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Litigation funding is a non-recourse third party monetary support under which the plaintiff as to bear the expenses or the charges of trial or arbitration conflicts. Normally, the mediator receives a monetary award in the event of an effective suit.
Legal financing also known as Litigation funding or financing is a mechanism where law firms finance their lawsuit or which can cover legal costs through a mediator financing company, or any individual who is not associated in an arbitration, lends money with an exchange agreed return. Generally, the financing will protect the subsidized party's lawful charges and costs brought about in the assertion. The funder may likewise consent to pay the opposite side's expenses and give security to the adversary's expenses if the supported party is so requested.
Alike to legal defence funds that is an account setup to pay legal costs through an account which is used for paying legal expenses like attorney’s fees, court fillings litigation costs etc. the fund can be private or civic setup for individuals or organizations for legal purpose.
Third-party funding isn’t a recent idea, however, its relatively new to US. Formerly designed to assist companies that didn't possess the ability to pursue claims, its utilization has expanded to the degree that it has turned into a feature of the suit landscape in a few purviews. Certain states still prohibit this financing, yet the assistance from traditional sources is very less to cover the plaintiff’s costs.
How does third party or litigation financing work?
For example, a small company purchases a machinery or a product from a bigger company and later discourse happens with respect to purchase agreement the bigger company declines to return the money already paid by the buyer, and as a substitute offers substantially low quote. In case the smaller company does not have sufficient funds to contest or counter the offer it has to accept the sub-par settlement offer while a small company in case has access to legal funding hence the counter party has the knowledge that the dispute can very well be challenged in courts of law.
Pro’s and Con’s
The prime benefit of litigation financing is that it levels the arena for all parties to dispute and provides a resolution based on merits. Another benefit is that in case the businesses have litigation support it acts as a boost to their business valuation. Additionally, litigation expense is a charge on P&L of the of the company and if the company succeeds in legal dispute even with its own money there is no substantial increase in the valuation. Hence, businesses find it lucrative to off load the costs involved in third party funding.
The global litigation and arbitration market has witnessed significant growth in 2020 as a result of growing awareness of litigation finance with lawyers and over 80% of lawyers were found to be acquainted with the third party funding which was doubled by the year 2017. The global litigation and arbitration market has seen a notable rise and the industry has turned into multi-billion- dollar industry, since past 7 years.
Covid -19 effects on market
The socio economic disarray caused by current pandemic is devastating millions of people have lost their jobs and are at the verge of poverty. Due to this reason many businesses have gone bankrupt and the organisations are in need of funds through litigation and arbitration. The global litigation funding investment market gathered USD 11473 million in 2019, the market has seen substantial growth and is expected to grow at a CAGR of 8.76% during 2020-2028.
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