Focus | What is litigation funding and why it presents opportunities in Italy?
Litigation funding is a legal tool typical of the Anglo-Saxon legal system, but it also presents opportunities in Italy.
If you have any questions, you can contact the author of this article using the form below or the contact information provided on its personal page.
What is litigation funding?
Litigation funding is the legal and economic practice in which a funder invests in a third party’s dispute (extrajudicial, judicial, or arbitration), in which he has no interest, assuming all or part of the costs of the dispute, in exchange for a share of the proceeds obtained in the event of its success.
In practice, in litigation funding (also known as third-party litigation funding or litigation finance):
- a subject, typically a special purpose entity or a fund, takes on the role of litigation funder,
- by acquiring from another party (an individual, a company or a public entity) the Claim concerning patrimonial rights.
The aim is to allow the transferring party to protect its rights in both pre-litigation and litigation phases, without financial risks or commitments.
Does litigation funding depend on the outcome of the dispute itself?
The practice of litigation funding entails the litigation funder taking on, wholly or partially, the costs of the lawsuit and assuming the risk of losing (the case). In the event of a favorable outcome of the dispute, he will receive a pre-agreed share of the economic benefit obtained by the transferring party; otherwise, he will not be repaid.
What are the parties involved in more detail?
The parties involved in litigation funding are essentially the litigation funder or financier, who provides funds to cover legal costs and the party that decides to avail itself of this type of funding. The funder can be represented by specialized financing companies, investment funds, banks or individual investors; while the funded party may consist of private individuals, sole proprietorships, partnerships or corporations and public administrations, who do not have the financial resources necessary to bear the costs of a dispute or prefer to allocate them differently.
A key role in the operation is then played by the legal team, which can provide specialized litigation funding entities and individual companies with an assessment of the risks and returns of potential disputes, structure funding agreements for the case and manage litigations.
What are the advantages of litigation funding?
The cost of justice and the risk of the outcome of the proceedings often act as strong deterrents to seeking judicial protection. The institution of litigation funding thus arises as a financial and legal support tool to overcome this criticality, facilitating access to judicial protection, allowing weaker parties to face challenging disputes, eliminating associated financial risks (including those for possibile legal expenses in the event of defeat).
In essence, litigation funding proves to be both a valuable incentive for access to justice and an effective risk-transfer mechanism of the uncertain outcome of the dispute to the funder. And the inherent advantages of this type of instrument are mutual: the funded party can face the proceedings, without immediately having to bear the legal costs, while the funder has the opportunity to obtain a financial return in case of successful litigation.
How widespread is litigation funding in Italy?
The practice of litigation funding originates from the Anglo-Saxon legal system and it is already widely used in Common Law systems. However, it is gradually becoming more popular also in Italy, thus offering a party involved in a dispute, who cannot or does not want to bear the costs of litigation, the opportunity to face the proceedings without personally bearing any financial burden, by transferring all or part of the financial risk to a third party.
The Litigation & Arbitration department of RPLT hosts a litigation funding team comprised of lawyers specialized in financial, corporate, litigation and arbitration, corporate crisis, intellectual property, and tax matters.
The team is capable of:
- providing specialized litigation funding funds and individual companies with an assessment of the risks and returns of potential disputes,
- structuring litigation funding agreements,
- managing litigation and assisting clients in resolving disputes through a settlement agreement.
If you have any questions, you can contact the author of this article using the form below or the contact information provided on its personal page.