Litigation Funding: Why the Criticism?

Litigation funding has come under scrutiny in recent weeks, with many large corporations questioning its relevance.

Generally, third-party funding companies will cover all the expenses of the case, and if it’s successful, they will take a percentage of the financial outcome.

If the case is unsuccessful, the business will walk away from the case, safe in the knowledge that they don’t owe the funder a single penny; whilst the third-party funder still has to foot the legal bill.

It’s easy to see why litigation funding is becoming such a popular choice, but why has it been criticised?

Negative press…

• Most of the bad press for litigation funding has come from the US, with many voicing their concerns that third-party funding is to be feared, and threatens to cause negative changes within the US legal system.

These claims are made without any specific evidence or reasoning behind them, making them, quite frankly, bizarre.

• In all honesty, these ‘concerns’ raised by US corporations stem from the threat they now feel, as any small company or litigant wanting to take on a large corporation in court would have  normally been priced out of presenting a case. That is of course, without the help of third-party funding.

When in fact…

• Sir Rupert Jackson published a Review of Civil Litigation Costs in 2009, supporting third-party funding by saying: “I remain of the view that, in principle, third-party funding is beneficial and should be supported.”

Criticism of litigation funding: The culprits

• The US Chamber of Commerce has consistently pushed against the introduction of litigation funding into the US.

Robert C. Weber, member of the Chamber of Commerce and General Counsel at The International Business Machines Corp (IBM), recently wrote in Forbes that people should ‘be aware of lenders offering to finance your lawsuit’.

Weber, a graduate from The Duke Law School, strenuously claims that third-party funding is unneeded, and introduces a ‘gambling mentality into the court process’.

In all honesty…

• Litigation funding has become increasingly popular in recent years, as it gives small companies something that they would not normally have; the financial capabilities to take a case to court.

• The idea that third-party funding introduces a gambling mentality is nonsense as 80% of the applications received are rejected because of the huge risk for the funder.

• Each case is strenuously assessed, prodded and probed, regardless of the financial capabilities of the funding company.

• The third-party is not allowed to influence the decisions their client makes, nor are they able to be involved with the case itself.

• They are there for one thing and one thing only; financial assistance.

The claims made from the US lack any real relevance or logic and will seemingly make no difference to this ever-growing concept.

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This article was provided by Vannin Capital, the experts in corporate litigation funding.