For some time now, there has been talk of litigation funding in Italy. This is an institution that has arrived in our country in recent years, allowing companies and citizens to have fair access to justice systems, thanks to the investment of a third party. But how exactly does it work? Let's try to understand more about it.
Litigation funding: an investment in favor of the client
One would be wrong not to admit that Litigation Funding activity is actually a form of investment. A form of investment, however, that is aimed at the total support of the client: the burdens, risks, and costs of legal litigation all weigh on the shoulders of the investor. Also called third-party litigation funding – translatable into Italian as finanziamento del contenzioso – litigation funding is nothing more than an institution in which a third party decides to invest in a legal dispute. These are external legal matters in which the litigation funding company holds no prior interest. The funding operation is carried out by purchasing the litigious right and providing the client with a network of experts and lawyers.
Litigation funding: born in Anglo-Saxon countries
In Italy, Litigation funding was imported in relatively recent times; but it is a well-known institution in all countries that historically feature a common law system. We are talking about the USA, Great Britain, Australia, and Canada. Before arriving in Italy, however, it had already taken root in Switzerland, Germany, and even in Asia.
Litigation funding: success stories around the world
Although lay knowledge does not attribute much fame to it, it must be recognized that thanks to the contribution of systems based on the institution of litigation funding, it has been possible to resolve some world-famous disputes. Just to name a few:
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The class action organized against Volkswagen regarding the Dieselgate issue;
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The shareholder dispute against Lloyds TSB;
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The case of HBOS and the Royal Bank of Scotland;
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The divorce ruling in which 435 million pounds were awarded to the ex-wife of Russian oligarch Farkhad Akhmedov.
How does it work in Italy?
Coming from countries dominated by a common law system, one wonders whether there are problems and discrepancies with respect to the Italian legal model. The contingency fee agreement (patto di quota lite) prohibits any lawyer from receiving compensation derived from the object of their performance, even if it is a simple share. But this does not apply when a third party is present as an intermediary, as in the case of litigation funding. The principle that legitimizes and substantiates litigation funding activity in Italy is that of contractual autonomy, referred to by the second paragraph of Art. 1322 of the Italian Civil Code (C.C.).
Litigation funding: who is it for?
Litigation funding activity is aimed at various categories of clients:
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Entrepreneurs
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Private citizens
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Public administrations
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Associations
The disputes it invests in are both extrajudicial and judicial, civil and commercial:
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Commercial disputes, such as breaches of contract;
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Actions for damages due to non-contractual liability;
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Class actions;
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Domestic and international arbitrations.
The risk is shouldered by the funder. In case of victory, it will collect an amount based on a percentage calculation of what was obtained; should it fail, no cost will be charged to the client. It is clear, given the Italian situation, how this represents an incentive to get involved: legal expenses are the biggest deterrent for anyone wishing to resolve a dispute in court.
The Italian situation
It is easy to understand how those who practice litigation funding almost always present themselves as an angel descended from heaven among entrepreneurs in Italy. Compared to the European average, Italy is the country that holds the record for procedural delays. Lawsuits, especially civil and commercial ones, are burdensome and cumbersome. They require costs that are often unsustainable for the productive fabric of small and medium-sized enterprises, brought to their knees by Covid and energy crises. Litigation Funding is an institution that allows combining the spirit of entrepreneurship with an attitude of solidarity and equal opportunities for companies that, almost always, have to give up enforcing their rights. Shouldering the costs of a lawsuit onto a third-party entity also allows saving time and energy to be invested in one's core business.
How to select lawsuits?
It is clear that the conditions guaranteed by the investment of litigation funding – where all risks are loaded onto the shoulders of the funder – require scrupulous attention regarding the selection of the legal case in which to invest. Also resorting to elaborate statistical and mathematical models, the selection is based on criteria that consider the solvency of the parties involved, the probability of success, and the use of a legal database.
Resolve your disputes with Lex Capital
We at Lex Capital have also committed ourselves to bringing this institution to Italy, so as to help people have fair and equal access to justice systems. We evaluate cases for business owners, associations, and public entities, and we put forward all our commitment. Visit our website to learn more.