Litigation finance is a mechanism through which litigants (and also law firms) can finance their litigation or other legal costs. The funds are provided by third party companies in exchange for a portion of the judgment or settlement if a case is won. If the case's outcome is unsuccessful, the client does not repay the advances received.
This financial service niche is gaining great popularity nowadays. It provides access to justice to individuals who can not afford expensive litigation costs. It lets companies convert their commercial claims into working capital and focus on their core business. Finally, it also supports the development of a growing number of contingency-fee practices among law firms.
The concept is not new - it was born in Australia in the early 2000’s. It then quickly spread to the UK thanks to professionals working in international arbitration and bankruptcy. At the beginning of this decade it entered the United States which is the biggest market today.
There are more than 150 litigation finance firms globally, with about 60% of them based in US, UK and Australia. Other markets with developing litigation finance industries include: Hong Kong, Singapore, Netherlands, Germany, Belgium, Ireland, Brazil, Canada, South Africa, Austria.
Businesses are increasingly involved in court battles. Litigation is reported to account for 40% of a typical corporate legal budget, making it usually the largest legal expense category. 81% US companies fought a lawsuit in 2016: 34% had 1-5 lawsuits, 24% had 6-20, 10% had 21-50 and 13% had more than 50. The average litigation costs were $1 million in the same year, while the share of companies spending more than $1 million on litigation annually increased to 75%.
Law firm funding
Litigation finance is becoming more and more popular among lawyers. 28% of U.S. lawyers' firms used such services in 2015, while 33% report having ever used litigation finance. More than 50% of those who haven’t previously used litigation finance expect to do so in the coming years.