Litigation funding can be used in business disputes where a third party funds the legal expenses on the basis that they will receive a return on their investment only if the case is successful.
This form of funding gives businesses the opportunity to protect themselves with a legal team in instances where there’s a meritorious claim. Litigation funders can cover all or some of your legal costs, depending on the case.
In this article, we’ll break down how litigation funding works and where you can apply for it.
Understanding How Litigation Funding Works
When you apply for litigation funding, the funder assesses your case to analyse it and measure the risk. Litigation funders have a team of legal experts, including actuaries, accountants, private equity professionals, and businessmen.
These professionals are crucial as they understand the aspects of litigation that could either positively or negatively affect the funder. Once the committee has assessed your case and they are confident in your case, they will express interest in funding your case.
After discussions conclude with the funder, they’ll finalise the funding agreement. Litigation serves as an investment by the funder, as opposed to a loan. The litigation funder operates on risk and will only be repaid if the litigation is successful. If it isn’t successful, they will lose their investment.
How Much do Litigation Funders Expect?
Businesses or individuals applying for litigation funding must always ensure their funder has a transparent fee structure. This structure must outline the fee percentage and its calculation. The client must receive upfront communication from the funder about the calculations so they have a chance to ask questions and agree to the terms.
Do Litigation Funders Have a Minimum Claim Amount?
The minimum claim differs from funder to funder. Taurus Litigation Funding funds high-value commercial litigation for claims over R20 million. Exceptions can be made on a case-by-case basis, but larger claims are typically the ideal case as the funder has a chance to get a return on their investment.
How to Apply for Litigation Funding?
When you apply for this type of funding, you must start by finding out what kind of cases the funders are looking for. The requirements might differ depending on the litigation funder. The funding criteria for a high-value claims funder can include the following:
1. Prospects of Success: Funders look for cases that have a high chance of success upon assessment of probabilities.
2. Budget: An estimation of the budgeted costs will be conducted to determine fundability. The investor will consider the uncertainties that may take place in litigation, as well as the potential cost for the opponent’s legal fees if the case is unsuccessful.
3. Claim Value: Claim value must exceed the minimum amount set by the investor. The claim must be for a monetary amount or for an asset of the same value.
4. Legal Team: Investors would typically only invest in top legal teams in South Africa to increase the chances of case success.
5. Defendant’s Solvency: The funder will assess whether the defendant will be able to pay in the event that the claim is successful. If the defendant has no money or assets, the investment would not generate any value for the funder, as the litigation would result in an empty judgment.
Once you’ve assessed whether you might be a qualifying candidate for a litigation fund, you can contact a litigation funder like Taurus Litigation Funding to enquire. To enquire, your attorneys need to contact Taurus with a summary of the dispute via the following details:
- +27 (0)87 820 3857
- team@tauruscapital.co.za
The Advantages and Disadvantages of Litigation Funding
Businesses do not have to scrape by for finances to handle litigation matters on their own, especially in high-value commercial cases. While there are benefits to this type of finance, business owners must be aware of the disadvantages.
Advantages of Litigation Funding:
Non-Recourse Funding: If the case is lost, the business usually owes nothing to the funder.
Risk Mitigation: The business does not have to take the bulk of the financial risk involved.
Liquidity Preservation: Keeps the business’s capital available for core operations and cash flow availability.
Access to Justice: In cases where small businesses have been wronged, they have the chance to pursue claims against larger opponents.
Disadvantages of Litigation Funding:
Cost: Funders take a significant share of the settlement or award (often 20% to 50%).
Loss of Control: Funders may seek some level of influence over case strategy and settlement decisions.
Due Diligence: The application for litigation funding and the due diligence process can be extensive and intrusive. This is expected as investors want to assess the risk involved.
Litigation funding can be used in business disputes where a third party funds the legal expenses on the basis that they will receive a return on their investment only if Read More
