Alternative Litigation Funding for Commercial Disputes
Alternative Litigation Funding for Commercial Disputes
Commercial disputes are a common occurrence and can arise for various reasons. Given the current economic climate, the costs of resolving such disputes through litigation can be a significant consideration. In addition to their own legal expenses, parties may also need to factor in the possibility of bearing the opposing party’s legal costs, should the case fail.
For businesses, the likelihood of being involved in legal action is higher compared to individuals. Alternative litigation funding can be a useful solution to mitigating the financial burden of pursuing a case. This type of funding provides access to legal expertise and protection for businesses facing legal issues.
It is crucial to determine whether alternative litigation funding is suitable for your specific case and to seek advice from an expert. At Annecto Legal, our team can guide clients through the nuances of the funding options available and help them secure the most beneficial coverage.
What is alternative litigation funding?
Alternative litigation funding, which may include third-party litigation funding or alternative litigation finance (ALF), is a method of financing legal proceedings in which an alternative funder, such as a private equity firm or a specialised litigation funding company, provides the necessary capital to cover the costs of a legal case in exchange for a portion of the potential proceeds or settlement.
Alternative litigation funding also includes insurance policies, such as After the Event (ATE) insurance, and funding model agreements made between clients and solicitors, such as conditional fee and damages-based agreements.
This type of funding is typically used by clients who lack the financial resources to pursue a legal case or by businesses that prefer to allocate their resources towards other priorities.
Alternative litigation funding can cover various costs associated with a dispute, including legal fees, expert witness fees, court costs, and other expenses.
In addition to providing financial support, litigation funders may also offer strategic guidance and risk management expertise to help clients maximise their chances of success. Overall, alternative litigation funding can offer a viable option for those seeking to pursue legal action but lack the necessary financial means to do so.
Types of alternative litigation funding
There are various types of alternative litigation funding options that are available to individuals and businesses seeking financial support for their legal cases. These include the following:
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 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). Top be clear, these percentages are of the costs incurred and not the damages claimed.
Third party funding agreements (TPF)
Third party funding is an 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 finance 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 will typically seek in the region of a fifth to a third of any damages recovered. That means you keep up to 80% 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.
Contingency fee agreements
A contingency fee agreement, also known as a “no win, no fee” agreement, is a legal arrangement in which a solicitor from a law firm agrees to represent a client in a lawsuit or legal claim and only receive payment if the case is successful. Under a contingent fee arrangement, the lawyer’s fees are contingent on the outcome of the case. This means that they only receive payment if the client wins or settles the case.
What are the benefits of using alternative litigation funding?
Alternative litigation funding offers several potential benefits to individuals and businesses seeking to pursue legal action:
- Access to Justice: Alternative litigation funding can provide access to justice for those who may not have the financial means to pursue a legal case. This results in levelling the playing field and allows client to seek compensation for their losses.
- Reduced financial risk: By providing funding for litigation costs, alternative litigation funding providers take on some of the financial risks associated with a lawsuit. This can reduce the burden on the client, who may not have the financial resources to pursue the case alone.
- Cost-effective: Alternative litigation funding can be a cost-effective option compared to traditional legal funding methods.
- Expertise and support: Litigation funders can provide litigation strategy guidance and support to clients. This includes access to legal and financial expertise, which can help to increase the chances of success.
- Preservation of capital: Alternative litigation funding allows businesses to preserve their capital and allocate it towards other areas of their business, rather than tying up resources in legal proceedings.
- Confidentiality: Unlike some other forms of financing, litigation funding arrangements can be kept confidential, allowing clients to avoid disclosing sensitive financial information.
Overall, alternative litigation funding can be a useful tool for those seeking to pursue a legal case, offering financial support, expertise, and reduced risk. However, it’s important to carefully consider the terms of any funding arrangement and seek professional advice before entering into any agreement.
How can Annecto Legal assist?
Annecto Legal help clients realise the value of their commercial litigation claims. Our partners are frustrated with the traditional hourly rate funding model. We work on their behalf to raise awareness of the alternatives available. The litigation funding market is rapidly expanding, and the options on offer are more available than ever.
If you believe that you have a meritorious claim, get in touch with an expert member of our team to find out which commercial litigation cover is the right litigation funding choice for you.
Call us today 0800 612 6587 or use the contact form provided below.
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:
Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS
0800 612 6587