Lawyers And Law-Firms Are Facing Severe Financial Crunch Because Of The COVID-19 Pandemic; Third-Party Litigation Funding Is A Solution

In addition, the legal segment is also not immune to the hardships. The segment-wide cost-reducing efforts suggest that law firms are wary of the economic outlook, and are already scrambling for cash flows. Even for law firms with ample cash reserves, the crisis has worsened the situation because of disrupted proceedings of court cases. While some oral arguments have moved online, most in-person proceedings such as trials remain postponed. With significant uncertainty surrounding trial proceedings, many law firms are burning cash without an end date in sight.

What is Third-Party Litigation Funding?

TPLF is the financial funding for lawsuits by an organization that is not a party to the lawsuit and has no vested stake in the result of the conflict. In addition, the third-party funder receives a certain fixed payout or a transition fee from any legal relief that the complainant might be given by statute, by a judge or through an out-of-court settlement

Although litigation finance initially gained momentum as the answer to access to justice, the number of large companies leveraging litigation finance is rapidly increasing. Businesses are using it as a tool of financial engineering, whereby such businesses can increase the operating profits and valuations by transferring non-operating expenses to third parties. For instance, legal fees are considered expenses in a company's P&L, while funds that a company realise in a litigation are treated as one-time below the line items.

What kinds of cases attract Third Party Litigation Funding?

The primary target of funders has always been breach of contract, recovery claims, and domestic and international arbitrations. Before funding any litigation, the funder conducts a proper diligence that involves reviewing the merits of the case, the complications of the issues concerned, the scope of mitigation of risks and litigation counsel's capability and experience to handle the case. The funder also assesses the possible defense by the respondent and the financial capability of the respondent to honour the Arbitral Award/Court Decree.

Legal scenario in India:

While TPLF has been in existence since late 19th century, the Supreme Court in Bar Council of India v AK Balaji (2018) 5 SCC 379 observed that

"There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation."

Courts have recognized litigation funding as an element of right and justice. The concept of TPLF is also statutorily recognized under the Civil Code of Procedure, 1908 in six states namely Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Orissa and Uttar Pradesh, by their respective state amendments to Order XXV rules 1 and 3 of the Civil Procedure Code, 1908 (CPC).

Who provides Third-Party Litigation Funding in India?

LegalPay, a home-grown litigation funding and interim financing (DIP-comparable) the platform is helping businesses and individuals to offload litigation costs. LegalPay promotes lawsuits to be decided purely on merits, and not on the party's deeper pockets or stronger appetite for stretched litigation/arbitration. The idea behind LegalPay was to give a level playing field to businesses.

In addition, there are few international funders active in India, but with ticket size upwards of USD 1 Million for litigation costs and prefer cases filed outside Indian jurisdiction. However, LegalPay has always been focused on domestic mid-market and is currently financing domestic and international arbitrations, commercial suits and post-award execution proceedings. LegalPay believes that the availability of TPLF will help India to become a favorite destination for arbitration.

In addition to TPLF, LegalPay also provides "interim finance" [as defined under section 5(15) of the Insolvency and Bankruptcy Code, 2016] to distressed corporate debtors. Interim Finance is no less than an SOS when it comes to an insolvent company already undergoing corporate insolvency resolution process.

Benefits of the litigation funding for lawyers/law firms:

TPLF ensures the optimum and timely realization of lawyers' professional fee, and helps lawyers to concentrate on the merits of the case instead of devoting substantial time in negotiations or follow ups for the fees. Moreover, TPLF acts as a sale conversion tool for the lawyers/law firms. Law firms can refer meritorious claims to LegalPay, aiding them to convert the client and increase revenues. This helps law firms/lawyers to become strategic partners for their clients, instead of cost centres.

Conclusion:

The financial crunch caused by the Covid19 pandemic has already made business operations for industries extremely difficult. A sense of uncertainty in the market conditions on account of the COVID-19 pandemic, may discourage claimants that have meritorious claims from pursuing such cases. Therefore, LegalPay plays a vital role in ensuring justice to such needy litigants who, with the support of finance from LegalPay, can channelize their limited resources without feeling any burden of heavy legal costs. In addition, LegalPay also helps the law firms/lawyers maintain cash flows and concentrate on strengthening their practice without worrying about financial uncertainty. Hence, LegalPay through TPLF ensures a win-win situation for all stakeholders.