How does litigation funding work? Commercial litigation funding, also known as litigation finance or third-party funding, is a financial arrangement in which a third party provides funding to a plaintiff involved in a commercial dispute in exchange for a share of any potential recovery.
In traditional litigation, the plaintiff is responsible for funding all the costs associated with the lawsuit, including attorney fees, court fees, and other litigation expenses. This can significantly burden many businesses, especially for smaller companies or individuals with limited financial resources.
Commercial litigation funding seeks to address this issue by providing financial support to plaintiffs who may not have the means to pursue their claims. The funder assesses the case’s merits and provides funding to cover the litigation costs. If the case is successful and the plaintiff receives a settlement or judgment, the funder is entitled to a portion of the recovery, usually a percentage of the amount recovered. How does Litigation Funding Work?
The use of commercial litigation funding has grown in recent years, particularly in complex and high-value commercial disputes. It allows businesses to pursue legal action without depleting their resources or taking significant financial risk. It can also level the playing field between large corporations and smaller companies by providing access to capital that can help them withstand prolonged legal battles.
There are several benefits to commercial litigation funding. First, it helps plaintiffs manage the financial risks associated with litigation. Outsourcing the financial burden allows them to focus on their case without worrying about cash flow issues. Second, it allows plaintiffs to pursue cases they might otherwise not be able to afford, increasing access to justice. Third, it can provide leverage during settlement negotiations, as the presence of a well-funded plaintiff may incentivize defendants to settle.
However, there are also potential drawbacks to commercial litigation funding. Critics argue that it may increase the number of frivolous lawsuits or encourage speculative litigation. There are concerns about conflicts of interest between the funder and the plaintiff and issues regarding confidentiality and control over the litigation process. These concerns have led to calls for regulation in some jurisdictions to ensure transparency and ethical practices within the industry.
Overall, commercial litigation funding is a financing tool that helps plaintiffs access justice and manage litigation costs. While it has pros and cons, its use continues growing as businesses seek alternative ways to finance their legal disputes.
