For a while now in Italy, we have been hearing about litigation funding.
It is a relatively recent concept in Italy that allows companies and citizens to have fair access to justice systems, thanks to the investment of a third party.
How exactly does it work?
Let’s attempt to clarify.
Litigation funding: an investment that benefits the client
It is important to recognise that litigation funding is actually a form of investment.
A form of investment, however, that is directed at fully supporting the client: the obligations, risks and costs of litigation all rest on the shoulders of the investor.
Referred to also as third-party litigation funding, litigation funding is a service where a third party decides to invest in a legal dispute.
External legal matters in which the litigation funding company has no interest.
Financing is provided by purchasing the chose in action and providing the client with a network of experts and lawyers.
litigation funding originated in Anglo-Saxon countries
Litigation funding was imported into Italy relatively recently. However, it is well-known in all countries that historically have a common law system.
Countries such as Great Britain, Australia and Canada.
Before arriving in Italy, however, it had already caught on in Switzerland, Germany and even Asia.
Litigation funding: success stories around the world
Although not well-known, it must be acknowledged that it is thanks to the contribution of litigation funding systems that some world-famous disputes have been resolved.
A few examples are:
- the class action lawsuit brought against Volkswagen over the Dieselgate affair;
- the shareholder disputes with Lloyds TSB;
- the HBOS and Royal Bank of Scotland affair
- The divorce decree in which £435 million was awarded to the ex-wife of Russian oligarch Farkhad Akhemedov.
How does it work in Italy?
Litigation funding’s origins in countries where a common law system reigns begs the question of whether there might be problems and discrepancies compared to the Italian legal model.
Under the contingent fee agreement, lawyers may not receive any compensation deriving from the object of his or her services, even if it is only a simple fee.
However, this does not apply when a third party is present as an intermediary, as in the case of litigation funding.
Litigation funding in Italy is underpinned by the principle of contractual autonomy, referred to in the second paragraph of Art. 1322 of the Italian Civil Code.
Litigation funding: who is it for?
Litigation funding can benefit various types of client:
- Business professionals
- Private individuals
- Public administrations
- Associations
It may be used to finance disputes conducted both in and out court, of a commercial or civil nature:
- Commercial disputes such as breaches of contract
- Claims for compensation owing to non-contractual liability
- Class actions
- National and international arbitration
The risk is borne by the funder.
In the event of a successful outcome, the funder will collect an amount based on a percentage calculation of the amount obtained; in the event of losing the case, the client is not required to pay anything.
It is clear, given the Italian situation, how this is an incentive to take action: court fees are the biggest deterrent for anyone seeking to settle a dispute in court.
The situation in Italy
It is easy to understand how litigation funders almost always present themselves as angels descended from heaven among business professionals in Italy.
Compared to the European average, Italy holds the record for the lengthiest court proceedings.
Legal proceedings, particularly civil and commercial proceedings, are costly and cumbersome.
The costs involved are often unsustainable for small and medium-sized enterprises, already brought to their knees by Covid and the energy crises.
Litigation Funding makes it possible to combine the spirit of entrepreneurship with solidarity and equal opportunity with respect to companies that otherwise would be unable to fight for their rights.
Passing the costs of litigation onto a third party also saves time and energy which can be invested in the company’s core business.
How do we select the cases?
It is clear that the conditions under which litigation funding is provided – where all risks are on the funder’s shoulders – mean that scrupulous attention must be paid to the selection of the legal case in which to invest.
Using elaborate statistical and mathematical models, cases are selected 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 LexCapital
At LexCapital, we are committed to bringing litigation funding to Italy, so as to help people have fair and equal access to justice.
We take on and fully commit to cases for business owners, associations and public bodies.
Visit our website to find out more.