What is litigation funding?

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Litigation funding (also known as litigation financing, professional funding, settlement funding, third party funding, legal funding) is the mechanism or process through which litigants (and even law firms) can finance their litigation, arbitration or other legal costs through a third party funding company such as Astrea. Astrea provides cash advances to litigants in exchange for a percentage share of the judgment or settlement amount. Effectively, Astrea enables a party to litigate or arbitrate without having to pay for it. If the case proceeds to trial and the litigant is unsuccessful, Astrea receives nothing and loses the money invested in the case. In other words, if the litigant loses, he does not have to repay the money. To qualify for funding with Astrea, a litigant's case must have sufficient merits. Astrea can pay some or all of the costs/expenses associated with a dispute in return for a share of the proceeds of the dispute if it is successful. If the litigation is not successful, Astrea bears the costs it has agreed to fund.

 

The position in South Africa

Litigation funding in South Africa is not prevalent as yet but the concept of litigation funding is not a new one. It has been permitted in England and Wales since 1967.


Several cases have provided guidelines for litigation financing agreements. In Headleigh Private Hospital (Pty) Ltd t/a Rand Clinic v Soller & Manning Attorneys and Others 2001 (4) SA 360 (W), the Court affirmed that an agreement to share the proceeds of one or more lawsuits is not necessarily unlawful and must indeed be considered acceptable when a litigant is not in a financial position to fund his litigation completely. The South Africa Supreme Court of Appeal held, in PriceWaterHouse Coopers Inc and Others v National Potato Co-operative Ltd, 2004 (6) SA 66 (SCA), that:

  1. An agreement in terms of which a stranger to a lawsuit advances funds to a litigant on condition that his remuneration, in case the litigant wins the action, is to be part of the proceeds of the suit is not contrary to public policy or void; and
  2. The existence of such an assistance agreement cannot be the base of a defence in the action. 


People often confuse legal funding with loans. On the surface, legal funding appears to possess the same characteristics as an unsecured loan with a traditional lender. In actuality, litigation funding is generally not considered a loan, but rather as a form of an asset purchase. The funding does not have to be repaid if the plaintiff's lawsuit is unsuccessful. In addition, litigants generally do not have to pay monthly fees in obtaining legal financing. Instead, there are no payments of any kind until the case settles or judgment is obtained, which could be months or years away. Because legal funding advances are not debt and not reported to the credit bureaus, the litigant's credit ratings cannot be adversely affected if a litigant obtains a legal funding advance.

Benefits

Lawsuits are expensive. Astrea can help avoid financial disaster during the lawsuit, which can take months or years.  Funding can be used to asssit with surgical procedures for plaintiffs that would otherwise be unable to pay, thereby getting the needed medical procedures to improve health and quality of life. 


People who normally do not have access to loans due to bad credit or other reasons will have access to legal financing. In contrast to banks, the underwriting of legal funding advances is based on the merits of the lawsuit. Banks do not recognize lawsuits as assets when determining an individual's qualification for a traditional loan. As such, many plaintiffs that may not qualify for traditional credit can qualify for legal funding. Due to this fact, it makes lawsuit funding very attractive to anyone that is in a lawsuit because they are able to get the money they need, until their case settles.


Prior to legal financing, many litigants had to settle their legal case early or for a lesser amount just to get some cash to avoid financial troubles. With the assistance of Astrea, plaintiffs are empowered to run a court case with the necessary expertise and funding. Astrea relieves financial pressures to better obtain a fair settlement. Plaintiffs have greater access to the courts and are given greater bargaining power.