Litigation funding is becoming a more popular option for plaintiffs as well as defendants in court cases, particularly when the defendant refuses to settle out of court. This could be because litigation funding gives them a better chance of winning the case than using personal funds.
Further reading through this article will help you with a better understanding of what litigation funding entails.
What is Litigation Funding?
Litigation Funding Investment is a type of alternative law case financing that involves an external financier. It provides the plaintiff with the financial resources needed to contest a dispute before going to the arbitration tribunal or a judicial forum. In exchange, the financier receives a fixed percentage of the monetary relief obtained by the plaintiff because of the settlement process.
Simply put, litigation funding is a type of commercial financing in which a company or individual receives funds to pursue court cases. The proceeds of a successful lawsuit are then divided among all contributors, with the plaintiff receiving the lion's share. Individuals and businesses use this mean to litigate tort, contract, and employment cases. Litigation funding is often sought after when the plaintiff is unable to afford the legal fees.
Types of Litigation Funding
Below are the different types of limitations funding;
● Third-Party Funding
● Litigation Lending
● Conditional Fee Arrangements
● After-The-Event (ATE) Insurance
● Disbursement-Only Funding
● ATO Small Business Funding
● ATO Test Case Funding
● Crowdfunding
Third-Party Funding
In this litigation funding, an external party, either an agency or an individual, provides the funds to be used in carrying out the legal case. This is done with the hope of getting a portion of the proceeds of the damage/ settlement fee which the plaintiff will get from the case.
When Do You Use Third-Party Funding?
Third-party funding best comes in when:
● The plaintiff doesn't have the amount needed to run the lawsuit.
● The plaintiff decides not to use personal funds, to reduce personal financial risk
● The plaintiff or defendant's claim has the potential to yield a good amount for the damage fee. This is more like an investment scheme.
Conditional Funding Vs. Unconditional Funding
In the case of unconditioned funding, the third-party/investor finances the laws suite, without any contribution from the plaintiff, while expecting a good return for the legal investment. However, this is often seen when the case appears to have a low financial risk or a higher chance of winning.
In terms of conditional funding, the investor pays a percentage of the fee at the initial stage of the lawsuit, while he withholds the balance till the case is declared a success. This keeps you as an investor safe from bearing large financial losses if the case doesn't go well.
Litigation finance and attorney ethics
Attorneys and law firms are permitted to share case information with investors after obtaining the client's consent. Furthermore, they are permitted to honor a client's written lien for a portion of a recovery's proceeds.
When it comes to confidentiality, the attorney-client privilege comes to play. This is a legal principle that secures certain information exchanges between an attorney and a client from public disclosure. Furthermore, this work confidentiality secures documents compiled by attorneys and investors in advance of litigation from discovery.
Segmentation of The Litigation Funding Investment Market
The Litigation Funding Investment market can be segmented into three main categories: type, enterprise size, and consumers/users. Under the type segment, the market includes
● Commercial Litigation
● Bankruptcy Claim
● International Litigation
● Others
Based on the enterprise size, the limitations funding the investment market are divided into;
● Large enterprise
● Small & medium-sized enterprise
The following sectors transact with litigation funding;
● BFSI
● Manufacturing
● Media & Entertainment
● IT & Telecom
● Healthcare
● Others
The Future of Litigation Funding
Research carried out by CMI gives a picture of the stand of litigation funding in the nearest future. Its investigation reports on the drivers and constraints of the litigation funding investment market. It also attempted to relate the impact it might have on demand during the forecasted period. Furthermore, the report examined global economic opportunities that could be harnessed through the litigation funding investment market.
From CMI's report, you can deduce that investment in litigation funding is growing rapidly across nations. The global litigation funding investment market was valued at $12.2 billion in 2021 and is expected to grow to about $25.8 billion by 2030. This implies that between 2022 to 2030 there should be a compound annual growth rate (CAGR) of approximately 9%.
Here is another prediction by Deminor on the EU litigation funding investment market. It proposes a boost above 100%, with a projected gain of about $3.7bn in 2025, which is about 16% of the global market's annual gain of $18bn.
The CEO of Deminor, Erik Bomans, also forecast a 8.3% annual growth in the EU litigation funding market. Implying that the EU litigation funding investment market is fertile soil for profits.
Conclusion
Litigation funding is a powerful resource that can help individuals, businesses and even government agencies finance major legal matters. Having a good understanding of the possible options available for you when it comes to financing legal matters is of great advantage to you or your organization. With a better understanding of these financial options, parties involved in any type of legal proceedings can make informed decisions regarding how they will fund their case.
If you are interested in learning more about litigation funding, or if you are a plaintiff or defendant looking for funding, please contact us for more information.
