Litigation Finance Primer: An Introduction
Editor’s Note: This Article is the first in a series that will act as a primer on litigation finance for parties new to the space.
The driving force behind all markets and economics in general is the competition for scarce resources; that competition as all contests do has some competitors who perform better than others. This has led to an unequal distribution of wealth across society. Far from being a negative this unequal distribution brought on by competition for scarce resources is actually the engine which drives modern society. The advancements in science, technology, and information distribution made possible by modern society have created the unprecedented level of prosperity across the world and undeniably created a better habitat for all mankind.
However, the uneven distribution of money brought on by this system has also lead to some inequalities in the services available to people. Some of the services deal with basic human rights which society in general feels should be available to all people regardless of their level of wealth or income. One of the most prominent examples of this is found in our legal system. An unbiased observer could not deny that the level of capital available to a party has a direct correlation with their ability to receive justice for transgressions committed against them. Plaintiffs seeking redress against defendants whose resources vastly exceed their own face an uphill battle against steep odds as the defendants can employ those resources to delay and exhaust the resources of the plaintiff.
This inequity has created a growing demand which around the turn of the millennium became so great that a market formed to supply that demand with what was required in order to restore all parties to an equal footing, namely: capital. The professional litigation finance market can trace it’s roots to Australia where in 2001 the first companies formed to provide capital to meritorious and worthy cases which lacked the funding to pursue true justice. This was not the first time the idea had come about however, its roots go back thousands of years.
In the time of the Roman Empire the practice of funding or betting on matters of litigation was rather common. This came to a halt when the practices of champerty and maintenance were banned under English Common Law, which forms the basis of many legal systems across the world today. However, these rules which were made centuries ago are no longer considered sufficient to address the complexities of the legal system today in many jurisdictions. The increasing number of jurisdictions which have relaxed the rules against champerty and maintenance have created a fertile atmosphere in which litigation finance has flourished.
This new market has met with stiff opposition from those who stand to benefit from continuing the status quo. This opposition however, diminishes every year as the benefits of litigation finance become more and more apparent to those in need of it. Every year, the market is expanding both in terms of size and in the level of services it provides. This expansion continues despite of opposition from powerful interests in both the legal and financial realms. The reason for the success of this emerging market against other entrenched interests is simple. It redresses the obvious imbalances of the justice system without requiring exertion from any but the interested parties. This will continue to fuel the rise of litigation finance until such time as it is commonly accepted as a means for funding the litigation of worthy cases with sufficient merit.