"Justice delayed is justice denied, but what if justice is denied because you cannot afford to fight?"
Legal battles are notoriously expensive, and the cost of litigation often discourages individuals and businesses from pursuing legitimate claims. This financial barrier can tilt the scales of justice in favour of well-funded defendants, leaving many claimants with no choice but to settle for less or abandon their case altogether. LF has emerged as a game-changer, ensuring that strong legal claims are not dismissed due to a lack of financial resources.
But how does LF work? Who qualifies for it? And why has it become an essential tool in modern legal disputes? Whether you are an individual seeking justice or a business looking to recover losses, understanding how LF operates can empower you to make informed decisions.
What is Litigation Funding?
Litigation funding (LF) is a financial arrangement in which a third-party funder provides funds to pay for legal expenses in exchange for a share of an eventual settlement or court award. Compared to a traditional loan, LF is non-recourse (i.e. the claimant is not required to repay the funder if the case is unsuccessful).
The key principle of LF is to effectively raise the playing field. By funding a claimant with a strong case, he/she is not forced to settle early due to a lack of funds; he/she can pursue the matter confidently, knowing that his/her legal costs will be covered. Litigation financing has gained popularity in many legal areas, such as commercial disputes, intellectual property disputes, class action lawsuits, and arbitration.
The history of LF
In recent decades, Litigation Funding has become a multi-billion-dollar industry with specialized funders assessing each case based on merit and the likelihood of a financial recovery. With access to funding, claimants have access to some of the best lawyers in the business, an advantage in negotiating, and a better chance of obtaining a favorable outcome.
The key difference between litigation financing and other types of financing is that the funders are willing to take the financial risk for the claimant. Whether the case goes nowhere, or the claimant ultimately has to pay for the lawsuit, the funding structure provides considerable security that the courts make decisions based on merit and not money.
How Litigation Funding Works
LF is intended to assist claimants with financing at a critical time, and depending on the funder, it can work differently. It begins with an extensive case assessment where the funder carefully examines the viability of the legal case, an approximate amount, the defendant's ability to pay, and the likely settlement duration. Funders only fund cases they perceive as having a decent chance of winning, and there is a path to economic recovery.
This due diligence process can take weeks to months, depending on the complexity of the case. After the due diligence step confirms the case is viable, the claimants and funder enter a written contract that specifies the amount of funding advanced and the percentage owed on any recovery for the funder, plus the conditions under which the agreement operates. The contract is transparent and balances a scenario where the claimant controls the litigation strategy while the funder bears the costs of legal expenses.
Once the funding is secured, the case proceeds as planned, and things like attorney fees, court fees, expert witness costs, and investigative costs are all paid for by the source of funding. This allows claimants to focus entirely on making a strong case and not think about the cost. If the case results in a successful judgment or settlement, the funder receives a pre-agreed percentage of the award as a return on the investment.
However, when the case is unsuccessful, the claimant pays nothing, which demonstrates the non-recourse nature of litigation finance. Litigation finance eliminates the financial risk of litigation, permitting individuals and companies to pursue their claims without the financial pressures of incurring legal fees. This makes litigation finance an indispensable tool in high-value civil litigation, allowing claimants to be competitive against well-funded opponents and to bring forward meritorious claims without financial disincentive.
Why Do You Need Litigation Funding?
In today's legal environment, LF is more like a necessity than a luxury, largely because it helps overcome financial barriers to justice and enables individuals and businesses to pursue authentic claims without having to worry about financial catastrophe. Legal fees are often prohibitively expensive and can dissuade anyone from seeking justice. LF will cover fees so that claimants can pursue their cases without worrying about bankruptcy if the case is unsuccessful. In addition to these monetary benefits, LF is an important risk mitigation tool. Even the most viable claims come with inherent risks, and LF is a way to transfer that financial risk from the claimant to the funder.
This means that if a case does not yield a successful outcome, the claimant does not lose any money, which is another attribute of strong LF. Perhaps most importantly, LF can help mitigate problems with disparity of wealth/funding, especially in the case of large corporate wealth versus small claimants' amounts of money. Large corporations and wealthy individuals are likely to initiate legal lawsuits and handle the costs of prolonged litigation as a litigation tactic, but with LF, claimants can "level the playing field" and allow any plaintiff to pursue fair treatment and/or an appropriate settlement, rather than a settlement they are directed to accept under threat of financial ruin.
For many businesses, litigation can put extreme pressure on cash flow, making it difficult for the business to "stay in business." With LF in place, companies can pursue their claims without sacrificing liquidity and continue conducting business while they seek their remedy. Likewise, claimants who have received funding for their claims will find themselves in a much stronger position to negotiate. Defendants almost always use financial hardship as leverage to pressure claimants into accepting low settlements, but if the claimant has LF, they are negotiating from a position of strength and can demand a fair settlement. For the reasons mentioned above, LF is now a key part of most civil legal proceedings. It increases access to justice, provides financial stability, and permits claimants, whether an individual or company, to pursue a claim without fearing financial peril.
With the legal playing field becoming more complicated and expensive, LF offers an extremely necessary safety net, thus solidifying its position as the mainstay for heavy litigation.
Things to Consider Before Opting for Litigation Funding
There are many benefits of using LF, but it is worthwhile to think through what being funded means first. One of the first things to consider is the cost of being funded. Since funding is usually provided on a fixed percentage, the litigation funders are usually going to receive some percentage of the final settlement.
So, claimants need to assess whether the potential financial recovery is worth what it will cost to obtain funding. Another important factor is selecting the right litigation funder. Not every litigation funder operates with the same level of experience and transparency. Claimants should actively seek funding resources that have a strong history of success, clear and transparent terms, and experience with claims similar to what a claimant is pursuing. The ideal funder, whether they have expertise and knowledge, practices, and customs, can make a big difference in success, while the wrong one will create undue complications. The effect of LF has an impact on case strategy. Although funders will not control the legal process itself, they will monitor the litigation closely and may even have an opinion when it comes to settlement discussions. Both claimants and their legal counsel need to have a clear and shared understanding from the beginning of the approach to the funding to ensure that what they want is in line with what the funder wants.
A fundamental aspect to consider is confidentiality. The due diligence process obligates claimants to provide the funder with sensitive case information, necessitating robust confidentiality agreements to ensure legal strategies and other privileged information remain protected. When confidentiality is assured, there will be no inadvertent disclosure of any information that can diminish the claimant’s position. Even with confidentiality, knowing how LF works enables claimants to make educated decisions about whether it is an appropriate option for their case. LF provides financial relief as it enables claimants to be on much more even footing with well-financed interested parties, but claimants will need to exercise caution to understand the funding conditions and how it may affect the outcome of their case and the larger picture of financial recovery over the long term. Litigants can acquire LF with good due diligence as a powerful tool after extensive research and strategic choices have been made.
Current Trends and Way Forward in Litigation Funding
Australia is widely recognized for its leadership in LF, as an established, sustainable, and legally recognized practice where the law specifically allows third-party funding of legal claims. Australia has built a rich history of LF that supports its widespread practice, especially in the contexts of commercial disputes, class actions, and insolvency. Courts in Australia have consistently held that LF agreements are permissible, which is critical for claimants with limited access to financial resources or the means to advance what are otherwise legitimate claims and enforce their rights in the courts.
This foundation has created an active LF market with both Australian and overseas funders. In commercial class actions or justice disputes that are traditionally litigated, funders from third parties have been recognized by Australian courts. Australia's acceptance of LF has already raised discussions or inquiries on similar mechanisms for funding litigation in other jurisdictions, including India, where LF is still in its infancy.
In India, the notion of some form of LF has gained some attention in discussions and debates in different forums and cases. One case that noted litigation funding is Bar Council of India v. A.K. Balaji & Ors. Here, the Supreme Court of India noted that there was no prohibition on third-party litigation funding, provided that a funder was not an advocate or legal practitioner. This decision has determined that third parties who are not lawyers can fund cases by providing money to the litigant, which in turn opens the possibility for litigation funding to grow in India. However, different to Australia, there is no regulatory regime governing litigation funding in India which means that the area is uncertain for the enforcement of contracts and obligations parties have to one another.
This uncertainty has contributed to the uptake of funding arrangements which has been slow and reserved for arbitration and commercial disputes. Despite the risks of the law, funding is beginning to gain traction in India, especially with commercial and insolvency disputes. Given the increase in legal fees and backlog of cases in the Indian courts, third-party funding has the potential to be impactful in increasing access to justices. With discussions around regulatory reform issues continuing, India may gradually make progress toward establishing industries of litigation funding similar to the regulations that Australia has in place to create more transparency and stability for claimants and third-party funders.
If properly regulated, litigation funding in India has the potential to be a game changer, pairing financial limitations with legal remedies and allowing claimants the opportunity to argue and pursue a valid claim without the fear of incurring prohibitive legal fees.
Conclusion
This blog talks about litigation funding (LF), a game-changing financial solution that empowers individuals and businesses to pursue legitimate legal claims without the burden of upfront legal costs. By eliminating financial barriers, LF ensures that cases are decided based on merit rather than financial strength, leveling the playing field for claimants facing well-funded defendants.
As litigation funding continues to gain traction worldwide, its importance in commercial disputes, arbitration, and insolvency cases is becoming more evident—especially in markets like India, where access to justice is often hindered by financial constraints. With the right funding partner, claimants can pursue their legal rights with confidence, free from the fear of financial risk.
LegalPay specializes in providing hassle-free, non-recourse litigation financing, allowing businesses and individuals to pursue their claims without worrying about upfront costs.
If you are considering litigation funding, LegalPay is your trusted partner in securing justice. Reach out to us today to explore how we can support your legal journey.
Frequently Asked Questions (FAQs) on Litigation Funding
1. What is litigation funding (LF)?
Litigation funding is a financial arrangement where a third-party funder provides capital to cover legal expenses in exchange for a share of the potential settlement or court award. It is a non-recourse arrangement, meaning claimants do not have to repay the funder if the case is unsuccessful.
2. How does litigation funding work?
Litigation funding involves:
An initial case assessment by the funder.
A funding agreement that outlines the terms, including the funder’s share of any recovery.
Payment of legal expenses by the funder.
If the case is successful, the funder receives an agreed-upon portion of the award. If unsuccessful, the claimant owes nothing.
3. Who qualifies for litigation funding?
Typically, claimants with strong legal claims and a high probability of success qualify. The funder assesses factors such as legal merit, the defendant’s ability to pay, and potential recovery before agreeing to provide funds.
4. What types of cases are eligible for litigation funding?
LF is commonly used in:
Commercial disputes
Arbitration cases
Intellectual property disputes
Insolvency litigation
Class action lawsuits
5. What are the benefits of litigation funding?
Removes financial barriers to justice.
Provides financial relief by covering litigation costs.
Reduces financial risk for claimants.
Strengthens a claimant’s negotiating position.
Enables businesses to pursue claims without straining cash flow.
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