenses associated with the litigation such as court fees, filing of complaints, advocate’s fee or any other related expenses.
Litigation finance helps litigants fund meritorious legal claims by shifting the financial burden and risk of litigation to the third party funder.
Types of Litigation Financing
SINGLE CASE FINANCING
It provides funds on the basis of single case to the claimants, lawyers or law firms.
PORTFOLIO FINANCING
It approves funds to claimant for the bunch of cases or multiple claims at one go.
How Litigation Funding Work?
Litigation funding works by providing financial support to a litigant or law firm from a third-party funder in exchange for a share of any future financial recovery.
1.
Case Assessment: The litigant or their lawyers assess the strength and potential value of a case before seeking funds. Funders also evaluate the merits and chances of success to determine if the case qualifies for funding.
2.
Application and Due Diligence: A formal application is submitted to a funder. The funder conducts a multi-stage due diligence process, reviewing legal, factual, and financial aspects to assess the risk and potential return on investment.
3.
Funding Agreement or MOU: If the case is qualified, both parties discuss and sign a litigation funding agreement detailing terms, fees, and the funder’s percentage share if the case is successful. The funding is “non-recourse,” meaning if the case is lost, the claimant owes nothing.
4.
Provision of Funds: Funds are disbursed to cover legal expenses such as attorney fees, court costs, and any expense related to the case, allowing the litigant to proceed without financial strain.
5.
Case Resolution & Repayment: If the case is won or settled, the funder receives the agreed portion of the proceeds. If it is lost, the claimant is generally not liable for repayment under the non-recourse structure.
Advantage of litigation finance or Third-party litigation funding(TPLF)
To Claimants
1.
Uplift Financial Burden from Claimant
Claimants who cannot afford high legal costs get an opportunity to persue meritorious claims. Removes the financial barrier that often discourages people from filing cases.
2.
Risk Sharing
Litigation is expensive and uncertain. With funding, the financial risk shifts from the claimant to the funder. If the case is lost, the claimant does not have to repay anything to the funder.
3.
Better Legal Representation
Funding allows claimants to hire top law firms or specialized advocate for their cases and avail resources that may otherwise be unaffordable. Sometimes, funder companies associate with the top law firms for resolution of their funded matters for efficient working and make sure progress in case.
4.
Preservation of Cash Flow
Businesses can pursue claims without diverting their own funds from operations or personal needs. Especially useful for companies that want to focus on growth rather tying their capital in litigation.
5.
Encouragement of Meritorious claims
Funders usually conduct s through due diligence process before financing, which means only strong claims are backed. This boosts claimants confidence in the matter.
6.
Psychological & Strategic Advantage
Having a reputable litigation funder on broad signals to the opposing party that the case has merits in favour of claimants and creates pressure on opponents to settle the case in terms of claimant.
To Investors
1.
High Returns on Investment
Litigation Funding can generate above-market returns, since funders typically receive a significant share of the recover amount if the case is succeeds.
2.
Entry into Growing Markets
The litigation finance industry is growing and expanding rapidly, meaning investors gain exposure to a high growth sector. Early participation allows them to capitalize on increasing demand from claimants.
3.
Portfolio Diversification
Returns from litigation finance are not related to old way of investment such in stock markets, real estate or any other schemes. This make investing in litigation finance diversify the asset class.
4.
Risk free opportunity
There are no external market players who control or affect the returns. Hence, ROI on litigation financing is free from market fluctuations or even inflation. It only depends on the case’s merits.
To Society
1.
Access to Justice
Litigation Financing enhances the access of justice to the claimants in the enforcement of their legal rights.
2.
Creating Financial equality
Litigation financing minimizes the gap of financial inequalities among the businesses and in society.
Litigation financing in india
Litigation Finance or Third-party litigation funding (TPLF) is not a new concept in India, as historically, lawsuits have often been bought and sold in an informal, unregulated manner by opportunistic investors and litigants.
Legal Recognition
The turning point came in 2015, when the supreme court in Bar Council of India Versus A.k. Balaji rule that:
- Non-Lawyers allowed to fund cases
- They can recover their investments from the case proceeds
- Lawyers themselves cannot fund cases or work on contingency basis.
While there is no comprehensive national legislation regulating third-party litigation funding, several Indian states including Maharashtra, Karnataka, Gujarat, and Madhya Pradesh have amended their Civil Procedure Codes to explicitly acknowledge the role of litigation financiers. These amendments set out circumstances under which such financiers may be made parties to litigation.
Limitations Under Current Law
Despite the evolving legal landscape, there remain important limitations:
Lawyers in India are prohibited from funding litigation or taking success-based fees under Bar Council of India rules. This restricts funders who rely on contingency fee arrangements with lawyers to maintain alignment of interests.
Whether a TPLF agreement violates public policy depends on its specific terms, particularly the funder’s share in the recovery. Agreements deemed extortionate or unconscionable can be invalidated.
The permissibility of foreign investment in TPLF remains unclear and has yet to develop as a recognized aspect of the Indian legal market.
In summary, while litigation funding is legally permitted and increasingly acknowledged by courts and lawmakers in India but it still lacks a proper legal framework. With rising litigation costs and increasing demand for access to justice, India’s litigation funding market is expected to expand further.
How third party litigation funder assess case merit
Litigation funders assess case merits through a detailed, multi-step due diligence process aimed at evaluating the strengths, risks, and financial prospects of a case before deciding to provide funding. Key elements considered in their assessment include:
Initial Legal Merit: Funders evaluate whether the case has a solid basis and technical merits that indicate it is winnable rather than speculative. This early assessment usually involves reviewing key issues of the claim, supporting evidence, and a preliminary legal opinion about the likelihood of success.
Due Diligence: If the initial review is favorable, funders conduct a deeper analysis involving key documents, evidence, case strategy, potential defenses, and the financial feasibility of the claim.
Risk Analysis: Funders assess the risks associated with the litigation, including procedural risks, enforceability, counterparty’s ability to pay, and timeline for resolution. The costs of litigation and the likelihood of sustained legal fees are also scrutinized.
Financial Return and Investment Outlook: The potential size of the award or settlement is weighed against the anticipated costs and risks to ensure the case can deliver a sufficient return on investment. Funders also consider the alignment of interests between claimant and legal counsel.
Experience and Capability of Legal Team: The track record, experience, and capability of the law firm handling the case are important as funders want assurance that the case will be managed professionally and effectively. Usually the funder company associate with the law firms by themselves to solve the issues related with the expertise of the advocates or law firms for work efficiency and trust.
Claimant’s Background: Assessment includes evaluating the claimant’s past litigation history, and credibility since these can impact case outcomes and settlement negotiations.
Transparency and Full Disclosure: Funders require comprehensive and honest disclosure of all case details to avoid surprises later and build trust for a successful funding partnership.
This assessment often culminates in a review by an investment committee that makes the final funding decision based on the risk-return profile and strategic fit for the funder’s portfolio. The overall process balances legal merits, risks, timeline, financial prospects, and the probability of a successful recovery.
Who make key decisions in third party funding litigation case?
In litigation funding, the claimant remains the primary decision maker for key aspects of the case, such as whether to settle or proceed with the trial, while the funder primarily make financial decisions and the expenses aspect. Funders typically do not control the litigation strategy.
However LegalFund not only provide financial assistance they also provide case management for efficient litigation process by their associated firms and legal expert team. Which not only help to combat the stress from claimant it also help to ensure the interest of the claimant as well as the funder.
Who select the advocate for in third party funding litigation case?
The selection of the advocate in litigation funding usually rest with the claimant, as they have primary interest and control over the litigation. Although litigation funders may suggest or approve the advocate to ensure the case is handled effectively, but the final decision is made by the claimant.
In legalFund there is a dedicated legal team to examine the case progress with the Attorney’s or law firm as the case maybe.