Litigation Funding in Commercial Cases: Opportunities and Risks

Let’s cut to the chase — commercial litigation can be a substantial financial undertaking.

With commercial cases, every legal move comes with a price tag, and a clear understanding of the financial picture is crucial when deciding how to proceed. Businesses and individuals need to carefully weigh the potential benefits against the costs involved in pursuing litigation, which include attorney fees, court expenses and the overall investment of time and resources.

Litigation funding can help make it possible for businesses, especially smaller ones, to fight for their rights. In the context of commercial cases, this means a third party provides financial support to a party involved in a legal dispute. This practice has been gaining traction in recent years, and is particularly common in high-stakes commercial and personal injury cases, where the financial burden can be overwhelming.

However, like any financial arrangement, litigation funding comes with a set of risks and considerations. The terms of the funding agreement, including the percentage of the recovery the funder will take and the potential impact on the litigant’s decision-making autonomy, need careful examination. Moreover, not all cases may attract litigation funders, and securing funding can be a competitive process.

Here are some opportunities and pitfalls that businesses might encounter as they explore the dynamics around litigation funding in commercial cases.

Opportunities in Litigation Funding

  1. Financial Accessibility:

    Litigation funding provides the means to pursue legal action without a significant upfront investment.

  2. Risk Mitigation:

    The non-recourse nature of litigation funding means that businesses are only obligated to repay the funder if the case is successful.

  3. Leveling the Playing Field:

    Litigation funding can have an equalizing effect on legal disputes, allowing smaller businesses to take on larger opponents without being financially outmatched.

Challenges in Litigation Funding

  1. Cost of Funding:

    Litigation funders typically charge a percentage of the recovery, which can be substantial.

  2. Loss of Decision-Making Autonomy:

    Some funding agreements may give the litigation funder a final say in the strategic decisions of the case.

  3. Threat to Confidentiality:

    Litigation funding arrangements may require disclosure of case details, raising concerns about privacy.

Ultimately, the opportunities presented by litigation funding can offer a lifeline to businesses seeking justice, but anyone facing this choice should carefully consider the concerns and consequences outlined above.

A careful balancing act is required to ensure the legal journey to righting a wrong or reclaiming a loss is both financially prudent and strategically sound.

We offer an alternative to this – the contingency fee.  This arrangement has the lawyer take the risk of the litigation by taking a portion of the recovery.  This way the law firm bets on itself to bring home the win.

Please feel free to reach out to me should you have any questions or clarifications concerning litigation funding and its implications for your commercial case as well as how contingency fees work.

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