The effects on risk analysis, litigation duration, and damage quantification
By Cristina Giua
Originally published on Economy.it 11/12/24 in Italian (click here)
Thanks to its ability to quickly analyze large amounts of data and automate complex research, artificial intelligence (AI) is profoundly transforming the legal sector. This revolution also extends to the litigation funding industry, where funds and companies ("litigation funders") cover litigation costs for one of the parties involved in a dispute. If the outcome is favorable, the litigation funder receives a percentage of the recovered sum as compensation. Conversely, in the event of a negative outcome, the client company bears no costs, and the litigation funder earns nothing. To explore AI's impact on the legal sector and litigation funding, we interviewed Giacomo Lorenzo, senior legal counsel and head of the Italian branch of Deminor. Founded in Brussels in 1990, this leading litigation funding company is also present in Milan, London, Hamburg, New York, Hong Kong, Madrid, Stockholm, and Luxembourg.
Giacomo Lorenzo, how is AI transforming the litigation funding sector?
Artificial intelligence is one of the most significant innovations of recent years and will also have a considerable impact on our sector. Tools now exist that can analyze vast volumes of data related to disputes and case law in minutes, assisting lawyers, judges, and litigation funders in analyzing disputes and their underlying legal issues. In our case, these tools are particularly useful for assessing the risk of losing a case, which is one of the key aspects to consider during the approval phase of an investment. These technologies allow us to select the most promising cases with greater precision and in shorter timeframes, based on a thorough review of precedents.
What additional elements can AI tools evaluate?
Another essential factor we consider in investment evaluation is the duration of the litigation (the estimated time to resolve the dispute from start to finish). Litigation timing significantly impacts the return on investment, as lengthy and complex cases can entail higher costs and risks. By analyzing data on the duration of past proceedings, AI enables more accurate predictions of a case's timeline, contributing to more efficient risk management and more precise investment planning. In Italy, the Ministry of Justice monitors the resolution times of disputes across different Italian courts, providing annually updated data. This greatly simplifies the due diligence process for Italian cases.
What are the main opportunities AI offers in your work?
The primary benefits of using AI are undoubtedly faster internal decision-making processes and more accurate decisions. For example, tools leveraging Natural Language Processing (NLP) enable us to quickly analyze complex contracts or rulings, pinpointing relevant clauses and sections during the due diligence phase. This allows us to focus more swiftly on critical aspects of the dispute that determine the level of risk associated with the investment.
Damage quantification is a fundamental topic. What role can AI play in this area?
AI can also prove extremely useful in the damage quantification phase. Advanced AI tools can analyze available data related to the client's incurred damage, perform complex calculations in a short time, and provide a preliminary estimate. This estimate can serve as a basis for an initial evaluation before involving an economic expert or assessor. These tools help litigation funders make informed decisions about the investment's magnitude and potential returns in significantly less time.
Speaking of data, what are the pitfalls of AI in this regard?
The quality of the data on which AI systems rely can be problematic. These software tools analyze enormous amounts of legal precedents, but the available data is not always of high quality. For example, some precedents may contain errors made by judges in their rulings. If these errors make their way into the datasets used to train AI, the software could produce flawed evaluations, exacerbating the problem.
What approach should professionals take toward AI?
This is a crucial topic. There’s a danger that lawyers, judges, and litigation funders might blindly trust the results produced by software without adopting a critical approach. This could lead to decisions based on automated evaluations, improperly influencing human judgment. Overreliance on AI could compromise the quality and independence of their analyses.
What’s the solution?
The solution is to consider AI as a support tool rather than a substitute for human judgment. Professionals must maintain a critical approach, always verifying the software's results and integrating them with their own expertise and legal insights. Furthermore, the datasets used to train AI must be continuously monitored and improved to ensure high-quality standards and avoid propagating errors.
What AI tools are available in Italy?
Several initiatives have been launched in Italy to implement databases that collect case law decisions. Among the objectives of the National Recovery and Resilience Plan (PNRR) is the creation of a national archive of legal decisions, leading to projects like "Prodigit" focused on tax rulings. On December 14, 2023, the Public Case Law Database was presented, enabling access to civil rulings from 2016 onward. This vast collection of rulings facilitates the implementation of AI and machine learning tools to assist professionals in analyzing disputes. Various projects are being undertaken by courts in collaboration with universities to develop these databases, aiming to assess success probabilities and resolution timelines based on a statistical-legal approach, which seeks to predict future decisions by individual courts through the study of precedents. It will be interesting to use these tools to test their accuracy and reliability.
Looking ahead, what opportunities and challenges do you foresee?
AI is a fundamental tool for progress and development in the legal sector, including litigation funding. Those who fail to adopt these technologies will undoubtedly struggle to compete in today’s market. However, as I mentioned earlier, it is unthinkable for a litigation funder to base their decision-making processes solely on AI, as the final decision in a dispute always rests with a judge or arbitrator. These decision-makers may deviate from precedents, interpreting facts and laws differently. This is particularly relevant in civil law systems like Italy's, where precedent is not binding. Therefore, the analysis and evaluations of litigation funders' in-house lawyers and external attorneys remain critical. AI should be viewed as a tool that supports professionals, improving efficiency and work quality, but not as a replacement for professional judgment.
To read the original article (in Italian) on Economy.it here
Written by:
Giacomo Lorenzo
Senior Legal Counsel
