Introduction
Litigation funding, in the traditional sense, involves having a third party who has no direct interest in the outcome of proceedings – usually a private commercial litigation funder, to provide all or part of the financing required to enable costly litigation or arbitration to proceed. If the case is successful, the funder normally receives an agreed share of the proceeds claimed.
Crowdfunding - a new twist on litigation funding
A newer form of litigation funding is donation-based crowdfunding, which denotes a radical shift from any pre-existing litigation funding arrangements. At its most basic, donation-based crowdfunding involves raising funds for a project or a cause through the accumulation of a large number of charitable donations sourced from the public.
In recent years, there has been an uptick in the public’s awareness of crowdfunding, particularly following the advent and proliferation of web-based crowdfunding platforms such as GoFundMe, Indiegogo and Kickstarter. For example, a quick search of ‘legal fees’ or‘ lawyer’ on GoFundMe will elicit hundreds of pages of results, with fundraisers ranging from huge celebrity lawsuits costing upwards of hundreds of thousands to minor run-of-the-mill personal legal matters.
How crowdfunding may arise in general practice?
In the day-to-day legal context, crowdfunding may arise in a number of circumstances. Clients may either approach a law firm having already raised the required funds, or alternatively seek to raise funds well after proceedings have commenced to address any shortfalls in personal funds. The Law Council of Australia notes that the typical scenario is for clients to engage in crowdfunding after an initial consultation and estimate of costs from the legal practitioner.[1]
Risks to clients using crowdfunding to fund legal expenses
Clients may not be aware, but the use of crowdfunding to meet legal expenses presents many pitfalls that could lead to serious ramifications for both them and the law firm taking on their matter. Importantly, clients, particularly those who are not familiar with the legal system and court processes, need to be aware of the risk of accidently disclosing confidential information to third parties in the course of sourcing funds, the consequences of unintentionally or intentionally making misrepresentations about the facts of their matter during crowdfunding appeals and general questions over how to deal with surplus crowd raised funds.
How can Sharrock Pitman Legal assist?
As crowdfunding is still a complex and developing area of litigation funding, many clients won’t be fully aware of all the potential problems that may arise in the course of sourcing funds.
If you were thinking about starting a crowdfunding campaign to fund legal expenses, you can contact the experienced lawyers at Sharrock Pitman Legal for advice on fundraising and crowdfunding issues and what to watch out for when raising funds.
Contact Mitchell Zadow, Accredited Specialist (Commercial Law) on 1300 205 506 or email sp@sharrockitman.com.au.
Footnote
[1] Law Council of Australia, Crowdfunding: Guidance for Australian legal practitioners (2019)29.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.
