Securing adequate funding is crucial for any party involved in a commercial dispute, regardless of the outcome. Without a suitable litigation funding agreement in place, parties may be responsible for covering all legal costs themselves. It is, therefore, important to assess the suitability and availability of alternative funding options early in the process.

Annecto Legal helps bridge the gap when clients need access to professional legal advice for business-related matters. By offering cost-effective solutions, we help eliminate financial uncertainty and protect your balance sheet from the impact of unexpected, uninsured legal expenses.

We understand that disputes can be both disruptive and inconvenient – and that financing the legal support you need isn’t always straightforward.

What is commercial litigation funding?

Commercial litigation funding is a financial arrangement where a third party – usually a specialist funder – agrees to cover the legal costs of a commercial dispute in exchange for a share of the proceeds if the case is successful.

This type of funding is typically used in business-related legal disputes, such as contract claims, professional negligence, shareholder actions, competition claims, or intellectual property cases.

Key features of commercial litigation funding include:

• Non-recourse finance: The client only repays the funder if the case succeeds.
• Access to justice: It enables claimants with strong cases but limited resources to pursue litigation.
• Strategic advantage: It can help businesses manage cash flow and reduce financial exposure on their balance sheets.

Types of commercial litigation funding

Before the event insurance (BTE insurance)

When pursuing any type of litigation, you should investigate whether you already have the benefit of legal expenses insurance that may cover your legal costs. Insurance, such as property or business insurance, may contain terms which agree to cover the costs of commercial litigation.

If you do not have a BTE policy in place which covers the costs of commercial litigation, Annecto Legal can offer a range of alternative commercial litigation funding policies.

After the event insurance (ATE Insurance)

After the event (ATE) legal expenses insurance is taken out after the event that has led to a dispute has taken place. ATE insurance can protect you from paying your opponent’s legal costs, should your claim not be successful.

ATE insurance is perhaps best thought as a form of ‘swap’: For either no upfront fee or a small upfront fee, the insurer takes on the risk of a potential adverse costs award. The insured will have 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 insured is likely to be in a better financial position following a win than following a loss, and 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 and the client could pay as little as 10% of the amount insured (the adverse costs) as an ATE premium. 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) of the amount insured.

Third party funding agreements (TPF)

One funding method that is commonly used for the commercial litigation process is third party funding. Third party funding acts as a form of non-recourse financing for litigation. Third party litigation providers take on the financial risk of litigation so that clients can pursue a legal claim without having to worry about the legal fees associated with it.

Third party litigation funding 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 litigation funder will typically seek a share of the proceeds in the region of a fifth to a third of any damages recovered. This means that you keep up to 80% of the reward, having taken none of the risk. This might be thought of as similar to a “joint venture”, whereby the litigation funder takes on the costs and risks of your project in return for a share of the profit. If the claim is unsuccessful, the funder will lose their investment.

Who can Annecto Legal assist?

• Businesses with a dispute – Annecto Legal helps both large corporates and small business owners with legal fees for commercial litigation to enable access to justice as well as the transfer of financial risk away from business’ balance sheets.

• Individuals with a dispute – Often, the best way for individuals with a dispute to pursue their claim is to transfer the risk and cash-flow implications to professional litigation funders and insurers. Annecto Legal is better placed than any other service to offer help with litigation funding work. It can offer access to in-house expertise and a network of solicitors alongside funding and insurance. 

• Insolvency practitioners – If you’re an insolvency practitioner (IP) striving to ensure that unpaid creditors recover as much of their debt as possible whilst covering your own investigation and legal costs, impending litigation can be a large question mark looming over realising debtor’s assets. The team at Annecto offer free advice to enable claims to be explored and, if applicable, progressed to the stage where they are funded and insured. 

• Solicitors seeking funding/ATE – Most clients are reliant upon their solicitors to advise them on insurance and funding for commercial disputes. However, few solicitors from law firms are well-placed to provide the comprehensive advice that ensures clients can make a fully informed decision. Annecto Legal offers a professional service to solicitors on behalf of their clients on matters such as conditional fee agreements, damages-based agreements, success fees and work in progress (WIP) insurance as well arranging ATE insurance and third party funding. 

• Commercial insurance brokers – As a commercial insurance broker, litigation can be difficult for your clients. It’s seldom financially viable for companies to buy insurance for actions they may wish to bring in the future. Annecto Legal’s network of legal experts and access to multiple providers of litigation funding and insurance make it an excellent choice for your clients’ needs. Our Board is well-versed in the needs of commercial insurance brokers and can assist in developing specific litigation assistance products for your clients. 

• Accountants – Accountants are always looking for ways to add value to their clients and provide innovative solutions to help their business clients manage financial risks. Areas where businesses could really benefit from their accountant’s advice are legal costs, contingent risks and bad debts. The team at Annecto Legal are available to provide guidance to accountants across all options of litigation funding and help to shift the risk from a client’s balance sheet.

How can Annecto Legal assist with commercial litigation funding?

In commercial litigation, getting the right advice early without spending an excessive amount on legal fees is the best way to save money and protect your position. Annecto Legal helps clients realise the value of their commercial disputes. We work closely with our clients to navigate the world of litigation funders, insurers and legal teams.

If you have been involved in a dispute, get in touch with an expert member of our team to find out which litigation cover is the right litigation funding option for you to reduce your commercial litigation costs.