Third-Party Funding of Litigation

Abstract

This chapter examines the strategic benefits that companies can gain by integrating third-party litigation funding into their legal strategy. It also emphasizes the importance of a careful integration of the funding mechanism to ensure its effectiveness as a strategic tool.

Third-party litigation funding allows individuals or companies to have their litigation expenses covered by third-party investors in return for a share of the final awarded compensation. This practice attracts an increasing number of investors as well as companies seeking to be financed. The main benefit to this practice is its ability to help companies mitigate the ever-rising costs associated with adversarial legal proceedings, a long-standing problem that would otherwise deter them from seeking justice. Companies would benefit significantly from incorporating this third-party litigation funding practice into their legal strategy not only to defend themselves in the courtroom, but also to enhance their financial positions. Indeed, boosting litigation funding tangibly strengthens companies’ negotiating power, thereby increasing their chances of receiving a favorable judicial outcome. For the successful integration of this practice into a company’s legal strategy, a thorough understanding of the legal implications and potential risks is required. Failure to exercise caution might lead companies to face issues such as conflicts of interest, or to risk engaging in frivolous litigation. This leads to the chapter’s conclusion that the recent implementation of regulatory frameworks by legislators within this emerging legal practice is a very positive development, allowing companies to leverage the benefits of third-party litigation funding while also minimizing serious financial risks.