At VWM Capital, we understand the potential litigation funding has to revolutionise the legal space by broadening access to justice.
However, with the legal funding sector evolving so rapidly in the last few years, it’s no surprise that several misconceptions persist, especially in countries and regions where it is still a new practice.
Below, you can read more about some of the most prevalent legal finance misunderstandings – and how AI can help.
Misconception 1: Loss of control over litigation
Perhaps the most common concern related to litigation funding is that engaging a third-party finance provider means relinquishing control over litigation decisions. In reality, reputable legal finance firms operate as passive investors, providing capital without interfering in strategic or settlement decisions.
At VWM Capital, our role is to empower clients by alleviating financial constraints, allowing them to pursue meritorious claims without sacrificing autonomy. We recognise that businesses and individuals seeking funding do so to level the playing field, not to hand over control of their cases to someone else.
Misconception 2: Mandatory disclosure of funding agreements
Another misconception is that parties must disclose their legal finance arrangements, potentially impacting case strategy. Generally, legal finance agreements are private financial transactions and are not subject to mandatory disclosure. Courts typically require disclosure only when financing details are directly relevant to the case. For example, in Worldview v. Woodrow, the New York Appellate Division ruled that disclosure was not necessary, stating that the funding agreement had no bearing on the claims or defences.
At VWM Capital we respect the confidentiality of our clients’ arrangements, ensuring that sensitive information remains protected unless disclosure is legally required. This confidentiality is crucial in maintaining fair litigation practices and ensuring that claimants are not disadvantaged for seeking financial support.
Misconception 3: Legal finance encourages frivolous lawsuits
Some critics argue that legal finance promotes unmeritorious litigation, but this argument does not hold up to scrutiny. Legal finance providers have a vested interest in funding only cases with strong legal merits. Since financing is typically non-recourse – meaning the funder recoups investment only upon a successful outcome – there is absolutely no reason why they would want to support frivolous claims.
VWM Capital’s meticulous case evaluation process, enhanced by lawtech, ensures we target funding towards cases with the best possible chances of success. Our AI tools assess case history, legal precedents, and financial risks, ensuring that only the strongest claims move forward.
Misconception 4: Legal finance is only for large corporations
While high-profile cases often make headlines, legal finance is accessible to almost anyone. Whoever they may be, claimants can benefit from financing solutions that help them pursue justice without bearing the full financial burden alone.
VWM Capital offers funding options for a wide range of clients, including law firms, businesses of all sizes, and even individuals. Funding can be used for various purposes, including legal fees and expenses, asset recovery, monetisation, risk management insurance, portfolio financing, and post-settlement financing.
Misconception 5: Legal finance slows down litigation
Some believe that obtaining third-party funding can delay cases. In reality, however, well-funded claimants can often proceed more efficiently with legal funding in place, as financial constraints no longer dictate litigation strategy.
Additionally, for VWM Capital’s clients, our AI-powered model helps expedite case assessments and funding approvals. By combining the power of AI with decades of human experience, we can improve accuracy and efficiency for the whole legal funding cycle.
Misconception 6: Legal finance is prohibited due to maintenance and champerty
Historically, maintenance and champerty prohibited third-party involvement in litigation, but we’ve come a long way since then. Most courts now recognise the importance of legal finance in promoting access to justice. The UK abolished these doctrines in 1967, while Australia, the US, Singapore, and Hong Kong have narrowed their application, especially in commercial litigation and arbitration. Things are constantly evolving, and more and more jurisdictions are reforming regulations in favour of legal financing.
At VWM Capital, we’ve traditionally focused on the well-established UK market, but technology is opening up the possibility of bringing funding to more jurisdictions. With our AI-powered model, we have the ability to enter a great many markets and select the cases with the highest chances of success, rapidly and accurately.
The role of AI in legal finance
Integrating AI into the legal finance process is transforming how we evaluate and manage cases, directly addressing several of these misconceptions.
- Enhanced case assessment: AI enables the analysis of vast datasets to identify patterns and predict case outcomes with greater accuracy. This technological advancement allows us to conduct thorough due diligence, ensuring that only cases with strong merits receive funding. Such precision mitigates concerns about financing frivolous lawsuits.
- Operational efficiency: AI automates routine tasks, reducing administrative burdens and allowing legal professionals to focus on the more strategic aspects of cases. This improvement in efficiency significantly accelerates the funding and litigation processes.
- Data-driven decision-making: AI provides objective insights based on data analysis, supporting transparent and informed decision-making. This objectivity reinforces clients’ control over their litigation strategies, as decisions are grounded in comprehensive data rather than subjective judgement.
- Managing risk: AI identifies potential risks associated with cases by analysing past legal decisions, industry trends, and jurisdictional nuances. This enables litigation funders to make more informed decisions while reducing financial exposure.
- Predictive analytics: Using machine learning models, AI can predict legal trends and potential regulatory shifts, helping funders and claimants adapt their strategies proactively. This foresight enhances strategic planning and reduces uncertainty in the litigation funding landscape.
Ethical considerations in AI-driven legal finance
While AI brings with it incredible potential, its application must be guided by ethical considerations to maintain trust and integrity in legal finance.
Key ethical considerations include:
- Managing bias: AI systems must be trained on diverse and representative datasets to prevent bias, which could skew case evaluations. Those who use AI must be committed to the continuous monitoring and updating of models to ensure fairness and impartiality.
- Transparency: Clients have the right to understand how AI influences funding decisions. We prioritise transparency by clearly communicating the role of AI in our processes and ensuring that human judgement remains integral to final decisions.
- Data privacy: Handling sensitive legal information requires stringent data protection measures. Legitimate litigation funders will adhere to robust data privacy protocols, ensuring that client information is safeguarded against unauthorised access.
Forging a better future for litigation funding
Legal finance serves as a vital tool in promoting access to justice, yet misconceptions can hinder its acceptance and adoption. By addressing these misunderstandings and embracing technological advancements like AI, we can enhance the effectiveness and integrity of legal finance.
VWM Capital is dedicated to using AI responsibly, empowering clients to pursue valid legal claims without compromising control or confidentiality. Our technology-driven approach ensures faster, fairer, and more efficient litigation funding for claimants worldwide.
For further information on legal finance and our AI-driven approach, you can contact a member of the VWM Capital team or explore the rest of our insights.