In the last several years, the concept of litigation funding "third-party funder" has developed to become a common practice among companies that provide funding for claims that is possible to be abandoned due to its expensive legal costs for claimants to afford. Relying on third-party funder is the perfect choice for those claimants to have an official dispute resolution process such as litigation or arbitration.
What is Litigation funding or Third-party funding?
Litigation funding, also known as legal funding, is an agreement in which a third party, who is not part of the disputed lawsuit, provides financial support to one of the disputed lawsuit parties (usually the claimant or a law firm representing the claimant), in exchange for a percentage of the claim's total amount in case the lawsuit was successful.
In another definition for the Association of litigation funders in England, which stipulates "when a third party provides the necessary funding to enable one of the relevant dispute parties to meet the costs of expensive litigation or arbitration processes. The disputing party gets the necessary funding to cover all or some of the legal costs from a commercial litigation funder who has no direct interest in the relevant legal proceedings.
What differentiate third-party funder option is the protection the claimant gets against the financial risks related to pursuing expensive-cost claims, in exchange for dividing the compensation awarded in the lawsuit, in case it was successful, with the fund provider. The funding often covers some or all the lawsuits, including secretaries, arbitrators, experts, and costs related to enforce or appeal the judicial decision.
Overall, litigation funding is an agreement between two parties, where the litigation funder provides the necessary fund as an investment. What is the expected investment amount? Or what is the benefit for the fund provider?
The benefits for fund providers
Fund providers benefit from the (25% - 45%) percentage they take from the total sum of the compensation awarded to the claimant; in case the lawsuit was successful. Usually, fund providers seeking to have a return on their investments up to three times the original fund amount, the same case as in private stocks or project funding. On the other hand, if the lawsuit failed or the decision was against the claimant, the fund provider lose the investment and cannot sue the claimant for this loss.
The main job for the fund provider's lawyers and advisors is to conduct research and analyse cases to ensure the high possibility of winning potential lawsuits.
What are the available kinds of fund?
There are several ways to secure a litigation funding, such as: emergency contingent fees fund, liability insurance fund, class action lawsuits fund, and funds provided by a law firm to represent a party to claim an outstanding right.
When litigation funding become a suitable choice?
Most litigation fund investors are looking for lawsuits that involve substantial compensations. Their focus is on claims that involve damages, which require huge compensations that benefit the fund provider. Therefore, litigation funders choose to fund lawsuits that have high potential of success, which is determined based on conducting case analysis and forming strategies to ensure that the potential amount of profits exceed the amount of the initial investment.
On the other hand, claimants rely on litigation funders when they lack the financial means to proceed with a lawsuit, such as litigation fees, or arbitration fees. Their only choice become relying on a litigation funder. Moreover, they want to manage the unknown risks in exchange for a percentage of the claimed compensation goes to the fund provider for bearing these risks.
The legal framework for litigation funding in national legislations
Relying on third-party funding started in local litigation and arbitration processes before it was introduced in international commercial and investment arbitration. Whereas some jurisdictions have established a legal framework for litigation funding, it is still in the early stages for other jurisdictions.
However, third-party funding for international litigation and arbitration still left unregulated or overseen by any jurisdiction. The discussion is still going on about whether international Third-party funding must be regulated, and to what extent.
In conclusion, we encourage relying on third-party funding for those who do not have the financial means to pursue their claims, since it is considered an investment solution that benefit both the claimant and the funding provider.
There is wide acclaim for relying on third-party funders. One survey was conducted by group of lawyers in the U.S. about litigation funding process, and it showed that 88% of lawyers reacted positively on engaging a third-party funding whenever it was the only choice for the claimant. المزيد