Claim Finance: Funding Legal Battles

Claim finance, also known as litigation finance or legal finance, is a specialized area of finance where a third party provides funding to a litigant (the claimant) in exchange for a share of the proceeds recovered from a successful legal claim. This funding is typically non-recourse, meaning the funder only gets paid if the case is won or settled. If the case is lost, the funder absorbs the loss and receives nothing.

The core principle behind claim finance is to level the playing field in legal disputes. Often, individuals or smaller businesses with legitimate claims lack the financial resources to pursue them against well-funded opponents. Claim finance provides the necessary capital to cover legal fees, expert witness costs, and other expenses associated with litigation, enabling the claimant to pursue their case effectively.

How it Works:

1. Application: A claimant seeking funding submits their case details to a claim finance provider. This includes information about the claim, the defendant, the potential damages, and the lawyer involved.
2. Due Diligence: The funder conducts thorough due diligence, assessing the merits of the case, the likelihood of success, and the potential return on investment. This involves reviewing legal documents, consulting with legal experts, and analyzing the strength of the evidence.
3. Funding Agreement: If the funder is satisfied, they enter into a funding agreement with the claimant. This agreement outlines the amount of funding, the funder's share of the proceeds upon success, and the terms of the financing.
4. Funding Disbursal: The funder provides the agreed-upon funding, typically used to cover legal expenses as they arise.
5. Outcome: If the case is won or settled, the funder receives their agreed-upon share of the proceeds. If the case is lost, the funder receives nothing.

Benefits of Claim Finance:

• Access to Justice: Allows individuals and businesses with limited resources to pursue meritorious claims.
• Risk Mitigation: Shifts the financial risk of litigation from the claimant to the funder.
• Level Playing Field: Empowers claimants to compete with well-funded opponents.
• Improved Settlement Outcomes: Can strengthen the claimant's negotiating position, leading to better settlement terms.
• Reduced Financial Burden: Frees up the claimant's own capital for other business or personal needs.

Considerations:

• Cost: Claim finance is not cheap. Funders typically seek a significant return on their investment, reflecting the high risk involved.
• Due Diligence: The claimant must be prepared for rigorous due diligence by the funder.
• Control: While the claimant retains control of the litigation strategy, the funder may have some input, especially regarding settlement decisions.
• Regulation: The claim finance industry is still evolving, and regulations vary across jurisdictions.

In conclusion, claim finance is a valuable tool for providing access to justice and leveling the playing field in legal disputes. It allows claimants to pursue legitimate claims without bearing the full financial risk of litigation. However, it is essential to carefully consider the costs, terms, and potential implications before entering into a funding agreement.