Litigation financing, sometimes termed litigation funding / third party funding, is the giving of funds to a claim holder or legal firm in return for a piece of the revenues from litigation or arbitration.The main element of litigation financing is that recourse is often restricted to the revenues of the litigation/arbitration judgment or settlement which means that the party who has been funded has to pay the litigation financier only if the party wins or settles its case.

To help you understand better what is litigation funding, let us get started with the basics.

Litigation Funding: The Basics

All or a part of the financial risk involved in litigation is transferred to the litigation funder as a result of litigation financing. Capital from a litigation funder may not only cover the legal bills and expenditures connected with pursuing or defending a case but it may be used to pay down or restructure debt as well. As a result of litigation financing, businesses are able to better deploy their financial resources and engage in initiatives that boost economic development and return on investment.

Why do Companies Utilize Third-Party Funding For Litigation?

• There is a shortage of financial resources to effectively prosecute or defend a lawsuit or arbitration; litigation financing provides businesses with the wherewithal to retain top legal personnel;
• Off-balance sheet funding is desired.
• Corporate possibilities allow a company to spend its resources on tasks other than a valid legal claim. In order to make the most of their financial resources, firms might make use of litigation financing.
• Raise cash from sources other than conventional banks and other financial institutions that are reluctant or unable to invest at a reasonable price because the company’s core business has been affected by the misbehavior of a third party.
• To protect oneself from risks.

Parties Involved in Litigation Finance

The attorney, the plaintiff, and the funder are the three main players in commercial lawsuit finance.

Plaintiff

In a lawsuit, a plaintiff may be a person or a business. Legal costs, litigation expenditures, personal expenses, and working capital may all be paid for using litigation money.

Attorney

Legal counsel serves as the plaintiff’s advocate throughout the course of a lawsuit. In order to determine whether a financing agreement is in the best interest of all parties, litigation funders work closely with the plaintiff’s legal team. The bulk of money needed to pay for litigation costs is often sent straight to the law firm in order to cover the legal fees. As a result, the legal team is often engaged in the fundraising phase.

Funder

When a lawsuit is funded by a third party, the funder receives a percentage of the settlement. If you think about it, the funder is doing something similar to investing in a company or bond.

Litigation funding’s importance may be better appreciated if the steps involved in a lawsuit are examined.

What are the stages in litigation?

When it comes to civil litigation, there are eight distinct phases to be aware of. Some or all of these steps may be involved in a single instance. A lawsuit might be settled at any stage of the litigation process, which is crucial.

Investigation

Prior to initiating a lawsuit, plaintiffs and their lawyers often conduct an investigation and gather relevant material. This may entail interviewing potential witnesses, compiling relevant documentation, or even engaging the services of a private investigator. In certain cases, a demand letter is to be sent to the defendant as part of the inquiry to determine whether there is a swift settlement to the disagreement.

Pleadings

The first legal filing is known as a pleading. To begin, the plaintiff will file a complaint with the court, in which they will lay out the specifics of their claim, including any losses they’ve sustained. The defendants’ response to the lawsuit is likewise included in the pleadings.

Fact Discovery

It’s all about collecting data in the process of discovery. Requests for information are made by both parties at this point. For the most part, the process of fact discovery entails exchanging documents and deposing witnesses to events. The process of discovery aids in the prevention of surprises and the equal preparation of all parties. Due to the vast volume of emails and electronic documents that businesses create on a daily basis, fact discovery may be a time-consuming and costly operation.

Expert Discovery

An expert witness is a person who is hired by one of the parties in a lawsuit to provide their opinion on the case. Experts aren’t required in every case, but they’re a typical occurrence in high-stakes civil litigation. Technical concerns, the extent of damages that are reasonable, or intricacies in the sector at issue are regularly discussed by experts.

Pre-Trial

This stage of litigation follows the discovery and is devoted to resolving any lingering problems that may arise before the trial. Motions for summary judgment or the motions to dispute the appropriateness of experts are common during this stage. Jury instructions and evidentiary concerns might arise during this time as the trial date nears. Pre-trial negotiations are typical and often restarted, between the parties. Often, courts try to get parties to reach a settlement before a protracted trial starts in order to save money.

Preparation for trial may be time-consuming and costly, as the lawyers try to sort out the many problems that must be resolved before the trial can begin. Your legal team will be able to gather the necessary evidence for a strong case with the help of funds.

Trial

Statistically, the vast majority of cases never get to court. However, if a dispute cannot be settled before trial, a full trial is held. Witnesses and evidence are presented by both sides. A bench trial or a jury trial, when the case is heard only by the judge, may be appropriate depending on the allegations and agreements between the parties. Trials may run for days, weeks, or even months, depending on the intricacy of the case.

Verdict or Judgment

The jury or the court declares their decision at the conclusion of a trial, following a thorough review of the evidence presented by both parties. In effect, this is the ultimate ruling of the trial court, even if there is a post-trial briefing.

Appeal

If a side loses a matter in the trial court, it has the option to appeal the jury’s decision or the judge’s judgments. Depending on the outcome of the appeal, the verdict may be maintained, overturned, or returned to the trial court for a new trial. The appeals procedure might take anything from a few months to a few years.

4 Benefits of Litigation Finance

Defendants may put pressure on plaintiffs to drop even the most compelling and valuable litigation because they cannot afford them. That’s where lawsuit financing comes in. Access to justice is made possible by litigation funding for individuals who otherwise would not be able to afford it. By reducing the expense, duration, and danger of litigation, it may aid many plaintiffs who are discouraged or burdened because of the money, time, and energy required for a case

Litigation is Expensive

The cost of obtaining justice via the courts might be prohibitive.

The hourly rate for a top-tier litigation partner may range from $1000 to $1700. There are no limits to the amount of money that may be spent on processing and evaluating electronic discovery in huge cases. Other than these, there are travel, expert, deposition, and court fees.

These and other expenses may be covered through litigation funds.

Litigation is Lengthy

After appeals are factored in, complex litigation normally takes between two and five years to complete. Multidistrict litigation, for example, might take months or years to resolve.

Slow-moving litigation may eat away at a company’s financial resources and weaken its management’s emotional fortitude.

Litigation funders are designed to deal with the sluggish pace of civil litigation, enabling businesses to concentrate on their core competencies instead of litigation management.

Litigation is Risky

Litigation is inherently hazardous, regardless of how strong your case is or how competent your attorneys are. It is possible for jurors and judges to make errors, yet the results of litigation are frequently all or nothing.

Litigation funders invest in a wide range of different cases in order to reduce the risk connected with any one specific one. Individual litigants may reduce their exposure to risk by enlisting the help of a funder to shoulder some of the financial burdens.