Third Party Litigation Funding

Introduction

Third party litigation Support (TPLF) is the financial funding for lawsuits received by a individual or organization who is not a party to the lawsuit and has no vested stake in the result of the conflict. In addition, the third-party funder receives a certain fixed payout or a transition fee from any legal relief that the complainant might be given by statute, by a judge or through an out-of-court settlement. Third party court support is primarily given to the complainant, but the claimant with a serious counterclaim will also seek to make use of it. Traditionally, the sources of this financing would include contingency payments for attorneys, non-recourse loans, recourse loans, and liability insurance.

Nevertheless, the latest TPLF model requires an unknown third party intervening in lawsuits. The modern model is analogous to liability insurance, in that all ‘move risks connected with criminal cases,’ ‘promote lawsuits, control settlement provisions, get payers interested in litigation, etc.’ In the United States, insurers have been paying for tort liability policies since the late 1800s. TPLF, on the other hand, is a fairly recent undertaking.

There are two main forms of TPLF, i.e. “pure funding” and “commercial funding.” In the case of mere funding, the funders are encouraged to offer financial assistance to the party ’s argument, so that they consider the case of the party as being legitimate in nature. The funders are not obligated to cover the expenses of the effective unfunded group. In the other hand, in the case of corporate lending, the funders exert tremendous influence over the legal process. The driving force in this method of funding is the ability to make a return or to benefit from the investment.

Legal Provisions on Third Party Litigation Funding in Indian Law

Code of Civil Procedure, 1908

Indian law does not have clear rules on TPLF, although the language of s.35 of the Code of Civil Procedure may be read to the extent that, under some cases, the costs can be awarded by the Court to a third party. Costs are beyond the discretion of the Court to decide the matter. The Courts cannot exert judicial power without taking into account the fundamental principles of law. In fact, some States have amended Order XXV to include situations in which the claimant is funded by a third party.

Indian Contract Act, 1872

Section 23 of the Indian Contract Act states that the meaning or purpose of an arrangement is unconstitutional if the Court finds that it is unethical or contrary to public policy and that such agreements are invalid. Section 70 of the Indian Contract Act states that when an individual (or a third party) assists another individual in a non-gratuitous act, the person earning the assists is obliged to make a fair or pay the person engaged in the non-gratuitous act. This clause can be applicable in situations of mere sponsorship where the funders are compelled to provide financial assistance for a party ’s claim without being supportive. This provision is not relevant in the case of industrial lending, where the investment is primarily for cash gains or benefit. The Supreme Court has noted that Section 70 of the Indian Contract Act does not extend to situations where there is a subsisting contract. Therefore, if a contract is made void, Section 70 of the Indian Contract Act does not extend and the act of a third party will become gratuitous.

Rules of the Bar Council of India

The laws of the Bar Council of India do not specifically preclude the funding of lawsuits by lawyers. This was, however, mentioned in the A.K. Balaji claims that “joint reading of Rule 18 (promoting litigation), Rule 20 (contingency fees), Rule 21 (share or participation in an actionable claim) and Rule 22 (participating in execution auctions, etc.)” suggests that lawyers in India cannot finance the conflict on behalf of their clients.

Conclusion

Some of the key reasons for TPLF entering the world of civil litigation can be attributed to the expensive nature of civil litigation. For certain law systems (such as Australia), the burden of lawsuits is borne by the losing side, which is referred to as the ‘loser paying’ expense rule. Thanks to lack of money, the aggrieved party cannot afford to retain attorneys or bear the expenses or responsibility of litigation. The key problem emerging from the growing use of TPLF in various jurisdictions is the costs and advantages and the feasibility of TPLF in the Indian adjudication system. The real value of this activity and the legislation that controls it can only be found if the applicant is in a stronger situation as a result of the funding. However, provided that TPLF is a recent entrant to the Indian market, it is therefore important for policy makers to ensure that an atmosphere of confidence and accountability is established for both applicants and funders in terms of operation. A partnership, built on confidence and honesty between the candidates, the funders and the legal system, would allow both parties to make the most of the potential of the program.

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