Third-party Litigation Funding System

Litigation is an activity with uncertainty.Although the parties or lawyers can estimate the probability of winning or losing a case based on the mastery of factual evidence and legal basis before the lawsuit,there is still no 100% definite answer in most cases.Where there is probability,there is risk.If one of the consequences of taking risks includes rewards and returns,then investment will appear.The event of litigation itself has two basic elements of risk and return,which fully meets the necessary conditions required for "investment objects" in finance.In fact,there have been many investment and financing methods for litigation in the market,such as risk agency and litigation insurance.These traditional ways of capital involvement in litigation can be considered as an indirect or disguised investment in litigation.However,the above methods are innovative businesses developed by law firms and insurance companies beyond the traditional business scope,and does not exist independently of the operating model of the original carrier framework.With the development of the society,an industry that provides capital for litigation—third-party litigation funding industry—has gradually emerged.Third-party litigation funding emerged in Australia in the early 1990 s.It was initially applied only to bankruptcy cases,and then quickly expanded to other common law countries,and then further to some European civil law countries.Due to the principle of " maintenance and champerty" in common law countries,third-party litigation funding has been widely banned in history.As times change,the need for "access to justice" is getting stronger and stronger in society.The unique value of third-party litigation funding is highlighted and gradually developes into an emerging industry.The main business activity in this industry is to provide financial assistance to litigants.If the case is successful,a certain percentage of the compensation will be collected from the winning compensation according to the funding agreement.This specialized funding company has unique advantages in terms of capital strength and team professionalism.Although third-party litigation funding can solve the problem of difficulty in accessing to justice due to lack of funds,and can provide an effective transfer path for the parties' litigation risks,it still has many potential adverse effects(such as the series of moral issues).If not regulated,the negative effects of this system will likely offset or even cover the original positive effects.The main reason why many emerging things cause lots of problems in the professional field and the society is the lack of regulation.Therefore,how to maximize the unique value of third-party litigation funding through regulation to the practical level is what this article will try to explain and analyze.