An Extensive Perspective on Litigation Financing

1. An Extensive Perspective on Litigation Financing Litigation Financing also referred to as Third-Party Funding (TPF) is funding where a third-party independently provides funds to other parties for a dispute in exchange for a fraction of monetary rewards that are recovered from the proceedings. In this type of funding, the value of legal claims is adjudged even before they can be recovered before a court or tribunal. Most of the time, the right to justice is impeded because meritorious claims are delayed by high costs of litigation. This type of funding helps the parties to understand the full potential of their claims and dissuade the long-drawn-out litigation process too. And to know its actual worth funders analyze the claims using different methods. This funding gives a boost to the parties to approach the best of legal talents and not accept anything that is less than the worth of their claims. Also, the funders can benefit from this new asset class and can earn enormous returns in comparison to other investment options.

2. Image source: ​Google Litigation Financing in India In India, third-party litigation funding is legally recognized. It is allowed under the Civil Code of Procedure, 1908 in the states (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). Therefore, in India, the authorization of third-party funding can be illustrated from the CPC. In India, Litigation Funding was recognized from way back in the 18th century and has always been allowed. The Privy Council in 1876 in RamCoomar 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 observed, "There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation." But, India still needs to tap into the potential of Third Party Funding as there are many corporations that are looking at this aspect seriously. And a proper case strategy can help funders get attracted to the case. Litigation Financing: Possible Structures All the dedicated financiers across the world are fascinated by new business openings which are the Litigation Funds while anticipating the high-stake legal proceedings. Also, they support the expenses of litigation while in return they yield a return of the proceedings. Any disputes that are associated with the following like Commercial Contracts, Commercial Arbitration, infrastructure, tortious claims like medical malpractice and personal injury claims, antitrust proceedings, insolvency proceedings that mainly have an estimated chance of winning monetary awards are being demonstrated. And when clients suffer any kind of loss they also don't get anything.

3. At the same time, the Financiers investment seems to be based on the reckoning of winning the pecuniary awards. Therefore, the claimants to be credited with a substantial settlement or award (if they win), make the best recipient of the Third Party Funding (TPF). And, the litigating parties according to its case, advance the funders for the flourishing boost up of the TPF capital. The 3 schemes by which arrangement of TPF can be done: 1. ​Funders are allocated the claims by the party. 2. ​The proceeds of the claims are allocated to the funders by the party. 3. ​Where the funder is a beneficiary, the party could direct the claim in the trust right there. In India, there are many infrastructure companies that struggle with stressed assets and massive imminent claims. And setting an example in litigation funding, there was the case of Patel Engineering. Similarly, the HCC and Era Infra Engineering were also looking for litigation funding. HCC is the one that is always involved in long-drawn arbitrations with government entities and public sector utilities such as the National Highways Authority of India (NHAI) and the National Thermal Power Corporation Limited (NTPC). With that, HCC declared that it shall be conveying all its beneficial interests and rights in a pool of claims and arbitration awards, amounting to a value of roughly Rs 2,000 crore, to an SPV controlled by a consortium of funders led by Black Rock, so as to tone down the resulting damage placed on its finances. And, HCC will receive Rs 1,750 crore as a concern for this assignment from this consortium. The type of the transaction is in the form of a contingent contract where the profits are dependent on the allotted claims and that too irrespective of the participation of the entities. The only backdrop is the thing that if the party loses, there shall be no return in the investment. Along with that, due to the financial distress of the company, it might happen that the funder may not obtain any compensation.

4. And, as it seems indifferent to arrange the transaction as a loan as the litigant who lost may have a duty to repay the entire invested amount. But, at this point when the claims are already fixed, and a debt involves interest rate and also a maturity period. Image source: ​Google The Funder's Focus When assessing a claimant-side of litigation funding prospects, the funder generally focuses on the following six essential criteria: 1​. ​Merits of the Claim It says that the scope of the funder's review will be dependent on the type of case, the complications of the concerning issues, the significance of the action, the set-up of the diligence materials, and at the end the litigation counsel's capability to concisely articulate its case.

5. 2. Claimant The funder along with analyzing the merits of the case will also assess the claimant. 3. Claimant's Legal Representation The experience of the legal team working on the case along with the engagement agreement with the claimant should be reviewed by the funder to understand the economics of the plan and calculate if the interests of the claimant. 4. Litigation Budget In relation to the litigation, the Litigation funding offers a preset commitment of capital to pay for fees and expenses. 5. Expected Damages The size of a potential award should be enough to give the funder a return to equal the investment risk and overcome the charge of running the chances through the funder's meticulous diligence and transactional practice. 6. Respondents and Recovery When litigation that sails through the trial while concluding with a successful verdict, and also has an attractive judgment, but at the end, the recovery cannot be proceeded with as the respondent is insolvent or judgment-proof, that is the worst-case scenario for a funder. 7. Quicker Solutions Funders want to be invested in quick and not in a prolonged legal battle as it increases the uncertainty factor and also impedes their chances of earning costs.

6. Key takeaways Litigation Financing, also known as Third-Party Funding (TPF) is an interesting concept that is practiced globally. In India, it is not prohibited, still, there is a need for a dedicated regulation that can govern TPF. Many litigants and ​banking financial services consulting in India don't have access to justice just because of a lack of funds. And the question here that needs to be considered is whether the funders will be keen on investing in such cases or they would be eyeing on major projects. Well, everything depends on the stake and merits of the case. And in India, this is an ever-expanding market where principles of justice are not defeated at any cost should be the priority concern. Also, there is a confidentiality issue that can be tackled by drafting contractual clauses carefully. But, TPF is growing eventually, and very soon it will take the form of a structured system that will be used in benefitting both the funders and the party in a systematic way. And here we are assuring you ‘​The Right Lawyers​’ for any of your Litigation Financing or Third-Party Funding claims. Our team of experienced attorneys that make all the Intellectual property legal solutions promises you the best legal advice for any of your problems. We are located in the 6 major cities in India. Contact us for the best law firm in India for the best results.