In 2016, American wrestler Hulk Hogan won a 140 million USD jury award against the media publication Gawker. Behind the lawsuit was billionaire investor Peter Thiel, who had been funding lawsuits against the media company.

Now, this is also how third-party funding or litigation finance works, where a funder invests in a lawsuit involving two unrelated companies with the expectation of a return.

This is already a mature market in the US worth several billion dollars, and it's now beginning to pick up in India too.

So how do funders decide which lawsuits to invest in, and what happens if a lawsuit fails?

To find out and to hear from lawyers and experts, tune in to the latest episode of The Signal Brief.

The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts.

NOTE: A machine transcribed this episode. A human has looked at this text but there might still be errors. Please refer to the audio above, if you need to clarify something. If you want to give us feedback, please write to us at feedback@thecore.in.

TRANSCRIPT:

Kudrat (Host): In 2016, Hulk Hogan, one of the US’s most famous professional wrestlers, won a major legal battle against Gawker, an American media website and blog.

Hogan had sued the publication after it posted an excerpt of a secretly recorded sex tape featuring him.

He argued that Gawker had violated his privacy.

A Florida jury awarded him US$140 million in damages. The case would eventually push Gawker into bankruptcy.

Clip: Hulk Hogan vs Gawker: A Timeline

Kudrat (Host): But, the lawsuit made headlines for another reason as well.

You see, another man helped make the lawsuit possible: billionaire investor Peter Thiel.

Thiel secretly funded lawsuits against Gawker, reportedly spending around US$10 million.

He had a personal grudge against the publication, which had outed him as gay in 2007.

But, what if you didn't need to be a billionaire with a personal grudge to finance a lawsuit?

What if you could invest in a fund that pays for legal claims and earn a return when those claims succeed?

That's the idea behind litigation finance. A third party pays some or all of the costs of pursuing a legal claim. If the claimant recovers money, the funder receives an agreed share of the proceeds.

In the US, litigation finance has developed into a substantial industry worth several billion dollars.

In India, the market is much younger, but firms are beginning to fund commercial disputes, arbitration proceedings and even some inheritance battles over property worth hundreds of crores of rupees.

So how does this industry work?

Kudrat (Host): My name is Kudrat Wadhwa and you’re listening to The Signal Brief.

You’re listening to our Friday episode, where we tell stories about how Indians live, work and spend.

Today, we're looking at litigation finance: who uses it, how funders decide which cases to back, and what happens when a legal dispute becomes a financial investment.

Irfan: Litigation finance generally is the idea that you might have a legal dispute, and somebody other than the claimant puts up the money to finance that dispute.

Kudrat (Host): That was Irfan Mughal, managing director of Five Rivers Capital, a fund that finances legal proceedings.

Litigation finance has been around for decades in countries such as the US and the UK. In the US, it has grown into a sizable industry.

In 2024, commercial litigation funders in the country managed US16.1billion in assets and committed US2.3 billion to new deals, according to Westfleet Advisors.

Much of this funding goes towards commercial disputes. A company might be fighting over a contract, trying to recover unpaid dues or pursuing a claim against another business. A funder pays some of the legal costs in exchange for a share of the eventual recovery.

Litigation finance can also play a role in class-action lawsuits, where a group of people brings a claim against a company or institution over an alleged wrongdoing. These cases can be expensive to pursue, particularly when the people bringing the claim have fewer resources than the organisation that they're taking on.

Kudrat (Host): India's market is much younger. Funding is still concentrated largely in commercial disputes and arbitration. But firms are beginning to explore another category: inheritance and property disputes.

The Economic Times recently reported that firms are looking into financing people with claims to property worth hundreds of crores of rupees who struggle to finance the legal battles needed to establish their rights.

And that brings us to one of the challenges of litigation finance: a valuable claim doesn't automatically make a good case to fund.

Consider the case of a Delhi-based businessman identified by The Economic Times as Amit Aggarwal. In 2008, he agreed to buy a plot of agricultural land for Rs 40 crore and paid an advance.

Eighteen years later, the land is likely worth Rs 250 crore. But Aggarwal still didn't own it.

The land was part of an ancestral property. Other family members challenged the sale, and the dispute led to multiple court cases, while others remained before trial courts.

Aggarwal didn't want to give up. But pursuing a legal battle would be too expensive.

He approached Share Samadhan, a Delhi-based consultancy, to explore whether a litigation funder could cover his legal expenses in exchange for a share of any eventual recovery.

Pranav: It's basically a third party, which means an unrelated party to a particular lawsuit. A lawsuit is typically between A versus B. So, an unrelated third party, imagine a third party called E. So a third party comes in and invests into a particular matter. How the investment works is that they invest into the cost of pursuing a particular matter or a particular litigation in exchange for either a multiple of their investment at the end of realization or a percentage.

Kudrat (Host): That was Pranav Mago, CEO of ELF Partners, a firm that connects legal claims with potential funders.

So, what makes a case worth funding?

Pranav says his firm assesses each case on three fronts: its legal merits, the amount of money the claimant can realistically recover, and whether the defendant has assets to pay up.

Pranav: Analysis number one is the legal merit analysis. As the name suggests, it is an analysis into the legal merits of a matter. How does a matter test in terms of the statutes, in terms of the legal standpoint? What is the evidence available to the parties? How do, how will they strategize? What will be the strategy formed in terms of pursuing a particular litigation? What... So even the minutest of things as to who would be the, I would say, the witnesses, if at all they're needed. For example, think about it as a high-profile arbitration of several million dollars at stake. So obviously, you would want to form a strategy like that. You would want to see which side of the law you're falling on, what would be the interpretation of the law in itself. So all those things together, the evidence, the strategy, which side of the law we are falling on, you know, what is the, if it's a contractual dispute, then what is the substantive law of the contract? If the parties have to go to arbitration, then how will the arbitration work? What is the dispute resolution clause?

Kudrat (Host): This process is called due diligence.

The second factor is quantum: how much money is at stake, and how much of that can the claimant realistically recover? For a funder, the potential payout needs to justify the cost of financing the case.

Pranav: The third broad parameter is asset tracing. I have... Let's assume that I've succeeded on the merits. I have been able to prove a loss of 100 million, but does the other side, the side that I'm fighting with, I'm in dispute with, do they even have $100 million? And if they do have those $100 million, then where are those $100 million located? It becomes extremely important for me as an investor to know these three things.

Kudrat (Host): And what kind of returns can investors expect?

Pranav: The aim of the investor is to at least triple to quadruple their investment in a span of, ideally speaking, would be a range of 48 to 72 months. So basically between four to six years. That's what they're trying to do. As I said, at least a triple to quadruple of their investment. So hence, high risk, high return.

Kudrat (Host): Triple or quadruple your money in four to six years. That's the kind of return litigation funders are aiming for.

On paper, that sounds like an attractive investment.

But what happens when a funded lawsuit doesn't go the way an investor expects?

A case before the Delhi High Court from 2023 offers a glimpse of the risks. In the dispute between SBS Holdings and SBS Transpole, a company called Tomorrow Sales Agency had funded an arbitration claim worth around Rs 250 crore.

When the claim failed, the opposing party tried to hold the funder liable for the costs. In May 2023, a division bench overturned that order. It ruled that the funder could not automatically be held liable for an award against parties it had financed.

The case raised another question for investors: what happens when a claim fails, and what liabilities can a funder face?

So how comfortable should someone be with the risks of funding a legal dispute?

I spoke to Sunil Arora, a chartered accountant with more than 45 years of experience, who once considered an opportunity to fund a substantial legal case.

Sunil: A litigation lawyer himself and a very senior and a very accomplished, as well as a renowned lawyer, gave me an option for funding a substantial amount for a litigation matter.

Investment was quite substantial and returns were reasonable, I would say. Now, my first question to that particular lawyer was that where would this amount be spent?

Kudrat (Host): He soon ran into a problem, however. He wanted greater certainty about the legal fees and expenses, which he didn’t get.

Sunil: The proposal is coming from him. He is a person who has a lot of finance himself. Now, he doesn't even want to stake, take the risk of staking his professional fees, what he's charging. He doesn't want to stake that much amount, or he doesn't want to define that. He wants to keep everything open-ended. So that means I am totally at the mercy of the lawyer and the judiciary in such a situation.

I would not like to have such a structure where I'm doing the funding, where I have no control whatsoever at all because the entire control is with the lawyer and with the judiciary.

So I outrightly, after evaluating, declined. I would not be interested in getting into this kind of a structure at all because I'm not calling the shots. I'm giving the funding, which is insecure, and then whatever is going to happen in future, I have no control on that whatsoever.

Kudrat (Host): Sunil also told me of one of his biggest concerns: the time it takes for a case to resolve, especially in India.

Sunil: Any decision, at times, the matters which we find are very simple and straightforward, we have had occasions where that matter has prolonged for years together, where our impression was that it's a very simple matter, but the matter prolonged for years together.

Kudrat (Host): For Sunil, the problem was that his money could remain tied up for years, with no guarantee of when, or whether, he would see a return. He ultimately decided the uncertainty wasn't worth it.

Now, Sunil's concerns were largely about the risks to the investor. But there's another question to consider: what happens when the interests of the funder and the person bringing the lawsuit don't align?

Litigation finance has its pros: it can give claimants the resources to pursue disputes they might otherwise abandon. But the funder wants a financial return, while the claimant wants to resolve a dispute. And that raises questions about how the system might be used.

Dr Amitesh Deshmukh, a legal academic whose research focuses on third-party funding in arbitration, says one concern is that easy access to funding could encourage speculative claims.

Dr Amitesh: One of the worries that's there with a lot of critiques, a lot of works are available on that, is that easy funding may encourage speculative claims.

So what I mean is generally the cases where there may... that would not have been filed or would not have been initiated if the costs were on the asking party. So let's say party... See, let me explain it: the funder would bear the cost, and the claimant technically does not have a downside. So what about claims that are just there to stall the execution of contract? Or maybe opportunistic claims that are just made to hoping of, hoping to win a settlement rather than maybe to get a judgment. So it can become a mechanism to maybe abuse the process in itself.

Kudrat (Host): These are potential risks, not proof that speculative claims are widespread in India at all. But they raise questions about how funding arrangements should work, and how the interests of claimants and funders should be balanced.

So, what does litigation finance mean for India?

For someone like Aggarwal, whose property has been tied up in legal disputes for years, external funding could offer a way to keep fighting for what he believes he's owed.

For funders, it offers a way to finance legal claims in exchange for a share of the eventual recovery.

But the risks are meaningful too. A valuable asset doesn't guarantee a successful claim. Winning in court doesn't always mean getting paid. And a dispute that looks promising at the outset can take years to resolve, especially in Indian courts.

In the US, litigation finance has developed into a substantial industry. In India, it remains at an early stage, with firms still working out which cases they can fund and how to recover their money.

Whether the market grows will depend on more than the returns funders can earn. It will also depend on whether claimants use the model, whether funders can assess disputes reliably, and whether funding can help people pursue claims they might otherwise be unable to afford.

Outro: That's all for today. You just heard The Signal Brief, your once-a-week look at the stories shaping how Indians live, work and spend.

The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts.

To check out the rest of our work, go to www.thecore.in.

If you have feedback, we'd love to hear from you. Write to us at feedback@thecore.in or you can write to me personally at kudrat@thecore.in.

Thank you for listening!