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Litigation Finance in a nutshell

Litigation can be risky, lengthy, complex to predict in its outcome, and increasingly expensive.

The holder of a lawsuit, even if meritorious, is too often reluctant to initiate a litigation and often does not have (or does not intend to deploy) the resources necessary to advance the costs of litigation and assume the risk of losing.

In response to this situation, Litigation Finance funds were created: structures that provide the claimant with certain financial and technical resources in exchange for a share of the profits in case the outcome of the litigation is successful.

Litigation Finance means, in fact, the investment activity through which a third party unrelated to the litigation provides resources without obligation of repayment (so-called investment on a non-recourse basis) to one of the litigating parties (most often the plaintiff), to cover the costs of litigation; in return it obtains, only in the event of a successful outcome of the litigation, a percentage of the proceeds recovered.

In case of an unsuccessful outcome of the lawsuit, on the other hand, the claim holder does not have to retrocede anything to the Litigation Fund.

The investment may also involve the purchase of the entire Legal Asset, or mixed formulas (such as a purchase with a contingent consideration depending on the outcome of the claim or a non-recourse investment convertible into the purchase of the legal asset).

The subject of the investment can be a single case (so-called “single-claim“) or a package of cases owned by the same person or all coming from the same law firm (so-called “multi-claims” or “portfolio claims“) as well as “class / collective actions” in favor of a plurality of parties.

In summary, Litigation Finance is an instrument that:

  • facilitates access to justice even for those who cannot (or do not wish to) use financial resources at their disposal in a complex and uncertain litigation
  • levels-up the balance of power between counterparts in litigations and settlement negotiations
  • allows recourse to the best professionals on the market
  • increases the chances of success for a meritorious litigation
"Litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation"

Eileen Bransten
Justice for the New York County Supreme Court