A third party who independently provides funds to parties for a dispute in exchange of a fraction of monetary rewards that is recovered from the proceedings is called Litigation Financing. It is also referred as Third Party Funding (TPF). This type of funding adjudges the value of legal claims even before they can be recovered before a court or tribunal. Lot of times right to justice is impeded because meritorious claims are delayed by high costs of litigation. Litigation funding helps parties understand the full potential of their claims and dissuade long-drawn-out litigation process. As funders analyse the claims using different methods to know its actual worth.
This funding not only gives confidence to parties to approach best of legal talents and not settle for something which is anything less than the worth of their claims, however funders benefit from this new asset class can earn enormous returns in comparison to other investment options within the same time frame. Litigation funding has become a rather common way in jurisdictions like USA, UK and Singapore.
LITIGATION FINANCING IN INDIA
Third-party litigation funding is legally recognized in India. The concept of third-party funding is allowed under the Civil Code of Procedure, 1908 in some states (eg, Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh) by their respective state amendments to Order XXV rules 1 and 3 of the Civil Procedure Code, 1908 (CPC). Hence, the authorization of third-party funding in India can be illustrated from the CPC. Although the remaining states have also not expressed any bar under any legislation against the same.
Litigation Funding, has been recognised in India from way back in 18th century and has always been allowed. In fact Privy Council in 1876 in Ram Coomar Coondoo v. Chando Canto Mookerjee (1876-77) 4 IA 23 permitted third party funding on the grounds of promoting access to Justice.
The Supreme Court in Bar Council of India v AK Balaji (2018) 5 SCC 379 has observed that
“There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.”
India still needs to tap into the potential of Third Party Funding. Many corporations are looking at this aspect very seriously. A proper case strategy can help funders get attracted to the case.
POSSIBLE STRUCTURES OF LITIGATION FINANCING
Dedicated financiers are fascinated towards new business opening, and these are Litigation Funds and anticipate on the high-stake legal proceedings, they support the expenses of a litigation and in return they yield reap return of the proceedings. They demonstrate their interest in the disputes which are associated to Commercial Contracts, Commercial Arbitration, infrastructure, tortious claims like medical malpractice and personal injury claims, anti-trust proceedings, insolvency proceedings, and other like claims that mainly have an estimated chance of winning significant monetary awards. When clients suffer loss they also don’t receive anything.
The Financiers investment seems to be based on computations of winning the pecuniary awards. Hence, the claimants in order to be credited a substantial settlement or award (if they win), make the best recipient of the Third Party Funding (TPF).
Thus, for the flourishing boost up of the TPF capital, the litigating parties, according to its case, generally advance the funders. In this, the assertion of the party, alongside the due diligence on the part of the funders and the value are assessed thoroughly.
The litigating parties have to deliberate over the clause that seems to be complex based on the command or the authority which the financiers may hold in lieu to the legal representation or the stake that could be demanded from the reward granted by the Court/ Tribunal.
There can be 3 schemes by which arrangement of TPF can be done:
- The funders are allocated the claims by the party in itself.
- The funders are allocated the proceeds of the claims by the party.
- The party could direct the claim in the trust in which the funder is a beneficiary.