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Third-Party Litigation Funding

Third-party litigation funding offers a world where, additionally to investing in shares of corporations or trading oil futures, markets exist that allow for the exchange of litigation shares. Buyers would be able to diversify through portfolios of litigation shares spread across a variety of locales and legal doctrines, says David Abrams, assistant professor of ruling, business, and public rule at the Wharton School, University of Pennsylvania and Penn Instruction School.

This theorized financing of a legal system is just that: theoretical. No country has as of

yet implemented a system that fully harnesses the possibilities of such a reform. In spite of this, some nations, including the United States, United Kingdom and Australia have added functions to their respective legal systems that test the waters. Specifically in Australia, the country’s Alternative Litigation Finance (ALF) method has brought thought-provoking results and evidence of potential benefits.

The ALF provides funding for lawsuits that otherwise might not be filed, not because they are frivolous,

though simply because the charges associated with litigation are too high and potential litigants are risk-averse.

Under the ALF, third-party financing was found to

normally target areas of the rule where there remains the greatest level of uncertainty, bringing about positive spillover effects for the judicial system on the whole.

Some theories

put it to somebody that similar ALF systems would actually reduce the caseload of the judicial system, as it would quickly work to clarify uncertain areas of the parameter, thereby encouraging a higher share of cases to be settled out of court.

Empirical evidence from Australia’s experience also suggests that

traders tend to funnel money toward those cases that are most important. With the dual benefits of additional funding toward uncertain areas of the bylaw and toward significant cases, third-party funding in litigation offers a substantial improvement in clarifying the bylaw and using judicial resources where they are most crucial.

The potential tradeoff in this regard,

still, is that initial evidence out of Australia’s system, however it is not statistically important, suggests that this system slows down the judicial process somewhat. This detraction should be weighed against the aforementioned potential benefits when considering the system’s implementation.

Starting place

: David Abrams, “Third-Party Litigation Funding,” Instruction Magazine, Winter 2011-2012.

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