Third-Party Litigation Funding (TPLF)

Context:

  • Rising Litigation Costs and Case Backlogs in India (TH): Third-Party Litigation Funding (TPLF) is seen as a potential solution to rising litigation costs and case delays in India. A national regulatory framework for TPLF is being proposed to improve access to justice.

What is TPLF?

  • Definition: Third-Party Litigation Funding (TPLF) involves an external party financing a litigant’s legal costs in return for a portion of the settlement or award. The funder bears the financial risk, allowing financially disadvantaged litigants to pursue costly legal disputes.

Challenges in India’s Current Justice System:

  1. Case Pendency: Over 40 million cases are pending in Indian courts, including 80,000 in the Supreme Court, contributing to delayed justice.
  2. High Litigation Costs: Legal expenses are prohibitively high for most citizens, with corporate disputes often costing lakhs or crores.
  3. Judicial Vacancies: Over 400 judicial positions in higher courts and 5,000 in subordinate courts are vacant as of 2023, exacerbating case backlogs.
  4. Low Judge-to-Population Ratio: India has only 20 judges per million people, much lower than the Law Commission’s recommended 50 judges per million.
  5. Access to Justice for the Poor: About 70% of India’s prison population consists of under-trial prisoners, many of whom lack the financial means for legal representation or bail.

Benefits of Third-Party Litigation Funding (TPLF):

  1. Equaliser in the Courtroom: TPLF enables marginalized communities and individuals to challenge large corporations without the financial burden.
  2. Boosting Public Interest Litigation (PIL): Underprivileged groups and NGOs can pursue PILs, as seen with tribal communities in Odisha challenging corporate environmental violations.
  3. Specialized Case Support: TPLF funds high-cost litigation, such as medical malpractice or intellectual property cases, requiring expert testimony.
  4. Social Impact Litigation: TPLF helps fund cases related to environmental protection and labor rights, allowing vulnerable groups (e.g., textile workers in Gujarat) to seek justice.
  5. Consumer Justice: TPLF enhances consumer protection litigation, as seen in Australia, where class-action lawsuits had a 92% success rate due to TPLF.

Criticisms of TPLF:

  1. Cherry-Picking Cases: Funders may focus only on profitable cases, neglecting socially important ones, as witnessed in Australia, where TPLF focuses on high-return class actions.
  2. Influence on Litigation Strategy: Funders may exert undue influence on litigation strategy, risking the autonomy of litigants, as seen in some U.S. TPLF agreements.
  3. Lack of Regulation: India currently lacks a regulatory framework for TPLF, unlike Hong Kong, which mandates funder control, transparency, and accountability.
  4. Profit-Driven Demands: In the UK, TPLF funders often take 30-50% of settlements, raising concerns about fairness for litigants.

Way Forward:

  1. Comprehensive Regulatory Framework: India needs a TPLF regulatory framework, ensuring funders’ financial stability and litigants’ rights, inspired by Hong Kong’s 2019 Code, which emphasizes transparency and accountability.
  2. Licensing Funders: Like in Australia, India should regulate TPLF funders as financial service providers to ensure ethical practices.
  3. Court Involvement: Following Singapore’s model, courts should oversee TPLF cases to balance judicial fairness with funder involvement.
  4. Funder Accountability: India can adopt the UK’s requirement for full disclosure of TPLF agreements to maintain transparency.
  5. Safeguarding Client Autonomy: Protect litigants’ decision-making power from undue funder influence, similar to practices monitored by UK courts.
  6. Capping Funder Profits: Introduce caps on funders’ returns to ensure fair compensation for litigants, avoiding excessive claims like the 30-50% seen in the UK.

TPLF could significantly improve access to justice in India, especially for marginalized groups, but careful regulation and oversight are essential to prevent its misuse.

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