Litigation Funding: What It Is and How It Works
Litigation funding is a relatively new form of financial support for individuals and businesses that are involved in legal disputes. It involves a third-party investor providing funds upfront to pay for the legal costs associated with a lawsuit or arbitration. In exchange for their investment, the third-party investor gets a portion of any award or settlement the client later receives. This type of funding can be a valuable asset for those who cannot afford to pay the legal fees associated with a lawsuit.
I. What Is Litigation Funding?
Litigation funding is a form of non-recourse financing provided to individuals or businesses facing a legal dispute. The funding is provided by a third-party investor who is not connected to the lawsuit or its outcome. In exchange for the funds, the investor will receive a portion of any award or settlement the client receives. The amount of the fee the investor is entitled to is negotiated in advance. The investor then pays the legal costs associated with the lawsuit.
II. How Does Litigation Funding Work?
The process for obtaining litigation funding is typically quite straightforward. The party involved in the legal dispute first seeks out a litigation funding company. The company will then assess the merits of the case and decide whether to provide funding. If the company decides to provide funding, the parties will enter into a funding agreement. This agreement outlines the terms of the funding, including how much money the investor will provide and what percentage of the award or settlement they are entitled to receive.
III. Benefits of Litigation Funding
Litigation funding can provide a number of benefits to those facing a legal dispute. First, it can provide much-needed financial relief by covering the cost of legal fees. Additionally, it can help ensure that a case is pursued to its fullest potential, as the third-party investor is not motivated by the outcome of the case and will provide funds regardless of the outcome. Finally, litigation funding can defer the need for a settlement, as the party involved in the dispute may be more inclined to take the case to trial knowing they have the financial support to do so.
IV. Risks Associated with Litigation Funding
While litigation funding can provide significant benefits to those involved in a legal dispute, it also carries certain risks. First, the amount of funding available may be limited, meaning that the party involved may not be able to pursue the case as fully as they would like. Additionally, the party may not be able to receive the full amount of their award or settlement due to the percentage of the award that must be paid to the third-party investor. Finally, there is always the possibility that the case will not be successful, in which case the investor will not receive any return on their investment.
Litigation funding can be a valuable asset for those facing a legal dispute. It can provide much-needed financial relief by covering the legal costs associated with a lawsuit. Additionally, it can help ensure that a case is pursued to its fullest potential, as the third-party investor is not motivated by the outcome of the case. However, it is important to be aware of the potential risks associated with litigation funding, including the possibility of not receiving a return on the investor’s investment.
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