Litigation Funding: A Win-Win Solution for Claimants and Litigants

How Litigation Funding Can Help You Pursue Justice Without Financial Risk

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The Dos and Don'ts of Working with a Third Party Litigation Funder

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Litigation Funding: A Win-Win Solution for Claimants and Litigants

“Litigation finance is the new email, not knowing what it is or how it works is simply not an option.”

Litigation funding, also known as third-party funding (TPF), has become a vital tool for businesses of all sizes to manage the financial risks associated with legal disputes. Contrary to popular belief, litigation finance is not just for underdog battles but serves as a valuable resource for all parties involved in high-stakes litigation. In recent years, the global litigation finance industry has grown exponentially, offering support to both underdogs and well-backed parties in need of financial assistance.

It is significant to note that TPF stands acknowledged for civil suits under Order XXV Rule 1 of CPC. Further, the Indian judiciary has discussed TPF against the backdrop of litigation quite a few times now. Firstly, the Supreme Court’s judgment in Bar Council of India v. A.K. Balaji & Ors.[1], wherein it was held that a lawyer himself financing his client’s claim was illegal but there was no instituted restriction upon third parties i.e. non-lawyers funding the litigation and being compensated post-conclusion. The Ram Coomar Candoo v. Chunder Canto Mukherjee[2] ruling held that a reasonable agreement to provide funds for litigation in exchange for a share of the recovered property is not against public policy and is not illegal. However, such agreements must be carefully monitored; if they are extortionate, unconscionable, or made for illegitimate purposes, they must be invalidated. Additionally, in the Re GA Senior Advocate[3] case, the court opined that a third party litigation funding agreement in which the returns are reliant on the conclusion of the case is not prohibited per se unless the third party is also the advocate. Therefore, in effect, the bench prohibited solicitors from acting as the third party that finances the process on a contingency or success-based fee basis.

Litigation funding

Benefits of Litigation Funding for companies and litigants in India

1. Ensuring Financial Stability

One of the primary benefits of litigation funding for claimants is the ability to maintain financial stability while pursuing legal action. Legal expenses can be significant, continuous, and burdensome, which can strain a business's cash flow. Litigation finance provides a mechanism for businesses to shoulder the financial burden of legal proceedings, allowing them to allocate their budget towards essential business operations instead.

By leveraging litigation funding, claimants can focus their funds on business essentials such as expansion, research and development, growth, marketing strategies, and appraisals. They no longer have to worry about diverting resources away from these critical activities to cover uncertain legal expenses, including attorney fees, court costs, and expert witness fees. Litigation finance covers all these costs, ensuring that the working capital remains accessible for significant business activities.

2. Non-recourse Funding

Litigation Financing offers non-recourse, which means that the funder gets paid only after a client receives the recovery. In the event of an unsuccessful outcome, the claimant is not obligated to repay the funding. This non-recourse nature of litigation finance minimizes the risk for claimants, as they are not burdened with additional financial obligations if their case does not yield the desired outcome.

3. Objective Analysis and Expertise

When engaging in litigation funding, the claimant has access to a fully-equipped diligence team which offers an objective analysis of portfolios for a better understanding and assessment of claims and their range with respect to “winnability”.

Additionally, litigation finance can also offer prudent counsel as may be required during litigation. Pre- and during-litigation due diligence entails thorough research, check, and review of all documents and communication records essential to the agreement made with the defaulting party. This underwriting plays a significant role in deciphering the quantum of litigation, types of claims, and what degree and kind of legal approach would suit the portfolio best.

4. Access to claims otherwise difficult to pursue

Additionally, claims otherwise difficult and easier to reject individually are brought to the table and given due attention. Settlements are driven by sheer merit and not by imbalanced bargaining power. LegalPay offers support to clients’ existing legal teams and to the one who requires getting in touch with legal representation.

5. Strengthened Settlement Leverage

In arbitration proceedings, litigation finance can enhance a claimant's settlement leverage. By partnering with a litigation funder, claimants send a strong signal to the opposing party that their claim has merit and that they are committed to pursuing recovery. This solidifies the claimant's position during negotiations and increases the likelihood of favourable settlement offers.

Furthermore, litigation funders can assist with the timely enforcement of awards when defendants prove uncooperative. By providing financial support and resources, litigation finance enables claimants to navigate the enforcement process effectively, ensuring that they can recover what is rightfully owed to them.

Responsibilities Associated with Litigation Funding for Claimants

While litigation funding offers numerous benefits to claimants, it is essential for them to understand and fulfil certain responsibilities to maintain a cooperative and transparent relationship with the litigation funder. By adhering to these responsibilities, claimants can ensure effective collaboration and maximize the value they receive from litigation finance.

1. Commencing the Claim

The first responsibility of claimants in litigation funding is to initiate the legal claim and engage the services of a litigation funder. Claimants must provide relevant information and documentation to the funder to assess the claim's viability and determine if it aligns with their investment criteria. This includes sharing details about the legal dispute, potential damages, and any supporting evidence.

2. Communication with the Funder

Maintaining clear and open communication with the litigation funder is crucial throughout the entire legal process. Claimants should keep the funder informed about any developments, including settlement offers, negotiations, or changes in the case. Regular updates help foster transparency and allow the funder to provide appropriate guidance and support.

3. Cooperation

Claimants have a responsibility to cooperate with the litigation funder during the legal proceedings. This includes providing access to relevant documents, participating in meetings or discussions, and actively engaging in the litigation process. By actively cooperating with the funder, claimants can ensure that the funder has all the necessary information to effectively support their case. This will give the funder appropriate measure to device strategy to win the case in the favour of the claimant.

4. Deciding Funding Terms

Another responsibility of claimants is to discuss and negotiate the terms of the funding agreement with the litigation funder. This includes determining the funding amount, the funder's share of the recovery, and how the funding fee may vary over different stages of litigation. Open and honest discussions about these terms ensure that both parties have a clear understanding of their obligations and expectations.

5. Compliance with the Funding Agreement

Claimants must comply with the terms and conditions outlined in the funding agreement. This includes providing regular updates to the funder, adhering to any reporting requirements, and promptly notifying the funder of any significant developments or changes in the case. Compliance ensures that both the claimant and the funder are on the same page throughout the legal process.

In summary, litigation funding offers significant benefits for claimants, including financial stability, non-recourse financing, access to expertise, and strengthened settlement leverage. While Litigation Finance gains more credibility and recognition towards being a landmine of opportunities, India awaits its official acknowledgment as a concept that is in perfect sync with the law. While present discord has cleared the air about nothing being illegal about it, the industry tirelessly works towards a legal, certain stamp of approval that would end the ongoing debates in the best way.

[1] (2018) 5 SCC 379.

[2] 1876 SCC Online PC 19.

[3] (1955) 1 SCR 490.

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