Seven predictions for the Indian Litigation Finance Industry in 2019

Bar & Bench March 28 2019

Syed Asif Iqbal

Payment of legal expenses is a common issue for litigants, lawyers and law firms. In turn, improper payments from the clients affect the pockets of law firms and lawyers. Litigation finance has evolved as the most popular mechanism to resolve the issues of legal expenses in the journey of dispute resolution and access to justice.

Bloomberg recently reported that litigation finance has outperformed private equity and hedge funds as an asset class. This global asset class will double in the next five years. Till now, India’s participation in litigation finance is negligible, but recent developments have given momentum to the litigation finance or Third-Party Funding of Litigation (TPFL) market.

On the basis of the recent developments, here are seven predictions for litigation funding in India in 2019.

Illegal no more

At times, the line between legal and ethical principles is diminished, and this creates misconceptions. Laws are always ethical, but ethics are not always law. This position has delayed the acceptance of litigation finance in India. Though there is no apparent law that bars litigation finance in India, many believed that it was illegal. This misconception has gradually eroded over time.

Another clarification came with the Supreme Court’s judgment in the Bar Council of India v. AK Balaji. In that case, it was submitted that while the Bar Council of India Rules would strongly suggest that advocates in India cannot fund litigation on behalf of their clients, there appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.

Within last three months, more than sixteen authoritative articles have been published on litigation finance in India, and most of them have taken discussion well beyond the legality aspect, as the legal position has become apparently clear.

Legal Departments: Cost Center to Revenue Center

Litigation finance not only helps individuals who do not have money, it is also a widely accepted tool of risk transfer for businesses. The bigger the corporate is, the higher its involvement in litigation. Litigation finance is the smartest tool to mitigate legal costs. Corporates in India have taken inspiration from those in the West by preferring Third Party Funding to transform their legal departments from cost centers to revenue centers.

Availing Third Party Funding (TPF) not only ensures the availability of continuous qualitative legal support, but also improves EBITDA (Earnings before interest, tax, depreciation and amortization) and balance sheet of the corporates. In the last five years, at least five disputes involving an Indian entity undergoing an international arbitration have been third-party funded, Vannin Capital Chairperson David Morley was quoted as saying to TOI.

Major infra companies like Patel Engineering and Hindustan Construction Company have tested TPF with regard to their pending claims, and other Indian infrastructure companies are looking into TPF. This clearly reflects that many Indian corporates would like to join the league in 2019 in order to transform their legal department form cost centers to revenue centers.

 Accessibility to Local Funders 

Accessibility is the most important driving factor for Litigation Finance. Many corporates who knew about TPF struggled to avail it due to the lack of proximity with the funders. Most of the funders were from the international domain.

advok8, a local TPF player has brought a shift in the entire picture and has made TPF available locally and internationally for Indian corporates and individual litigants. They are in the market from quite some time and has handled almost 800 TPFL requests.

Accessibility to funders will improve in 2019 to a different level.

TPF will aid Institutional Arbitration 

Another important prediction is that TPF is not only limited to litigation finance, but covers arbitration disputes as well. India is making all efforts to become an arbitration hub like Singapore. Two new institutional Arbitration centers are on the way.

It is important to understand that parties prefer Singapore in place of the United Kingdom because of the lower cost. This led to the growth of Singapore as an International Arbitration hub. As per the Singapore International Arbitration Centre’s (SIAC) 2016 annual report, 68% of the parties involved in SIAC arbitration are from India.

Arbitration has further flourished as TPF has been expressly coded and accepted by Singapore. Cost of Arbitration will further decrease in India, and that will make it a preferable choice as a for International Arbitration. However, if India wants to deliver cost effective institutional arbitration, TPF will be an important factor.

Search for regulation

With the growing number of TPF transactions in India, there will be debates and discussions on regulation. Unlike other jurisdictions where TPF was banned due to the principles of champerty and maintenance, India will have less hurdles as the Supreme Court has held in a 1950 judgment that the British principles of champerty and maintenance are not applicable in India per se. So, the issue of legalizing something which is not illegal will not arise.

However, legal and financial transactions will require more clarity, which would gradually develop through regulations or a code of conduct. Anish Wadia and Shivani Rawat, in their research on Third Party Funding, have suggested that India should go for a soft regulation as the UK did, rather than going a hard legislation which can probably delay the growth of Third Party Funding in India.

Consumer & Insurance disputes

As per my research and experience with TPF, I feel that there will be a huge demand for TPF by individual litigants. This demand will come from the consumer and insurance sector. Real estate consumers are desperately seeking refund from builders who have failed to complete projects. Other high claim rejections in India give enough scope for TPF to be utilized for accessing justice against big opponents.

Andrew Lundberg, in one of his blogs, writes that litigation finance will be an effective tool to make recoveries by policy holders. In India, litigation costs often restrict consumers from claiming damages. TPF in 2019 will certainly bring a change in this trend, and will legally empower policy holders and consumers.

Global Funders Involvement

India is an $80 billion litigation finance market. Almost all global funders would like to take some share in the Indian market, especially when TPF is being actively operated in India and rate of disposal of cases and execution of awards has improved in last three years. 2019 will witness active involvement of global funders in India even if it is from behind the curtains.

Overall, 2019 will be an exciting year for TPFL developments in India.

 

The author is the Co-founder of advok8, India’s first Third Party Funding company.

Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.