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Third party funding reduces uncertainty in litigation costs

Businesses involved in a dispute, or considering litigation, may benefit from third party funding and after-the-event insurance which protect against adverse costs in cases that lose.

Whether you are an SME, a major multinational business or a sole trader, you are under pressure to make the right decisions. Decisions become tougher when uncertainty is a major factor - for example during a business dispute, which goes to court.

There is the obvious issue of whether you are likely to win or lose the case, but you also have huge uncertainty around cost: What will your legal fees be? Can fees change over time? Will you recover all your fees if you win? Will you also have to pay the other side's legal bill if you lose? How long will all this go on for, tying up your cash?

The answers to some of these questions may mean that you decide to avoid the expense of litigating. Of course, this could mean you are giving up on a significant potential gain for your business. Alternatively, if you press on with litigation, it could be financially rewarding, but you could also be locked into a very expensive battle with no guarantee of success. It's a tough call.

Reducing uncertainty through third party funding of litigation

Assuming that you cannot significantly reduce the uncertainty that surrounds winning or losing - if you could, you would have done so already. This leaves the uncertainty of the legal fees.

Certainty over legal costs would put you in a better position to make a commercial decision. Better still, if you could remove your exposure to costs in its entirety, you could litigate without having to embrace any risk at all.

What would surprise many businesspeople is that such a solution already exists. Indeed, over the last few years it's worked successfully on well over five hundred legal cases. The solution is called "third party funding of litigation".

Third party funding provides your business with a risk free way to pursue litigation, as the funder bears all of the costs and risks. The funder will assess your case, and make a commercial decision about investing in it. They will look at the damages being sought (usually in excess of £250,000), the likely costs in bringing the action, and the typical time frame for the investment to produce a return, i.e. how long the case is likely to go on for.

If the maths works, the funder will pay every single penny of your legal fees, reducing your exposure to zero. In return for paying, and taking all the risk, the funder will seek a share of any damages awarded.

You would be forgiven for thinking that the funder would look to keep most of the damages, in return for taking all of the risk. In actual fact, a typical case would see the funder take maybe 20% to 30% of damages, with the client retaining 70% to 80%.

So your business will bear absolutely no risk at all, and still keep over two-thirds of any damages. And if you lose, the funder pays absolutely everything, including the other side's costs.

Funding litigation on a non-recourse, off-balance-sheet basis allows businesses to turn legal claims into a valuable asset, which they can assess for no cost, and no risk. Given that this is such a useful tool, why haven't you heard of it before?

Businesses need to be commercially astute in their dealings with their legal advisors, and ask about risk-sharing fee structures such as: fixed fees; no-win no-fee; no-win reduced-fee and other alternative funding arrangements. Any business considering litigation should seek to understand third party funding and after-the-event insurance which protects against adverse costs in cases that lose.

These are all crucial tools in managing risk in litigation.

Nick Rowles-Davies, a consultant with Vannin Litigation Funding, says that many businesses are unaware of the range of options within the litigation funding landscape, which include a standard retainer; fixed or staged fee; full or discounted conditional fee arrangement (CFA); or a legal expenses insurer.

As a specialist within legal costs and funding, Just Costs Solicitors provides impartial advice on all these areas, to both law firms and their corporate clients, focused purely on the complex issues of costs and funding, working in partnership with funders, insurers and commercial litigation teams.

If you have questions about any of the above, please contact Mark Beaumont on 020 7758 2155 or at MarkBeaumont@JustCosts.com

Just Costs Solicitors, Central Court, 25 Southampton Buildings, LONDON WC2A 1AL www.justcosts.com

Just Costs Limited is authorised and regulated by the Solicitors Regulation Authority.

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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