In a country like India, where high litigation costs often restrict access to justice, litigation funding act as a catalyst to bridge the financial gap.
Litigation funding practice also known as Third Party Funding, allows an external party to cover litigant’s legal costs in exchange for a portion of the recovery if the case succeeds. Though this is emerging practice in India, litigation funding is already proving to be a game-changer, both in helping individuals pursue their legal rights and in opening a new avenue for investors as an alternative investment class.
How litigation funding works?
A third-party funder evaluates a case’s merits and agrees to pay the claimant’s legal expenses, including attorney fees, court costs, and sometimes additional expenses like expert witness fees. If the case results in a favorable outcome, the funder receives a predetermined percentage of the financial recovery. If the case is lost, the funder absorbs the financial loss so in other words it is non-recourse funding. It is mainly six step process : Case briefing by client, Due diligence by litigation funder, MOU signing, Legal proceedings, settlement or Judgement and finally the funder walking away with their portion if case succeeds else funder will have to book this expenses as sunk cost in their books without having any recourse of recovery from the client.
How Litigation Funding Can Transform Access to Justice in India?
Litigation funding is suitable for country like India as there are challenges within India’s legal system. High costs generally prevent individuals, small businesses, and even larger corporations from pursuing valid claims, especially in complex commercial disputes or lengthy litigation. Litigation funding can level the playing field, enabling more plaintiffs to access legal representation and push for timely settlements. For sectors like corporate law, where high-stakes commercial claims are common, litigation funding offers the possibility of resolving disputes without draining operational capital.
How Litigation Funding Adds Value ?
Third Party Funding arrangements bring great amount of efficiency to manage the litigation in most effective ways as it ensures that the case will not suffer due to lack of access to capital.
For Claimants: Litigation funding provides individuals and businesses the ability to pursue claims without bearing the upfront costs and effectively utilize their working capital in business rather than using it in prolonged litigation expenses. This financial support can serve as a vital resource for those who might otherwise be unable to afford justice because of lack of access to capital.
For Law Firms: With third-party funding, law firms can accept cases they might have turned away due to financial constraints on the client’s side. This expands their client base and allows them to work on high-potential cases. For cases that have been ongoing for a long time, clients often become hesitant to keep paying legal fees and may start seeking either lower-cost lawyers or compromise on quality by not choosing the best legal representation.
For Funders: Litigation funding is emerging as a new asset class for investors, allowing them to diversify their portfolios by including high-stakes legal claims that promise significant returns if successful. For investors, litigation funding represents a calculated risk, as they choose to fund only those cases that have undergone thorough evaluation, with all relevant facts carefully assessed prior to making an investment.
The Regulatory Landscape in India:
Currently, India lacks specific regulations for litigation funding. In countries like the UK and Australia, where litigation funding is more established, guidelines ensure transparency and protect claimant rights. As litigation funding grows in India, there is a pressing need for a regulatory framework to foster trust and protect all stakeholders. Such a framework could bring structure to the industry, prevent ethical breaches, and make it easier for global investors to enter the market.
Bar Council of India v. A.K. Balaji (2018): This Supreme Court case has clarified that third-party funding arrangements are not barred in India. The court observed that there is no restriction on non-lawyers funding litigation and getting repaid after the outcome. This ruling provided significant legitimacy to the concept of litigation funding. Lawyers in India are not allowed to get into contingent fees contract
Case Studies and Examples :
While specific details of litigation funding agreements are often confidential, here are a few examples of Indian corporates that have reportedly used litigation funding or similar strategies:
- Hindustan Construction Company (HCC): In 2019, HCC made a groundbreaking move in the infrastructure sector by partnering with BlackRock to monetize a pool of arbitration awards and claims. This deal, valued at Rs. 1750 crores, involved creating a special purpose vehicle (SPV) to manage the process. This innovative approach showcased the potential of litigation funding in resolving long-standing disputes and unlocking value for companies.
- Go First (formerly known as GoAir) has indeed secured litigation funding from Burford Capital. As per recent media report the following is the case:
- The Case: Go First is engaged in a legal battle with Pratt & Whitney, the engine manufacturer, alleging faulty engines as a major contributor to the airline’s financial distress and eventual grounding.
- Burford’s Role: Burford Capital, a leading global litigation funder, has agreed to finance Go First’s arbitration case against Pratt & Whitney. The initial tranche of funding is reportedly USD 20 million, covering the first phase of legal costs.
- Significance: This move is significant because it allows Go First to pursue its claim against Pratt & Whitney without being further burdened by the high costs of international arbitration. It also signals confidence in Go First’s case, as Burford Capital typically invests in cases with strong merits and potential for substantial returns.
This development highlights the increasing role of litigation funding in India, particularly in high-stakes commercial disputes. It allows companies like Go First, facing financial challenges, to access justice and potentially recover substantial damages.
Future Prospects and Emerging Trends :
With ever changing trends in technology (Artificial intelligence, Machine learing), funders are increasingly able to evaluate cases more efficiently, using data analytics to assess case merits and potential returns. The Indian market is on the cusp of embracing these innovations, which could streamline funding decisions and boost investor confidence. As legal and financial landscapes evolve, the industry is likely to attract more interest from global investors, creating a competitive and transparent environment.
Litigation funding has the potential to redefine access to justice in India, offering financial support to those who need it and opening up new opportunities for investors. As the industry grows, so too does the need for a structured regulatory framework to ensure fairness, transparency, and accountability. By watching this space, Indian businesses, investors, and claimants alike can stay at the forefront of a trend that promises to make justice more accessible and equitable for all.