The AEQUIFIN platform offers a unique opportunity in Germany to attract sponsors for litigation. What lawyers are largely prohibited from doing under their professional code of conduct – as a so-called “organ of the administration of justice”, the attorney holds a superior role in the German legal system, committed to the functioning of the justice system as a whole – is permitted to third parties and companies with almost no restrictions. Companies whose core business is litigation funding are referred to as “commercial litigation funders.” The AEQUIFIN platform, however, primarily addresses private funders, so-called sponsors, who need to be convinced of the merits and the probability of success of a case. Unlike commercial professionals, this raises the question all the more: which claims are most promising when it comes to persuading these sponsors?
Litigation funding via AEQUIFIN is available when four basic requirements are met: the claim must be for a monetary payment, amount to at least EUR 100,000, carry a probability of success above 70%, and the defendant must be financially solvent. Unlike commercial litigation funders, AEQUIFIN connects claimants with private sponsors — making the strength and clarity of the case even more decisive.
What Basic Requirements Must a Case Meet?
In Germany, more than one million civil lawsuits are filed each year for a wide variety of reasons. Only a very small fraction is suitable for third-party litigation funding, i.e. funding by parties not involved in the matter itself. Such a case must meet four basic requirements:
- The claim must be for a monetary payment, as only such a claim allows a sponsor to participate in the proceeds.
- The claim must be of a certain magnitude; otherwise, the litigation costs and the risk of loss stand in an unattractive disproportion to the potential success participation.
- The judicial enforcement of the claim must have a predominantly favourable prospect of success, and likewise
- the creditworthiness, i.e. the financial capacity of the defendant, must be sufficient to ensure that, in the event of the plaintiff’s success, the defendant can actually make the payment or that enforcement can be carried out successfully.
Claim Size, Win Probability, Solvency: The Four Criteria in Detail
Typically, the litigation proceeds are divided according to the agreed participation, usually between 20% and 40% for the sponsor. In the event of an unexpectedly low outcome, the AEQUIFIN Sponsor Protection mechanism takes effect, increasing the sponsor’s share of the litigation proceeds in a downside scenario and thereby reducing the risk of loss on the sponsored amount. This, however, presupposes a monetary inflow, which in turn excludes socalled non-pecuniary claims from litigation funding. The judicially enforceable question of whether a contract or a right exists or does not exist, or whether the plaintiff holds a particular position (e.g. as a shareholder), is therefore not suitable for funding unless the decision is linked to, for example, a damages claim. Likewise, a claim for the return of an asset, even if it has a high objective value, is not suitable; unless the plaintiff can “monetise” it after obtaining it, i.e. convert it into money and share the proceeds with the litigation funder.
As is well known, attorney and court fees in the German legal system are structured on a degressive scale, meaning that a plaintiff must invest proportionally more to enforce a small claim than a larger one. This has a decisive impact on litigation funding. Although the litigation costs are nominally higher for a large claim, the return prospects relative to the additional investment are considerably better for high claim amounts. It follows that litigation funders prefer to fund only high-value claims. As a rule of thumb for the AEQUIFIN platform, the claim should amount to at least EUR 100,000, and preferably several hundred thousand euros.
The question of a “predominantly favourable probability of success” in judicially enforcing a
claim is not a mathematical one. In other words, a 51% probability of success versus a 49% risk of loss does not represent a ratio that will convince a sponsor. Nevertheless, it is helpful to define the necessary success threshold. As a rule of thumb, after weighing all objective and subjective circumstances of the case from both a legal and factual perspective (which factors these are and how they are weighted is the subject of a separate analysis in this blog), a probability of success above 70% can be considered a predominantly favourable prospect. In addition, for cases with a higher risk profile, there is the option of obtaining risk-adjusted funding from AEQUIFIN sponsors through a higher participation in the litigation proceeds, for example, 50%.
“Success” ultimately means that the plaintiff actually receives the proceeds obtained. The litigation funder and the plaintiff share a fully aligned objective here, because only when the plaintiff receives the money does the litigation funder receive its success share. Therefore, it must be ensured for a funding arrangement that the debtor can and will satisfy a courtawarded amount or a reasonable settlement. This requires the defendant to be financially solid and, with high probability, to remain so throughout the duration of the proceedings; because the defendant operates profitably, or cannot shift assets, or doing so would make no sense for the defendant.
Which Claims Find Sponsors – and Which Don’t?
If the above prerequisites are fundamentally met, the question remains whether certain types of claims are more likely to find sponsors on the platform, and whether others are not.
The plaintiff and their lawyer should never forget that sponsors need to be convinced. It is human nature to overestimate one’s own position and rights. An outsider has a more objective view of the matters that we ourselves see only through our own “lens.” We almost always feel 100% “in the right” and readily suppress objective risks in the enforcement of our own claims. It is the lawyer’s duty to advise the client sufficiently and as objectively as possible on the chances and risks of enforcing the claim. Claims that can only be realised with a predominantly favourable probability of success in the claimant’s own imagination are not suitable for solicitation via the AEQUIFIN platform; they will either be rejected at the platform level or fail to find sponsors. This unnecessary effort and the resulting frustration for all parties involved should be avoided through objective client counselling from the outset.
1. Convincingly Structured Facts
Sponsors typically have neither the time nor the inclination to work through complex factual situations that require extensive documentation across many pages. A chronological and concise presentation of the facts and the legal basis prevails over complexity and volume.
In practice, this means that comprehensible legal bases (such as a purchase agreement) or understandable consequences of an action (such as the damage to property through negligent conduct) are easier to convey convincingly.
2. Quality of Case Preparation
The quality of the lawyer’s case preparation is of decisive importance. It must generally be accessible and convincing to a non-lawyer, and should not conceal risks but rather assess them fairly. The provability of the asserted claim plays a central role here, as the burden of proof lies with the plaintiff. Witnesses instead of documents, or possibly only the plaintiff’s own perception, will convince neither a potential sponsor nor a judge.
3. Realistic Costs and Realistic Outcome
The plaintiff and their lawyer are expected to be realistic regarding the anticipated costs and the possible outcome of the proceedings.
Underestimated litigation costs, for example, due to an amount in dispute set too low or underestimated expert fees, are quickly detected and do not reflect well on the quality of the case preparation. Nothing is more frustrating than having to seek additional funding because the budget has been exhausted too early or certain cost items were not accounted for.
Furthermore, the claimant may set a “trap” for themselves if they overestimate the outcome of the proceedings. The platform’s mechanism, the AEQUIFIN Sponsor Protection, effectively “penalises” the claimant if an inflated outcome forecast has raised excessive expectations among sponsors that ultimately cannot be met. This clearly goes at the expense of the claimant’s share (more on this in another blog post).
4. Strong Provability of a “Coherent Narrative”
As mentioned above, the plaintiff must be able to prove their claims or at least present them convincingly to a neutral third party, the judge. Having the necessary, persuasive evidence for one’s own claim in hand is a central criterion both for successful enforcement in court and for convincing sponsors.
Real-life situations or business arrangements are rarely straightforward, and positions very often lie in a grey area; not in black (the defendant!) or white (the plaintiff!). All the more important, then, that the events underlying the claim (the “narrative”) are transparent, the actions are explainable, and the consequences are logically comprehensible to an outside third party (sponsor and judge alike).
IN JUST 5 MINUTES:
In just 5 minutes: Become a sponsor – Your entry into attractive litigation financing opportunities
1
Register as a sponsor
2
Select a case
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Set the bid amount and quota
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Provide PayPal or credit card details
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Participate in the litigation proceeds
5. Examples: Suitable and Less Suitable Cases
Inheritance disputes or estate settlements are suitable where sufficient estate assets exist, for example, through real estate or securities portfolios.
Partnership or shareholder disputes are suitable when the partnership or shareholders’ agreement contains clear provisions and an expert opinion on the value of the plaintiff’s share is available. The more complex the overall situation, the less suitable the case (see above regarding the simplicity of factual circumstances).
Claims arising from divorce, i.e. at least claims to the statutory minimum share (Pflichtteil) or claims under a prenuptial agreement, are only suitable when the joint assets are substantial and liquid; i.e. not primarily invested in a business. If the latter is the case, extreme resistance from the business-owning spouse can be expected, leading to lengthy, expensive, and complex proceedings.
Commercial claims, such as purchase price claims from the delivery of goods and services, are well-suited provided that contractual performance can be proven and the (frequently raised) defect notice can be refuted, in full or in part. Here, too, there is rarely a clear “black and white,” and evidence will determine the outcome of the proceedings.
Claims arising from construction or works contracts are less suitable, as these typically involve a battle of party-appointed experts whose outcome cannot be reasonably predicted in advance but generally forms the basis for the court’s decision. In addition, expert opinions take a long time to prepare and are expensive.
Patent disputes are high-risk undertakings. They can be funded but are very costly and typically last several years. A high investment amount and perseverance are essential, as two parallel proceedings with two sets of lawyers must always be conducted: the infringement proceedings before a regional court (Landgericht) and the patent proceedings (regarding validity) before a patent court. Such cases become more suitable (and this applies generally) when the claimant has won at first instance, the opponent appeals, and the plaintiff now needs financial support. At that stage, the case is fully “briefed” (i.e. all facts and legal arguments are on the table) and the remaining duration is logically shorter.
Claims against government bodies or public institutions are generally not suitable or less suitable. There is no willingness to settle, the hurdles before the courts are high, and damages are awarded very restrictively by judges
