For some years now, especially following the recent financial crisis, real litigation financing practices have spread, in which entities that are not parties to the dispute bear the costs and risks of disputes instead of the original part, sometimes even succeeding in the ownership of the right to act, in exchange for the financial participation in the results of the same in case of victory.
These practices are representing models of particular interest not only for their ability to implement and improve access to justice, but also to eliminate the risks and costs of litigation, and to immediately monetize what would instead only be future credits and uncertain.
The Right Practices
Although this practice offers a wide variety of tools potentially applicable to a series of circumstances, in the definition set out above it is easy to identify two macro-models:
- Financing of litigation costs in exchange for a percentage of the proceeds, in the sole case of victory.
- Purchase of the disputed credit (called ‘active litigation financing’).
- It is not difficult to see in such models, even for non-business finance experts, the obvious opportunities to avoid the costs and risks of litigation, and to create immediate value where there is only a problematic situation that may not necessarily lead to the result, she hoped. Not only that, in a regulatory context in which the rule of losing applies (‘the loser pays’), the dispute can be transformed – in case of defeat into a further loss deriving from the obligation to refund the counterpart’s legal expenses.
By resorting to the instrument of litigation financing, a company can instead reasonably decide to avoid immediate expenses for a dispute that will eventually and in the future give financial recognition, supporting the said to a third party, and allocate these resources to activities potentially more profitable and with more immediate results.
The Other Options
On the other hand, a company can also reasonably decide to sell its disputed credit, immediately monetizing its value. This possibility is in fact widely recognized in the Italian legal system, at least for entities that are not explicitly indicated in article 1261 of the Civil Code (lawyers, magistrates, notaries, etc.). Need to know more? Click Here.
The fact that this practice has so far not been widely used seems therefore to be blamed on the absence in the market of entities capable of offering similar services, and that instead for some years now are actively operating globally. For this reason, litigation financing offers immediate opportunities not only for companies, but also for litigation professionals or those active in the commercial sector.