Innovative Risk Transfer Arrangements
Funding arrangements for defendants involve cases where the defendant does not want to bear the upfront costs of litigation but will pay out-of-pocket, a share of the perceived value of a successful defense, upon dismissal of the claim. Increasingly, defendants not only want the litigation-related expenses funded, but also the risk of an adverse decision transferred. For this, the market is evolving instruments that provide insurance and other arrangements (like “After the Event (ATE) Insurance”) that transfer the risk of a dispute for an upfront price paid by the party.
Increasing legislative sanction for Third-Party Funding
Beginning with Australia, many countries are moving away from the outdated common law concepts of champerty, barratry, and maintenance, and have legalized third-party funding. Most recently, Singapore introduced the amended Civil Law Act and the Civil Law (Third-Party Funding) Regulations, 2017 making third party funding in international arbitration and related proceedings legal. On the same lines, Hong Kong enacted and amended its legislative framework to enable third-party funding in arbitration and mediation.
Artificial Intelligence Driving Investment Decisions
Artificial Intelligence enabled algorithms are increasingly being used to determine the outcome of disputes, and to analyze and price the risk in funding a case. For instance, Legalist, a tech third party funding company, uses an algorithm that determines the chances of winning the case using its database of 10 million court cases before investing.
Portfolio Funding and other evolving structures
In Portfolio Funding, several claims brought by a single claimant against the same or different defendants are funded. This helps the claimant get more favorable terms since the funder’s investment and return is spread across the claims, minimizing exposure to a single claim.
Funders are also being approached for transactions like early payment to creditors of an insolvent company who would otherwise have to wait for the conclusion of a claim before being paid, accelerating the proceeds of a settlement, and even funding the costs of business, which might be dependent on a successful claim.
Topics: Litigation Finance, Artificial Intelligence, Finance Market, Legal Development
Work cited: http://www.cyrilshroff.com/wp-content/uploads/2019/06/Third-Party-Funding-in-India.pdf