Litigation funding, also known as legal financing or third-party litigation funding, is a mechanism through which a third party provides financial support to a litigant or law firm in exchange for a portion of the settlement or judgment. This is particularly useful for individuals or businesses involved in expensive legal battles. Below are the key steps involved in obtaining litigation funding from a funder.
1. Assessing the Case
Before approaching a litigation funder, the litigant and their legal team should assess the strength of the case by preparing a Prospect of Success document, which should take all the legal and factual analysis of the particular circumstances of the case, taking into account similar cases that have occurred in the past, current law in force at the relevant time and a multiple of other legal inputs. The Prospect of Success document should also deal with the Quantum.
Funders typically invest in cases that have a strong likelihood of success, a clear legal basis, and a potential for a significant financial award.
2. Identifying a Litigation Funder
There are numerous litigation funding companies, each with different criteria, funding amounts, and terms. Researching and identifying a funder that aligns with the specific needs of the case is crucial. Factors to consider include the funder’s track record, reputation, and funding terms.
3. Submitting an Application
Most litigation funders require a formal application or an initial inquiry. The application typically includes details about the case, legal arguments, estimated costs, and potential damages. The more comprehensive the information provided, the easier it will be for the funder to evaluate the case.
4. Preliminary Due Diligence
Once an application is submitted, the litigation funder will conduct a preliminary due diligence process. This may involve these factors:
- The facts of the case are verified
- Legal arguments are assessed
- The rules in the jurisdiction are confirmed, with respect to litigation finance, to ensure that the deal can be completed
- The track record of the defendants legal team are assessed, and
- The track record of the claimants legal team are also assessed
- The judge’s past rulings in the case are looked at, as well as the outcome of similar cases that were tried or settled in the same jurisdiction
- The litigation history and solvency of the defendant is assessed, to determining the defendant’s ability to pay, and whether there are any other large pending lawsuits, government investigations, business issues that could lead to an insolvency proceeding, or other factors that may undermine the defendant’s ability to satisfy a judgement
- Financial models are then built, of the various potential outcomes, the required budget and time horizon of the case, to understand how they might affect the recovery and return of the investment
5. Negotiating and Signing a Terms Sheet
If the funder is satisfied with the preliminary due diligence, they will propose funding terms. This agreement typically outlines:
- The amount of funding to be provided.
- The percentage or portion of the settlement/judgment the funder will receive.
- Repayment terms and conditions.
- Any additional fees or costs. It is advisable to have a lawyer review the agreement to ensure fairness and transparency.
6. Final Due Diligence and Signing the Litigation Funding Agreement (LFA)
Once the term sheet has been signed and final due diligence completed—which includes consulting legal and financial experts to evaluate the merits and quantum of the claim—and the Funder is satisfied with the outcome, which may also involve presenting the matter to their internal investment committee for approval, the case is ready for the final agreement: the Litigation Funding Agreement.
7. Receiving Funding
Upon signing the LFA, the funder disburses the agreed-upon amount to cover legal costs, including attorney fees, expert witnesses, and court expenses. The litigant can then proceed with the legal proceedings without financial constraints.
8. Case Progress and Communication
Litigation funders often require periodic updates on the progress of the case. Maintaining transparency and regular communication with the funder ensures continued support and alignment of expectations.
9. Case Resolution and Repayment
If the case results in a successful settlement or judgment, the litigant receives the awarded amount, and the funder takes its agreed-upon share. If the case is unsuccessful, most litigation funding arrangements are non-recourse, meaning the litigant does not owe repayment unless they win the case.
Conclusion
Litigation funding provides an essential financial lifeline to plaintiffs who may not have the resources to pursue justice. By following these steps—assessing the case, selecting a funder, undergoing due diligence, and negotiating favourable terms—litigants can successfully secure funding and navigate their legal battles with confidence.
If you want to stay up-to-date with what is going on with non-recourse litigation funding, Wild Dog serves as a trusted advisor to attorneys and their clients who are exploring litigation financing. So follow our Linkedin Page for the latest updates on https://www.linkedin.com/company/wild-dog-mu or visit our website https://wilddog.mu for more.