In business, as in life, we all face difficult and stressful situations from time to time. However, when it comes to commercial contract litigation, incidents of professional negligence and especially contentious shareholder disputes, these situations are often expensive as well as stressful and require expert dispute resolution solicitors to resolve.
The ‘cost’ can be emotional, i.e., stress caused and management time consumed by seeking a remedy. Or, it can be actual financial costs, in terms of both the damage done to the business and the legal costs in seeking redress.
Just as with any business decision, deciding what to do means trying to get the best information possible and then making a well-informed choice. The challenge with legal disputes is that, whilst you will understand your business, market sector, competitors and staff, you are probably less confident when it comes to the law and the risks of litigation. In scenarios such as these, seeking specialist advice from dispute resolution solicitors is vitally important.
When faced with a decision, but lacking the necessary information, most people naturally choose the path of least resistance. In the case of disputes this often means doing nothing. Moving on. Writing it off to experience. This will often be justified based on previous experience, and a reluctance to ‘throw good money after bad’. After all, the only people that benefit from litigation are lawyers, right? But it’s worth remembering that doing nothing also has a cost…
If a business is in the position of having to consider legal action, there has probably already been some kind financial loss. Perhaps a supplier has reneged on a contract, leaving you with a major problem, or a professional advisor has given you poor tax advice and left you with a large bill to the treasury. In other scenarios, the business could have been a victim of fraud, or a majority shareholder may be infringing the rights of minority shareholders. There are sadly countless things that can, and do, go wrong during the lifecycle of any business.
Not pursuing the repayment of losses is a cost in itself. Writing off losses that the business has already incurred, but which could reasonably be recovered, is the opportunity cost of doing nothing. Without advice from dispute resolution solicitors, you may underestimate the potential value of your case. The decision to ‘do nothing’ carries a cost in just the same way that a decision to ‘do something’ does. The real question then, as always, is which option offers the best return on investment?
Certainty in an uncertain world
Traditionally, taking a legal route with disputes has come with a heavy price tag. This has been compounded by the inability of some dispute resolution solicitors to actually tell you what the case might ultimately cost: it depends on the details, the behaviour of the opponent, the ability to get a timely court hearing etc.
But even in a profession as wedded to tradition as any, change must eventually come to the legal profession. Innovations in funding and insurance have allowed clients to shift this risk and uncertainty away from their own balance sheet. Commercial disputes can now be progressed with absolute certainty over costs and financial risks.
Unfortunately, many lawyers have been reluctant to embrace this change and are comfortably continuing to charge clients on an hourly rate basis for all work done. As any business person can quickly see, this creates perverse incentives for the lawyer: does a commercially sensible early settlement benefit the law firm?
Funders and insurers are by nature a commercial bunch: they seek a return on their investments. In the world of commercial dispute resolution this means that an early analysis is done on any potential claim, whether litigation, arbitration or mediation. Once the funder is comfortable with the risks they will fund the claim to conclusion, and in return take a share of any recovered damages.
This means that a client can pursue any opponent, no matter how large or well financed, from a position of equality – with the knowledge of expert dispute resolution solicitors and without the fear of throwing good money after bad, or the uncertainty of how much a case might cost, or how long it might drag on for. Indeed, a case backed by funding is more likely to settle, as your opponent will quickly realise that they can’t just hope for you to run out of money and disappear. Once this realisation hits home, it’s in their own interest to find a commercial settlement that reduces their own legal spend.
Funding in practice
The economics of litigation funding and after-the-event legal expenses insurance are pretty easy to understand. As a client you can invest a fixed amount in the litigation, giving you absolute certainty, and the funders will cover all expenses beyond that amount. If the case wins then the funder will ordinarily take between 10% and 30% of damages, depending on their costs incurred and the damages recovered. If the case loses then the insurance will pay the other side’s legal costs. Put simply, you’ve transferred up to 100% of the risk for up to 30% of the damages.
Any case where the client is seeking to make a financial recovery against a defendant (that is capable of paying) is worth considering for funding. Dispute resolution solicitors within the Annecto Legal network have been involved in cases worth £100,000 in damages through to high-value litigation where tens and even hundreds of millions of pounds are at stake.
As a full-market broker, regulated by the FCA, we can access around twenty markets for funding and insurance. Prices can range dramatically between different funders and it’s always best to get a view of the market before committing to any one funder. An independent view is crucial, and our service is second to none. We charge clients a fee-on-success when their case concludes, so our interests are entirely aligned with our clients: We want to get the best funding deal for your case in order to maximise your recovery of damages.