In Short
- Litigation funding allows businesses to finance legal disputes without straining cash flow, offering resources in exchange for a share of any settlement.
- Key considerations include case strength, financial potential, and funder influence on proceedings.
- Benefits include risk mitigation, expert guidance, and maintained business liquidity during litigation.
Tips for Businesses
Consider litigation funding if pursuing a legal claim is financially challenging. This option can support cash flow and reduce risk, but be aware that funders may have input on settlement decisions. Assess your case’s strength and financial potential before seeking funding.
It is an unfortunate and inescapable reality of doing business that occasionally disputes arise. Equally inescapable is, whether it is an unpaid invoice, a breach of contract or a failed financial transaction, prosecuting a claim can quickly drain or divert valuable financial resources. Business owners in this situation are often faced with the difficult dilemma of wanting to pursue a claim but:
- not having adequate funds for legal services; or
- not wishing to tie up capital in a long-drawn-out dispute.
In these scenarios, litigation funding might be an appropriate solution. This article explains litigation funding and whether it may be suitable for your legal dispute.
What is Litigation Funding?
While litigation funding is usually associated with large, complex class actions, it may also be available to assist you or your business.
Litigation funding is a form of specialised financing that is used to pay the costs of litigation. In essence, litigation funding involves a third party agreeing to pay for the legal costs of your court case (or a portion of them) in exchange for a portion of any favourable outcome or settlement. The funding may be used to pay for costs such as lawyers’ fees, barristers’ fees and expert costs.
The agreed return or funder commission is something that will vary depending on the size and risk profile of the case and is usually calculated as either a:
- percentage of any damages or settlement amounts you receive; or
- multiple of the amount the litigation funder has spent on your court case.
Is My Case Suitable for Funding?
While litigation funding is a viable option for many legal disputes, it is essential to understand that funders carefully evaluate each case to determine its suitability. Generally, funders seek cases that meet the following criteria:
- a good legal claim, likely to have a successful outcome, which seeks payment for damages or loss;
- good quality legal advisors; and
- the ratio of legal costs to the amount being claimed is sufficient to allow a return to the plaintiff (in most cases, this would require a claim of at least $500,000).
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Things to Consider Before Applying for Litigation Funding
Some of the positives are outlined below:
- Risk mitigation: By partnering with a litigation funder, you transfer a significant portion of the risk associated with legal proceedings. If your case is unsuccessful, you are not obligated to repay the funder, protecting you from further financial strain.
- Improved cash flow: Legal disputes can strain your cash flow, making it challenging to maintain operations and invest in growth opportunities. Litigation funding allows you to pursue your claims without tying up valuable resources, ensuring that your business continues to grow during the legal process.
- Expertise and support: Reputable litigation funders bring valuable experience and expertise, providing strategic guidance and support throughout the legal journey.
However, for all the benefits litigation funding offers, there are some trade-offs to consider. Importantly, you will need to give up a portion of the amounts being claimed, and the funder will be involved in your proceedings. Essentially, they will have a say in how the proceedings are conducted, particularly around settlement offers. However, you will still be able to participate in the court proceedings.
Key Takeaways
Litigation funding might be an appropriate solution if you have a claim for damages but are concerned about the costs. Litigation funding can help you pursue legal claims without compromising your financial stability. However, its availability depends on your individual circumstances. Funders carefully evaluate cases based on the strength of the legal claim, the quality of legal representation, and the potential return on investment.
Before approaching a litigation funder, get in touch with LegalVision. Our team of experienced litigation lawyers can assist by providing you with a high-level assessment of your case, an estimate of your likely litigation costs and, if suitable, support your application for funding. Call us on 1300 544 755 or visit our membership page.
Frequently Asked Questions
When you enter into a funding arrangement, the funder typically gains some influence over the legal proceedings. For example, they may influence settlement decisions. However, you still maintain significant control over the key aspects of your case, and your legal team will continue to represent your interests.
While litigation funding can alleviate financial pressure during a legal dispute, it is important to know the potential drawbacks. One key risk is that if the case is successful, a portion of the settlement will go to the funder. Additionally, funders may influence decisions in the litigation process, such as accepting a settlement offer.
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