Everything You Need to Know About Litigation Funding
If you’re struggling with handling a lawsuit, litigation finance is an important practice to know about. Litigation finance, or funding as it’s more commonly known as having a third party provide financing to the plaintiff in a case to receive a portion of the earnings from a lawsuit.
What does that mean exactly? It means that a third party is able to file a lawsuit even if they aren’t able to (or don’t want to) pay for the proceedings.
The History of Litigation Funding
Funding may seem like a modern concept, but it’s actually been taking place for the last twenty years.
In the United States, litigation funding was used in the 1990s for personal injury lawsuits but didn’t truly take off until around 2006. That’s when Credit Suisse Securities established a subdivision for litigation risk strategies to focus on litigation funding.
Today, it is used to finance lawsuits and legal claims, reduce risk on balance sheets, and to grow capital. Both companies and law firms have been known to use litigation funding to help them power their case.
The Legal Side of Litigation Finance
While litigation funding might seem like something that would be overseen by the federal government, the laws and legal constraints of the process is actually left mostly to state governments. In the last five years, Congress began taking a greater interest in litigation finance but they haven’t made any acts or policies regarding the process.
In contrast, state governments have been steadily increasing the use of litigation finance for both private and public cases.
Litigation Finance Around The World
The United States isn’t the only country that uses litigation finance in court proceedings. This practice is also common in Australia and the United Kingdom. Both these countries employ this concept but operate slightly differently than the US does.
Similar to the United States, in Australia, it began in the 1990s. In contrast, however, this process was used by law firms and companies at a much faster rate. Once the legislation had been passed legalizing the process in 1992, companies began to spring up and enter the market to offer plaintiffs litigation funding for their cases.
In the United Kingdom, the rise of litigation finance occurred in a slightly different fashion. Also in the mid-1990s, the Criminal Law Act of 1967 was removed. This law was an old act that had legally prevented third-party litigation funding.
Additionally, Parliament passed a new act called the Courts and Legal Services Act which allowed clients to create fee agreements based on conditionality. The removal of the Criminal Law Act and the introduction of the Courts and Legal Services Act combined made it lawful for people to begin using litigation finance. Previously, people would move to Canada to take advantage of the benefits the court system there has to offer.
Today, it is a commonplace practice that helps many people work around the financial strain of paying for a court case. If you have questions about a court case, reach out to our team of attorneys.