Got a dispute? Getting litigation funding

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Posted by Gemma Carson on 25 June 2020

Gemma Carson - Head of Commercial Disputes and Litigation
Gemma Carson Partner - Head of Dispute Resolution

It is natural now for businesses to be wary about bringing a claim against someone who has done them wrong. The ugly combination of cost and risk has ensured more are just chalking problems up to experience rather than fighting their corner.

Businesses now find opponents more willing to play it tough, daring them to issue court proceedings and risk substantial court fees, to say nothing of their lawyers’ costs. Unfortunately, even disputes with a good chance of winning are going unheard, damaging the success of UK businesses. 

But some law firms are tipping the balance back in favour of the claimant, according to lawyer Gemma Carson of Wright Hassall: “If a business has a claim, against an opponent with the means to pay, law firms with specialist commercial dispute resolution expertise and more importantly funding prowess will find a funding solution for the case to get it off the shelf and its value realised

“It is critical that the litigation funding solution is transparent and easy to understand. Conditional fee arrangements, backed by insurance, can be better understood by clients if they are explained in terms of the likely overall financial outcome if the case is won or lost.

“The basic principle for clients to focus on is that the less the claimant invests financially in the case, the less they will get back when the case is won.

“Importantly, with the right funding in place, if the case is lost, the business may have outlaid little or nothing and their liability for any costs of their opponent are covered in full.

“So, a potential claimant has to ask themselves; do my lawyers know what they’re doing and how much will I invest in fighting this case? It’s that simple.”

The basis of a good claim

It goes without saying that, in order for a claim to have prospects of success, it must contain all the ingredients required to establish a legal claim.

But even a claim with good legal prospects can fall at the first hurdle if the claimant is deterred from taking action because they are uncertain about the impact it will have on their finances.

It is important to remember that disputes can often be resolved without the need to start court proceedings.  Lawyers that specialise in litigation not only have expertise in the court process but are also specialist negotiators and problem solvers - their early input in a business disagreement will often deliver a resolution more quickly.

How to find the right law firm

The right law firm will be creative in their approach to problem solving, considering the practical options available to assess if a resolution can be reached without the need to go to court.

They should be willing to attend business meetings if required, review contentious correspondence before it is sent out and be a professional sounding board to test strategies.

All of these services can be ‘behind the scenes’ from your opponent’s point of view, so the lawyers’ involvement need not exacerbate any existing tension. 

In terms of funding the dispute, the right law firm should be well-versed in the range of funding products available to you and be able to distil the wealth of information into easy to understand options for you.

They should focus on what the outcome may look like for you with and without funding so that informed decisions can be made over the best option.  Achieving a financial benefit for the claimant client should be their primary concern, not just winning the case at trial and disregarding how the costs incurred impact the client.

How the funding works

Lawyers should present clients a detailed costs budget of the likely projected fees for seeing the claim through to resolution, whether that’s a settlement or a court hearing. They should also advise on the various funding options.

There are different costs that claimants will need to consider, with different products available to address each one. Detailed guides covering the various funding options will be available from most law firms, but in brief, the costs are:

  1. Your own lawyer’s costs. One option is to enter into a conditional fee agreement, where some or all of the costs are only payable if you are successful and your lawyers share at least some of the risk with you. Alternatively, your own costs may be met by an existing insurance, like business or home cover. There are also third-party funders who, in return for a fee, will invest in claims to enable them to be brought.
  1. Your own expenses. Often referred to as ‘disbursements’, these are things like court fees, barristers’ fees and experts’ fees. Again, you may have existing insurance that covers these. Otherwise ‘after-the-event’ (ATE) insurance can sometimes be obtained to meet these costs, or a third-party funder may cover them.  
  1. Your opponent’s costs and expenses. If your claim is unsuccessful you are likely to be ordered to pay at least some of your opponent’s costs. Again, insurance or the investment of a third-party funder can be used to meet these costs.

There are lots of products available, in addition to those mentioned above. If your claim is suitable for funding, it is usual for your lawyers to go to the market to obtain funding proposals on your behalf.

The costs, risks and benefits

It is important to remember that funding is not free. Where the payment of costs depends on a successful outcome, there will of course be more to pay if you are successful, to balance the risk of that fee being lost.

A third-party funder will charge a fee which is usually calculated as a percentage of the damages awarded or the monies invested. After-the-event insurance will attract a premium, however, these costs can sometimes be deferred until conclusion of the case to assist the claimant in meeting these liabilities.

Funding enables claimants to run claims that they otherwise would not wish to fund, either due to lack of available funds or because they do not wish to divert valuable cash from the business.

Whilst there is a cost to funding, the benefit is being able to hedge the risk and limit it. Claimants that use funding products may receive less of their claim overall, but it enables them to limit the potential liability they would otherwise be exposed to if they lose.

About the author

Gemma Carson

Partner - Head of Dispute Resolution

Gemma specialises in commercial litigation and has a wealth of experience in dealing with all types of commercial contract dispute.

Gemma Carson

Gemma specialises in commercial litigation and has a wealth of experience in dealing with all types of commercial contract dispute.

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