Posted on the 24th November 2014

Litigation is uncertain and uncertainty is expensive. In fact, it has been said that the only certainty in litigation is that it is expensive. Ambiguity around legal costs, is cited in research as the main reason that many businesses reject litigation out of hand. This is despite the fact that non-pursuit of litigation can restrict a business’s options and potentially weaken its position.

Whoever said the only certainty in litigation is that it is expensive is failing to comprehend the reality of modern dispute resolution funding – and that’s something I think businesses should know more about.

For example, have you heard of any of the following litigation funding options: conditional fee agreements, damages-based agreements, hybrid funding arrangements, after-the-event legal expenses insurance, third-party litigation funding? What about paying solicitors on an hourly rate basis?

Paying by the hour is the oldest and most popular approach to litigation funding. Using this method, the client pays the solicitor for each hour of work carried out, regardless of whether the solicitor achieves a successful or timely resolution. In doing so, the client carries all of the costs and associated risks.

All of the other options listed shift risk away from the client, and make litigation possible without throwing good money after bad. Shifting risk is possible in any type of dispute, but the options are greatest when there is a financial element to a claim, rather than a point of principle. So why don’t more businesses act on their potential claims? Because alternative funding has remained under the radar, until now.

Case study – manufacturing business is victim of fraud

Let’s look at a recent example of a manufacturing business that was the victim of fraud by an employee. This fraud was perpetrated over an extended period and the business lost over £150,000 as a result. The employee was only able to commit this fraud because the firm’s external accountants failed to carry out appropriate checks, in breach of both their obligations to the firm and their own best practice.

In the past, a mid-sized regional manufacturer may have thought twice about suing a large accountancy practice. It can cost six figures to bring a case all the way to trial, and most businesses would prefer the relative certainty of investing that money in machinery rather than legal fees. However, by using alternative funding the business was able to issue proceedings against the accountants without putting any of their own money at risk. The accountants were clearly in breach and quickly settled the case to avoid incurring significant legal fees of their own. The manufacturer was able to recover its lost money and move forward positively with a new cash injection. This is a stark contrast to writing off £150,000.

The fact is most solicitors are still not highlighting these alternative funding options to clients, despite having a professional obligation to do so. Many solicitors are either not aware of all the options or are uncomfortable talking about finance and mitigating risk, preferring to focus on legal issues alone.

Whilst the law is obviously important in a dispute, the commercial aspects of bringing a claim are often more pressing for a business. What will this cost? How long will it drag on for? How can we put pressure on our opponent to settle on commercial terms?

Disputes are always best avoided, but when they arise be sure to understand all your options. By entering a conflict with a full armoury you maximise your chances of winning, and also avoiding a long and bloody battle.

Find out more about litigation funding options or get in touch with Annecto Legal to discuss your case further.