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NOTICIAS Newsletter

LITIGATION FINANCING

Publicado el 5/5/2018

The TPF is articulated through a financing contract, through which a specialized company provides a party that wants to initiate litigation, the funds necessary to meet the legal costs of the procedure in exchange for a fee.
The compensation is variable and is calculated as a multiple of the funds provided and / or as a percentage of the favorable result obtained from the litigation.
A usual way to distribute the value obtained in the judgment, award or transaction agreement is:
- Reimburse the third party financier for the amounts invested under the financing contract plus X times what was invested.
- Pay the plaintiff the remainder of the judgment, award or agreement.
These contracts are fully valid and effective in Spain, they are atypical contracts through which the parties regulate the financing of litigation using the autonomy of the will enshrined in Article 1255 CC.
This validity and effectiveness is reinforced by the legal recognition of the disputed credit withdrawal regulated in article 1535 CC. If a third party without interest in the litigation can acquire a loan during the processing of an already initiated judicial process, the financing of a future litigation without transfer of ownership- or control-over the credit may also be agreed upon. Obviously, litigation financing contracts must follow the rules that derive from intra-procedural relations and protection in situations of conflicts of interest or procedural fraud.
Regarding the modality in which the third party purchases the loan, its articulation is based mainly on Articles 1.112 and 1.526 and following of the CC. This is the transfer of ownership of a loan from the transferor (former creditor) to the transferee (new creditor).
Likewise, the independence of the lawyers and the control of the procedure by the plaintiff will be expressly guaranteed in the contract.

Communication Department
PAJARES & ASOCIADOS ABOGADOS

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