Lawsuit funding is not a new concept which dated back to ancient Greece. It can be considered as ‘the life-blood of the justice system’ in the present. In a typical individual lawsuit financing transaction, someone who has suffered a personal injury and is pursuing a legal claim for the injury on a contingency fee basis, seeks financial assistance for living or paying up the medical bills from a third party during the case’s progression.
After reviewing the eligibility of the pending claim to verify that the claim will likely to be a success, the lawsuit financing company will advance the funds to the consumer. The consumer will repay the funds if he wins the lawsuit.
Types of Law Suit Funding:
1. Conditional fee agreements
There is still a lack of proper information available to clients facing a dispute, particularly when it comes to funding and risk management. A conditional fee agreement can be full or part funded.
A partial conditional fee agreement means that a third party funder pays a portion of the costs throughout the case and the remainder is share of the risk of the suitor or the victim. The benefit of this arrangement is that the success fee is lower on a win. This happens by reducing the success fee amount payable on success.
In many cases of this type of lawsuit funding, the lending third party companies are able to share risk with clients and also provide insulation from risks involved in litigation, for example they have access to the most competitive after-the-event-litigation insurance rates available. When they are able to share risk with you, some of their fees are only payable if the case is successful. In the rare instance when a case is lost at trial, they can provide clients with insurance protection from having to pay legal costs to opponents.
- 2. Damages based agreements
In some appropriate cases respective commercial litigation solicitors may be able to offer a damages-based agreement as a funding option. This funding option has only been available in commercial cases since April 2013.
A damages based agreement is an agreement between the two hostile parties whereas one agrees to pay a percentage share of the damages if the case is won against the opponent. Under this agreement third party aiding companies would normally require payment either if sums are recovered through settlement or after the case has gone to court.
In lawsuit funding, a damages-based agreement is a suitable option because they have the advantage of limiting the impact on cash flow.
- 3. Third party funding – commercial litigation
Under his category, the third party funding involves an organization which is not involved in the dispute and is agreeing to finance all or part of the legal and other costs of the litigation in return for a fee.
This lawsuit funding differs from conditional fee agreements and damages based agreements. The dissimilarities lie in the fact that it doesn’t require the victim to pay expenses such as barrister’s fees throughout the duration of your case. Third party funders fund both the legal fees and additional expenses on an ongoing basis.
A main advantage (in perspective of victim’s view) and disadvantage (in perspective of the party), third party funding is not a loan and thus if the case is unsuccessful, any money paid out by the third party does not need to be repaid.