Litigation funding is a way for individuals and businesses to pursue legal claims without having to pay upfront costs. A third-party funder provides the financial resources needed for legal proceedings in return for a share of the settlement or damages awarded if the case is successful.
How does litigation funding work?
When a claimant lacks the funds to pursue legal action, they can approach a specialist provider of litigation funding solutions who will assess the case. If they believe the claim has a strong chance of success and a high potential recovery, they may agree to finance the legal costs.
If the case is won, the funder receives an agreed percentage of the damages. However, if the claim is unsuccessful, the claimant owes nothing, as litigation funding is provided on a non-recourse basis. Here, you can read more about litigation funding.
Who can benefit?
Litigation funding is often used by businesses, individuals and law firms involved in commercial disputes, intellectual property claims, competition law cases and group litigation. It is particularly beneficial for claimants who might otherwise struggle to afford legal action. Even businesses with the financial means to litigate sometimes opt for litigation funding to reduce financial risk.
Advantages of litigation funding
One of the main benefits of litigation funding is access to justice. It allows claimants to pursue strong legal claims without financial strain. It also shifts the risk away from the claimant, as they only pay if they win. Additionally, businesses can preserve cash flow by avoiding the high costs of litigation.
Another advantage is that funders conduct thorough assessments before investing. This means that a funded claim is more likely to have strong legal merit. This can sometimes encourage early settlements.
Disadvantages to consider
While litigation funding has many benefits, it also comes with considerations. The funder’s share of the damages can be substantial, reducing the claimant’s final compensation. Additionally, the funding process can take time, as funders evaluate cases carefully before committing.
Despite these drawbacks, litigation funding is an increasingly popular option for those seeking financial support to pursue legal claims.