The English legal doctrines of "maintenance" and "champerty" have historically precluded third parties from paying for litigation. An overarching rationale for this was to prevent other parties who did not have a genuine stake in the dispute from benefitting from it.
The court has taken a more pragmatic attitude to third-party litigation funding and has acknowledged its importance in civil litigation as part of its efforts to increase access to justice. Throughout his final report, Lord Justice Jackson expressed strong support for the organisation. Despite the fact that third-party financing offers the funder a portion of the action's recoveries, it is authorised if the funding arrangement does not grant the funder an excessive return or the power to influence the litigation.
What does it mean to receive third-party litigation funding ?
Third-party litigation funding occurs when a third party contributes finances to a party in a dispute in exchange for a predetermined amount of compensation. Legal costs and other expenses of the financed party are usually covered by the financing. Additionally, if the supported party is ordered to pay the opposing side's fees, the funder may agree to do so and give financial security for the costs. It may be used for a wide range of business conflicts, including those that cannot be resolved via litigation or arbitration.
The quantity and variety of institutions willing to fund litigation and arbitration have expanded along with the usage of third-party litigation funding. Insurance companies, investment banks, hedge funds, and legal firms have all joined the market in addition to specialised third-party financiers.
The variety and complexity of available finance products and structures have expanded in tandem with the market's development. In terms of finance, there is no one size fits all, and this is only the most basic definition. Litigation financing, sometimes known as third-party litigation funding, has developed. Litigation financing, which uses the settlement or award money as security, is utilised for a variety of other things outside funding single lawsuits. Additionally, donors are increasingly providing a financial package that covers a group of instances.
When should a project get financial support?
Third-party litigation funding money may now be used in a wider range of circumstances than was previously the case. There are several things to keep in mind, though, if you're wanting to finance a one-off lawsuit.
If there is no claim for damages, donors are less inclined to offer financing. Funders are more interested in claims that result in damages since that is how they get paid back. The only ones who can get money are those who have a counterclaim against the other party.
Only one-off lawsuits with estimated damages of $10 million or more will be funded by funders unless they specialise in supporting lesser claims. Investing in litigation or arbitration is a high-risk venture, hence lenders will insist on a certain ratio of investment to magnitude of the case being funded. This normally requires at least £10 million in damages;
Investors want to see a return on their investment. They'll conduct their own investigation into the allegation and only provide third-party litigation funding if they're satisfied with the information presented;
The target (i.e. responder) will need to be able to satisfy the claim, fees and interest. Funders will want to know this. The funder will want to know where the assets are located because of the enforcement risk. Some funders may be discouraged from investing in projects if they are located in areas with a difficult enforcement environment. The funder's decision may also be influenced by other factors, such as the target's willingness to fight to the final end.
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