What is Litigation Finance?

Litigation finance, also known as litigation funding, is the practice of providing financial support to a party involved in a legal dispute in exchange for a share of any potential financial recovery. This type of financing is usually provided by third-party litigation funders, who invest in lawsuits or arbitrations by providing the necessary capital to cover legal fees and expenses. 

In litigation finance, the third-party litigation funder assumes the risk associated with a legal dispute usually based on a non-recourse structure in exchange for a share of any financial reward, recovery, or settlement. The third-party funder will conduct an analysis and due diligence on the case, including the strength of the legal arguments, the credibility of the parties involved, and the potential financial reward, recovery, or settlement amounts. If the third-party funder concludes that the case is likely to succeed, the funder will then provide the necessary funding to the plaintiff or defendant to cover legal fees, expenses, and other costs associated with the dispute.

Litigation finance can be used by individuals or businesses involved in a variety of legal disputes such as, but not limited to: commercial litigation, intellectual property disputes, employment cases, and even personal injury claims. 

What are the Advantages of Litigation Finance?

Litigation finance has several advantages for parties involved in legal disputes, including:

• Access to Justice: Litigation finance also referred to as litigation funding can provide access to justice for individuals and companies who may not have the financial resources to go after a legal claim. By providing the required funding to cover legal fees and expenses, litigation finance can level the playing field for parties involved in legal disputes.

• Risk Mitigation: Litigation finance can help mitigate the risks related with going after a legal claim. Third-party funders conduct profound due diligence to evaluate the viability of a claim and only invest in cases with strong legal merit. This can provide certainty to the litigant that their case is likely to succeed whilst reducing the risk of losing the case and sustaining significant legal costs.

• Financial Flexibility: Litigation finance can provide financial flexibility to parties implicated in legal disputes. Instead of paying for legal fees and expenses upfront, parties can defer these costs until the case is resolved. This can help preserve cash flow and reduce the financial burden associated with pursuing a legal claim.

• Strategic Value: Litigation finance can also provide strategic value to parties involved in legal disputes. Third-party funders may have access to industry experts or specialized legal resources that can help increase the chances of success in a case.

• Potential for Higher Recoveries: Finally, litigation finance can increase the potential for higher recoveries. By providing the necessary funding to cover legal fees and expenses, parties can pursue their legal claims more aggressively, increasing the chances of a larger settlement or judgment. Litigation finance also allows parties to avoid settling a case prematurely due to financial constraints, which can result in a lower recovery.