Legal financing (also known as litigation financing , professional funding , funding completion , third party funding , legal funding , loan lawsuit and, in England and Wales, litigation funding ) is the mechanism or process through which the claimant even law firms) may finance litigation or other legal costs through third party funding companies.
Similar to legal defense funds, legal finance firms provide money for lawsuits but are more often used by those who do not have strong financial resources. In addition, legal financing is more likely to be used by plaintiffs, whereas legal defense funds are more likely to be used by defendants. Money earned from legal finance companies may be used for any purpose, whether for litigation or for personal matters. On the other hand, the money earned through legal defense funds is only used to fund litigation and legal costs.
Legal finance companies provide nonrescourse cash for litigation in return for a percentage share of a decision or settlement. Despite the superficial similarities with unsecured loans with traditional lenders, legal financing operates differently from loans. Litigation funding is generally not considered a loan, but rather as a form of asset or venture capital purchase. Progress of non-debt legal financing and not reported to the credit bureaus, so the court's credit rating will not be affected by the plaintiff getting legal advances.
Legal finance companies usually provide money in the form of payments at once, and generally, no specific accounts are set for the plaintiff. If the case goes to court and losers lose, third party funding companies do not receive anything and lose the money they have invested in the case. In other words, if the betrayer loses, he does not have to pay back the money. In addition, litigants generally do not have to pay monthly fees after obtaining legal financing. Instead, there are no payments of any kind until the case is settled or a decision is obtained, which may occur several months or years after legal funding is received. Therefore, to qualify for funding with a legal finance company, the litigant case must have sufficient reward that the company considers its investment in the case to be worth the risk.
In lawsuit litigation, legal financing is most often sought in cases of personal injury, but may also be sought for commercial disputes, civil rights cases, and workers' compensation cases.
Video Legal financing
History
Although Third Party Litigation Funding is not a new concept, it is relatively new in the United States and is rooted in the old principles of English about champerty and maintenance. Some US states still prohibit or materially limit champerty and others allow it with some restrictions.
Small financial aid is available from traditional sources to help injured plaintiffs cover the costs of litigation or pay their personal expenses while a case is pending. Plaintiffs may switch to credit cards and personal loans to cover litigation fees, attorney fees, court appeals, personal finances, and lack of living expenses while they wait for the litigation process to be resolved. The obligation to repay the debt is not affected by the plaintiff's lawsuit.
In many jurisdictions, and throughout the United States, the lawyers' ethical rules deter lawyers from forging money in loans to their clients.
The introduction of legal financing provides qualified plaintiffs by paying their litigation and personal expenses, without resorting to traditional lending.
Maps Legal financing
Qualification for litigation financing
The legal funding company does not provide legal advice to applicants, nor does it provide a reference to lawyers. So, to qualify for legal financing, the plaintiff must have hired a lawyer. To apply for legal financing, the plaintiff must complete the application form and provide the supporting documents.
Since legal finance firms only recover their investments if the plaintiff gets back the money from the funded lawsuit, the benefit of the plaintiff's lawsuit must be strong, meaning that the plaintiff has a strong argument that the defendant is responsible for the claimed damages in the lawsuit. The defendant in the case (the person or company charged) must also have the ability to pay an assessment, either on the basis of his own financial strength or through insurance coverage. Disadvantaged party lawyers must also agree on legal financing and generally have to sign an agreement that approves legal financing.
Additional qualifications or approval factors may include the total amount of damage sought, the potential for adequate restoration margin to justify the investment, the applicant's background, and the applicant's residence law. Some legal finance companies restrict their investment to certain types of lawsuits, such as personal injury claims or commercial litigation.
Benefits
Lawsuits are expensive and can develop slowly, for several months or years. During that time, many plaintiffs may feel great financial pressure, and may need money to pay for litigation fees, as well as the cost to support themselves. When acquired during a court proceeding the lawsuit, legal financing can assist plaintiffs who have urgent needs, such as medical care, and are unable to wait until the litigation ends to earn money. Highly injured plaintiffs may have significant personal expenses due to disability or loss of income and may face significant personal and medical debt, and as a result may feel considerable pressure to get into the initial settlement. A defendant can recognize the plaintiff's financial needs and offer a low settlement in anticipation that the plaintiff will not be able to afford advanced litigation.
The plaintiff's desperation situation is reflected in the findings by the American Legal Finance Association, an industry group for legal finance companies, that more than 62% of funds granted to plaintiffs are used to stop foreclosures or eviction actions.
Criticism
One concern about litigation funding is that it is expensive for plaintiffs, and can take a very large piece of the settlement or plaintiff's decision. After paying the attorney's fees and the amount owed to the legal financing company, the plaintiff may receive little or no additional money in excess of the amount received from the down payment.
There are some concerns that, if widely adopted, financial litigation may extend litigation and reduce the frequency of civil settlement settlements. A study of a civil lawsuit published in the Journal of Empirical Legal Studies found that between 80% and 92% of cases settled. The study finds that most plaintiffs who decide to pass a settlement offer and proceed to court eventually recover less money than if they accept a settlement offer.
The legal finance industry is criticized by critics for actual and potential violations of law and ethics. For example, some companies have been found to be in violation of state riba law (a law against unreasonable high interest rates), champerty laws (laws prohibiting third parties to file lawsuits for the sake of recovery), or to request action of the applicant's lawyers that it may be unethical under the rules of the state of professional conduct.
The main criticism of litigation funding is the cost of disproportionate risk to litigation finance. Because lenders are thoroughly evaluating claims before they agree to provide financing, they have a very high probability of recovering their costs at the end of the plaintiff's case, and further limiting potential losses by providing financing in relatively small amounts compared to the anticipated plaintiffs. recovery.
In June, 2011, the New York City Bar Association discusses some of the ethical issues posed by financing lawsuits in ethical opinion about the funding of non-recourse third-party law. This concludes that cautiously an attorney can help clients obtain legal financing, and that non-recourse litigation financing "provides some of the most valuable advocates to pay for the pursuit of legal claims, or even maintain basic living costs until completion or assessment is obtained. "Many lawyers advise clients to pursue legal financing only as a last resort, when other forms of financing are not available.
England and Wales
Litigation funding has been permitted in the UK and Wales since 1967 (and in the case of insolvency since the late nineteenth century). However, recent years have seen its increasing acceptance as part of the litigation landscape.
In 2005, in the case of Arkin v Borchard Lines Ltd & amp; Others, the UK Court of Appeal explained that litigation funding is a legitimate method to finance litigation. In January 2010, Chapter 11 of the Jackson Review of Civil Litigation Costs was published, effectively providing judicial support for litigation funding.
In November 2011, the Code of Conduct for Assistance Litigation was launched, which sets the best practice and conduct standards for litigation advocates in England and Wales. The Code of Conduct provides transparency to their claimants and lawyers. This requires the litigation funder to provide a satisfactory answer to a certain key question before entering into a relationship with the claimant. Under the Code, litigation funders are required to provide a guarantee to the claimant that, among other things, the litigation funder will not try to control the litigation, the litigation of the funder has the money to pay the funded litigation fee and the litigation of the funder will not stop funding without material development which is harmful. This code has been approved by Lord Justice Jackson and praised by the Chairman of the Civil Justice Council, Lord Neuberger of Abbotsbury, President of the Supreme Court.
The regulatory body responsible for litigation funding and ensuring compliance with the Code is the Litigation Bar Association (ALF). The ALF Board of Directors comprises representatives of Calunius, Woodsford and Harbor Litigation Funding. ALF members have adopted the Code of Ethics and promise to obey at all times with it.
South Africa
Litigation financing is generally not regulated in South Africa, but it seems to have been secretly part of the South African legal landscape, gaining little or no resistance in the face of what was once described as an older budding budding contra boss agreement, which, by definition, is illegal.
A pactum de quota litis is defined as "an agreement to share the results of one or more lawsuits" and it is the court's duty to ascertain, on its own behalf, the validity of the treaty as unable to provide its assistance for the execution of the treaty and transactions that conflict with the law. The initial difference between acceptable and unpleasant pactum de quota litis is defined in Hugo & amp; MÃÆ'¶ller N.O. v The Transvaal, Financial and Mortgage Co Loan, 1894 (1) OR 336. The Court declares that a fair agreement to provide the necessary funds to enable the action to proceed, with consideration to the person lending money is receiving interest in the property which is sought to be recovered, should not be regarded as contra bonos mores . The court is concerned about potential violations to the agreement, such as using them for gambling purposes with litigation cases.
Some cases have provided further guidance for such litigation financing agreements. At Hadleigh Private Hospital (Pty) Ltd t/a Rand Clinic v Soller & amp; Manning Attorneys and Others 2001 (4) SA 360 (W), the Court affirmed that an agreement to share the proceeds of one or more lawsuits does not always violate the law and should be considered acceptable when a litigant is not in a financial position to fund its full litigation. In another case, the South African High Court held, at PriceWaterHouse Coopers Inc. and others v National Potato Co-operative Ltd, 2004 (6) SA 66 (SCA), that "despite the number of cases the reported cases relating to unpleasant agreements are reduced, the courts still hold to the view that they generally violate the law and that litigation under such agreements should not be entertained. " However, the Supreme Court seeks to clarify any disputes and take different routes.
The Supreme Court ruled that:
- An agreement in the case of a stranger to a lawsuit raises funds to a litigant on condition that his remuneration, in the case of a litigant winning action, is to be part of the proceeds of the lawsuit not to be contrary to public policy or void, and
- The existence of such aid agreements can not be the basis of defense in action. In June 2010, in an interlocutory decision made in the same case, the Court of Appeal found that the funder is, after all, the joint owner of the claim and must therefore join the party in the hearing. Therefore, orders for fees can be made directly against him to the extent that the funded party can not support them even after the termination of the funding agreement.
United States
Legal financing is a fairly recent phenomenon in the United States, beginning in or about 1997. Litigation funding is available in most US jurisdictions. Litigation financing is most often sought in cases of personal injury, but may also be sought for commercial disputes, civil rights cases, and workers' compensation cases. The amount of money that plaintiffs receive through legal financing varies considerably, but is often about 10 to 15 percent of the estimated value of the allegations or the settlement of their lawsuit. Some companies allow individuals to request additional funds in the future. The amount of money available depends on the company's financing policies and the characteristics of the claimant's lawsuit.
One major division of litigation funding is between commercial and consumer finance companies. While consumer finance generally consists of small advances between $ 500 and $ 2000 directly for individual plaintiffs, commercial financing for companies to pursue legal claims is generally dedicated against litigation fee payments. The largest legal finance companies in commercial space, including public companies.
Litigation aides generally evaluate cases based on legal rewards, amount of damage, and the financial feasibility of the defendant. Many funders also specialize in specific litigation areas or have limits on fund sizes and funding structures.
The American Legal Financing Association (ALFA) is a trade association representing consumer finance companies. ALFA's main goal is to set voluntary standards for the legal finance industry and to serve as a liaison with the public, government officials, and the media. Although ALFA is a nonprofit organization, most legal funding companies are nonprofit organizations.
See also
- Champerty and maintenance
- Legal defense fund
- Legal finance industry
References
Source of the article : Wikipedia
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