Litigation funding is a new concept in the legal world, but it is quickly gaining popularity. This kind of funding allows individuals and businesses to finance their lawsuits without going with the upfront costs themselves.
If you’re considering commercial litigation funding, it is important to do your research and understand the terms of the agreement. Litigation can be a huge benefit for people who have meritorious cases. But with those who cannot afford to pay for legal representation.
What is Litigation Funding?
Litigation finance or funding is a type of financial product that allows individuals or businesses to pursue legal claims that they would otherwise be unable to afford. A litigation funder provides upfront funding to the claimant in exchange for a share of any future recovery.
The litigation funder bears all the financial risk of the case. They pay all the legal costs upfront and do not receive any remuneration unless the case is successful. If the case is unsuccessful, the litigation funder loses their entire investment, and the claimant does not owe anything.
The Pros and Cons of Litigation Finance
Litigation finance has both pros and cons, which should be carefully considered before agreeing.
Here are some pros and cons of litigation:
Pros of Litigation Finance
- Access to justice. This funding helps by providing financial resources to those who may otherwise be unable to afford the high costs. It allows them to pursue their legal claim and seek justice.
- No upfront costs. Litigation funders typically do not require plaintiffs to make any upfront payments. This can have a financial benefit, especially for those who are already struggling financially.
- Risk mitigation. Legal cases can be expensive and time-consuming, with uncertain outcomes. The third-party litigation funding transfers some of the financial risk from the plaintiff to the funding company. If the case is unsuccessful, the plaintiff is not required to repay the funding. This relieves them of potential financial burdens.
- Enhanced litigation strategy. With funding support, plaintiffs can hire experienced attorneys, consultants, and expert witnesses to strengthen their cases. They can also conduct thorough investigations and gather evidence. This may improve the chances of success.
- Increased settlement leverage. This funding can give plaintiffs more negotiating power during settlement discussions. With financial backing, plaintiffs may be less inclined to accept low settlement offers.
Cons of Litigation Finance
- Litigation costs and fees. While this funding can provide financial relief, it comes at a cost. Funding companies typically charge legal fees. This can significantly reduce the final settlement or judgment received by the plaintiff.
- High-interest rates. Litigation funders typically charge high-interest rates on their loans. This means that plaintiffs may have to pay back much more than they borrowed. This also depends on the outcome of the case.
- Loss of control. Litigation funders typically have a significant say in how a case is handled. This means that plaintiffs may have to give up some control over their case.
- Risk of losing the entire recovery. If a plaintiff loses their case, they may have to repay the funding. This is even if they did not receive any money from the settlement or judgment.
- Limited availability. This funding may not be accessible to all plaintiffs. Funding companies typically evaluate cases based on their potential for success and the expected financial recovery. As a result, weaker or less lucrative cases may struggle to secure funding.
How Do Litigation Fundings Work?
Here is how litigation finance works in general:
- The plaintiff approaches litigation funding firms and pitches their case.
- The litigation funder reviews the case and decides whether to fund it.
- If the litigation funder decides to fund the case, they will provide the plaintiff with a lump sum of money.
- The plaintiff uses the money to pay for legal expenses, such as attorneys’ fees, expert witness fees, and court costs.
If the case is successful, the plaintiff will receive a portion of the financial recovery, which will be shared with the litigation funder. If the case is unsuccessful, the plaintiff will not have to repay the funding.
The terms of a litigation agreement will vary depending on the specific case and the litigation funder. However, most agreements in legal financing will include the following terms:
- Funding amount. The amount of funding that the litigation funder will provide will depend on the value of the case and the risk involved.
- Interest rate. The litigation funder will charge an interest rate on the funding. The interest rate will vary depending on the risk involved and the litigation funder’s policies.
- Fees. The litigation funding firm may also charge fees for its services. The fees will vary depending on the litigation funder’s policies.
- The recovery. If the case is successful, the plaintiff will receive a portion of the financial recovery. The amount of the plaintiff’s share will depend on the terms of the agreement.
Third-party funding can be a tool for plaintiffs who need financial assistance to bring a lawsuit. However, it is important to carefully consider the cons of consumer or commercial litigation finance before entering into an agreement.
Litigation offers a range of benefits and drawbacks that should be thoroughly considered before deciding to pursue this financial option. The suitability of litigation funding depends on the specific circumstances of each case. That’s why it’s crucial to seek legal advice from law firms to evaluate its viability and implications.
Careful consideration is necessary to determine if litigation finance aligns with your goals and has an impact on your legal dispute.