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Business litigation funding: Seeking funding for a commercial dispute

It is essential for any party seeking to resolve a business dispute to have sufficient resources to fund their case, whatever the outcome. A party to business dispute resolution may be liable for any costs they incur unless an alternative method of litigation funding, insurance or legal finance is put in place. Consideration should always be given to the suitability and availability of alternative funding approaches.

Annecto Legal helps large corporates to small business owners with legal fees for commercial litigation, to enable access to justice as well as the transfer of financial risk away from business’ balance sheets. 

According to research, almost a third of businesses fail to pursue even the strongest of claims due to fears over legal costs and risks. These fears are well-founded, given the propensity for many law firms to seek large payments on account before undertaking any work. Cases are often then conducted by lawyers using ‘hourly billing’ that bears no reflection to the success or otherwise of the lawyer’s advice and approach, or the merits of the case.

In order to help businesses realise the ‘assets’ that are locked up in un-pursued claims for damages, Annecto Legal promotes alternative funding for commercial disputes. By shifting the financial risks of litigation away from the business and on to the balance sheet of professional litigation funders and insurers, claimants can pursue cases at minimal (or even zero) cost and risk.

Disputes can be inconvenient and disruptive, and we understand that covering the cost of the legal support you require is not always easy.

 

Rising litigation costs

With even a straightforward case attracting new, increased court fees since April 2015, the costs of litigating in the UK courts have never been higher: the court fee for a small business bringing a £200,000 claim has risen over 600% to £10,000. Yet court fees are usually only a tiny portion of the overall cost of litigation.

Very few businesses are set up to invest in commercial litigation, and yet every time a company spends money on dispute resolution lawyers, that is exactly what they are doing: If your business is investing money in the hope or expectation of recovering damages, then you are now a litigation funder.

Litigation funding can be an attractive business to invest in – returns and losses on individual cases can fluctuate wildly, but over a portfolio of well-selected and well-managed cases an investor would expect to make strong returns, in line with their risks. No professional investor would build a business model around just one case – the risks would be incredible. Despite this logic, many businesses find themselves in exactly that situation, without even realising it.

Solicitors actually have an obligation to clients [SRA Code of Conduct 2.03.1(d)ii] to explain all funding options available, although sadly this obligation is not always met (and in some cases this has prompted negligence cases by clients against their solicitors).

 

Types of business litigation funding

 

After the event insurance (ATE Insurance)

After the event legal expenses insurance is perhaps best thought of as similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse cost award. Therefore, the client has swapped their obligation to pay the defendants fees and expenses in the event of a loss with the obligation to pay the insurer in the event of a win.

This is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

The actual amount the client will pay for the insurance will depend on how long it takes to settle the case. An early settlement could mean that they pay as little as 15% of the amount insured. If the case goes to trial, it is more likely to be in the 40% to 60% range (depending on the insurer and the case).

Claimants will often be required to pay a success fee alongside their ATE premium if their case is successful, to reimburse their solicitor for their legal services.

Contingency fee/Damages based agreement

A contingency fee or Damages Based Agreement (DBA) is where a solicitor agrees to fund a case in the hope of being successful and being paid as a share of the damages recovered. The client benefits from not paying the solicitor’s fees as the case progresses, and only paying the solicitor if the case is successful. 

Third party funding agreements (TPF)

Third party funding is a type of business litigation funding arrangement in which someone with no prior connection to the dispute agrees to finance all or a part of the legal costs in return for a fee payable from the proceeds to be recovered. TPF can also be used alongside other available funding options, such as ATE insurance, conditional fee agreements and damages-based agreements.

With the help of TPF litigation, you can avoid taking any financial risks at all: the funder pays for everything in return for a share of the damages. If the case fails, the funder bears all the costs – you pay nothing.

Third party litigation funding providers take on the risk of your litigation finance, freeing up your cash flow and shifting all the risk off your balance sheet.

In return for taking the risk, the funder could seek in the region of a fifth to a third of any damages recovered. That means you could keep up to 80% or more of the reward, having taken none of the risk.

TPF arrangements can be complex, and Annecto Legal is happy to assist clients in understanding the finer points, as well as helping to secure the best deal.

In many cases, third party funders will require a lawyer to give an independent assessment of a case and its prospects of success before they agree to provide funding. If you require more information on third party funding in the UK, please get in touch. 

How can Annecto Legal assist with business litigation funding?

 

Annecto Legal help clients realise the value of their commercial litigation claims. Our partners are lawyers that are frustrated with the traditional hourly rate funding model, and we work on their behalf to raise awareness of the alternatives available.

Get in touch with an expert member of our team to find out which litigation cover is the right business litigation funding choice for you.

Call us today 0800 612 6587, or our Director, Mark Beaumont, can be contacted by email mark.beaumont@annectolegal.co.uk

Get in touch

* Annecto Legal can only assist on case where the loss is in excess of £100,000, with the exception of data breach claims. If you need assistance on a claim worth over £100,000, please get in touch using our form or the details below:

Registered Office

Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS

London Office

71 Central Street, London, EC1V 8AB

Phone

0800 612 6587

Email

info@annectolegal.co.uk

Contact us directly 

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