Litigation funding is a form of financing that helps plaintiffs pay for legal expenses associated with their lawsuits. This practice has become increasingly popular in recent years as more people turn to litigation as a means of seeking justice for their injuries or losses. In this article, we will discuss what litigation funding is, how it works, and some of its potential benefits and drawbacks.
What is Litigation Funding?
Litigation funding, also known as legal financing or lawsuit funding, is a practice whereby a third-party finance provider agrees to provide a plaintiff with the funds they need to pay for legal expenses associated with their lawsuit. In exchange for this funding, the finance provider typically receives a percentage of the plaintiff's potential recovery in the case, should they be successful.
Litigation funding is not limited to any particular type of lawsuit or legal action. It can be used in any type of civil case, from personal injury claims to commercial disputes. In some cases, litigation funding providers may also offer their services to defendants, although this is less common.
How Does Litigation Funding Work?
Litigation funding generally works on a non-recourse basis, which means that the plaintiff does not have to repay the funding unless they win their case. If they are successful, the funding provider will receive a percentage of the plaintiff's recovery, typically ranging from 15% to 50%. If the plaintiff does not win their case, they are not required to repay the funding.
To qualify for litigation funding, plaintiffs typically need to have a strong case with a high likelihood of success. This is because the funding provider is taking on the risk of not being repaid if the plaintiff loses their case. Therefore, funding providers will generally conduct their own due diligence before agreeing to provide financing.
Potential Benefits of Litigation Funding
Litigation funding can provide several benefits to plaintiffs who are struggling to pay for legal expenses.
1. Access to Justice: Many plaintiffs may not have the financial resources to pursue their claims, even if they have a strong case. Litigation funding can level the playing field by providing them with the funds they need to pay for legal expenses and seek justice.
2. Reduced Financial Risk: Litigation funding is non-recourse, which means that plaintiffs are not required to repay the financing if they lose their case. This reduces the financial risk for plaintiffs and allows them to pursue their claims without incurring any upfront costs.
3. Increased Leverage: Litigation funding can provide plaintiffs with increased leverage in their negotiations with defendants. By having the funds they need to pay for legal expenses, plaintiffs may be able to hold out for a better settlement offer.
4. Improved Cash Flow: Litigation funding can provide plaintiffs with the funds they need to pay for living expenses while their case is ongoing. This can be especially important for those who have suffered injuries and are unable to work.
Potential Drawbacks of Litigation Funding
While litigation funding can provide benefits to plaintiffs, there are also potential drawbacks to consider.
1. High Costs: Litigation funding can be expensive, with funding providers typically charging a percentage of the plaintiff's recovery in the case. This can reduce the amount of compensation that a plaintiff ultimately receives.
2. Limited Availability: Litigation funding is not available to everyone. Funding providers are selective about the cases they choose to fund and typically require a strong likelihood of success to provide financing.
3. Increased Costs to Defendants: Defendants may be reluctant to negotiate with plaintiffs who have received litigation funding. This is because the plaintiff may have less incentive to settle their case, knowing that they have already received financing for their legal expenses.
4. Risk of Interference: Some critics of litigation funding argue that it can lead to interference in the legal process. They argue that funding providers may push for more aggressive litigation strategies in order to maximize their potential recovery, which could be at odds with the plaintiff's best interests.
Conclusion
Litigation funding can provide plaintiffs with the funds they need to pursue their claims and seek justice. While there are potential drawbacks to this practice, such as high costs, limited availability, and potential interference in the legal process, many plaintiffs may find that litigation funding is an important tool in their pursuit of justice. As litigation funding continues to grow in popularity, it will be important to carefully evaluate its potential benefits and drawbacks and ensure that it is used in a responsible and ethical manner.