Litigation funding cannot help in saving arbitration costs.
The Supreme Court of India recently validated the concept of litigation funding. Litigation funding is a practice where a third party unrelated to the lawsuit provides capital to a petitioner involved in litigation in return for a portion of any financial recovery from the lawsuit, according to Advok8.in, an internet company solving problems of lawyers and litigants. The recent validation by Supreme Court of India has indeed brought the concept of third party funding in limelight. Third party funding can be valuable in reducing litigation risk and exposure, if one has a strong case.
Here are key things to know about litigation funding in the country:
- Litigation funding and India Inc- According to Saurav Kumar Sinha, Co-Founder, Marketing Head, Advok8.in, funding for litigation or arbitration cases in return for a share of the proceedings has become a new business. Several countries have invoked claims under bilateral investment treaties ('BITs') concluded with India.
- Litigation funding and arbitration cost- Litigation funding cannot help in saving arbitration costs. However, it focuses on cost sharing. "Litigation funding helps you transfer your arbitration cost to a third party. There may be a party with potential case but they may not be in a financial position to even bring a claim due to the high costs. Third party funding may help such a party.", explained Mr Sinha.
- Litigation funding in foreign law- Foreign laws regulate litigation funding. In the US and the UK, this is primarily used as risk transfer tool or transfer of bad debt. Approximately 40 per cent of companies strategically use third-party funding for their legal expenses, according to Advok8.in.
- Litigation funding merits- "Unrealistic costs associated with arbitration have often affected the credibility of awards in India. Often, it has been observed that when an arbitrator demands high fees and one of the parties agrees to pay them, the other party who may not be in a financial position to pay such costs is put into a potentially disadvantageous situation. Under such circumstances, it is quite probable that the party may hesitate to express its reservation, contemplating that refusal to pay such costs may cause prejudice in favor of the other party who readily agreed to pay the fees", said Mr Sinha.
- Litigation funding and bankruptcy code- In the words of Mr Sinha, the comprehensive Insolvency and Bankruptcy Code 2016 (IBC) unifies the back-breaking existing structure but at the same time, carries with it the question of expeditious implementation. "The pilot of the insolvency process is the Insolvency Professional (IP) who plays a vital role in the entire process of insolvency. Although third-party funding is unexplored and has made its way in this route, Insolvency Professional is an ideal client for a third-party funder. Since an IP has an estate with no money in it and a substantial claim against the entities that spoiled the business of the company, third party litigation is the substantial solution for him," he said. The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy
- Litigation funding challenges- The Indian government is increasingly progressing towards an inclusive economy. However, the Parliament and the judiciary are yet to firm up a regulatory plan. The recent Supreme Court judgment instills hope and focuses on the necessity of third-party funding.