Introducing Australia’s first law crowdfunding platform
Sean Roche, Founder of Lawfunder, explains how exactly crowdfunding can apply to litigation and the benefits it can have.
What is the current problem with accessing the legal system?
Justice is too often denied to victims who have meritorious claims but cannot afford to pay a lawyer. When a lawyer does agree to represent a plaintiff, it is often on a contingency fee basis, which means that the lawyer self-finances the costs of litigation. Most good plaintiff lawyers will have dozens or hundreds of lawsuits pending at any one time, which means that they are self-financing the costs of numerous lawsuits at any given time. The lawyer is therefore often pressured to settle for much less than the victim deserves and could recover in a well-funded, all-out litigation suit.
For cases that might have significant impact on public policy, not even advocacy organisations can take on the bulk of cases because they are all strapped for (government) funding. More often than not, plaintiff lawyers can’t afford to take the cases or are out spent and out muscled by powerful defence interests which can simply get away with bad conduct because of their financial resources.
Alternatively, a litigant may need to seek a loan from a financial institution which can have hefty interest rates and repayment terms. In Australia, there is strict lending criteria which means funding will only be provided if your case has a very high chance of success and the terms of the financing agreement will leave you with as little as 40 per cent of your settlement. To most, being able to sue to recover $400,000 of the $1,000,000 owed to them compared to not being able to afford litigation at all is an attractive proposition.
How can crowdfunding be used to solve this issue?
Using crowdfunding as an alternative to seeking an institutional loan can restore the power to the litigant. With crowdsourced funding, the litigant is able to offer an attractive rate of return to be paid to investors when the court case is settled. This rate of return can be so attractive that it lures investors with a social conscience and provides them with a return higher than could be expected from the stock exchange. The best part is that despite offering such an attractive rate of return to their investors, they can keep the majority of the settlement funds when the case reaches its conclusion.
Investment can be sought from either the public or accredited investors. Investors are continually seeking new and lucrative investment opportunities and your court case could potentially provide them with a means to invest with their social conscience. But whether motivated by financial incentives or just concerns about the issue and plaintiff, everyone can help in the same way by investing in the fight for justice equality.
The financial and engaged power of the public at large can finally level the playing field. Everyone can see the world of litigation around them in the form of actual live cases, see who has been wronged, and see what costs have to be met.
Using crowdfunding for litigation purposes is not as straight forward as it may seem.
There are a few considerations worth thinking about before trying to launch a campaign:
- Dealing with a financing contract can be an expense in itself. It would be prudent for a litigant to seek legal advice to draw up the contract which will bind potential investors. Lawfunder offers a basic contract to avoid this expense, however opting to use this does not give you control over the specific terms of repayment.
- Not every case will be attractive. In order to truly attract a solid level of investment, it is essential that a litigant has already obtained legal advice outlining the merits of the case and prospects of success. For example, a crowdfunding campaign to help defend a criminal charge will not attract investment but a campaign to help sue a giant corporation for breach of contract would.
- Generally, commercial litigation of this nature runs for just over two years. Novice investors may see this as too long to wait. However, this would not be a barrier to more experienced investors.
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