For any business involved in a dispute, securing the right resources to fund a case – regardless of its eventual outcome – is essential. Without appropriate financial protections in place, a party to a commercial dispute may be liable for all legal costs they incur. This can be a significant deterrent, particularly when the dispute is complex, high value, or likely to be heavily contested. It is therefore critical that businesses consider the suitability and availability of alternative litigation funding and insurance options at the outset of any claim.

Annecto Legal works with organisations ranging from large corporates to small business owners, providing access to legal services and tailored legal finance solutions to support commercial litigation. By helping to shift the financial risks of litigation away from the business and on to professional funders and insurers, Annecto Legal enables clients to pursue claims on a cost-effective basis, supporting access to justice for businesses that might otherwise be unable to proceed.

Research shows that nearly a third of businesses choose not to pursue strong claims due to fears about legal costs and financial exposure. These fears are understandable. Many law firms require significant payments on account before commencing work, and once the case is underway, clients are commonly billed on an hourly rate basis. Hourly bears no correlation to the success of the claim or the effectiveness of the lawyer’s approach. As a result, businesses often feel they are carrying all the financial risk, regardless of whether the case is ultimately won or lost.

Annecto Legal seeks to unlock the value of latent claims – those that remain unpursued because businesses cannot or will not take on the financial risks. Through the use of alternative funding models, the burden of litigation can be passed from the balance sheet of the business to that of a professional litigation funder or insurer. In many cases, this allows claimants to pursue their case with minimal or even zero, cost and risk. If the claim is successful, agreed deductions such as funder returns, premiums, or fees are made from the damage. If the claim is unsuccessful, the risk of having to pay opponents’ costs may be covered through the appropriate funding agreement or after the event insurance.

Rising litigation costs in the UK

The costs of litigation in the UK have risen significantly in recent years. Court fees themselves are often only a small portion of the overall expenditure. Instead, the majority of costs arise from solicitor and barrister fees, expert witnesses, disclosure and evidence management, and the time-consuming nature of the legal process.

These rising costs have led to substantial growth in the funding market. Litigation funding can be an attractive investment class. While individual cases may vary greatly in their outcomes, a well-managed portfolio of cases allows funders to balance risk and reward. No professional funder would build a business around a single case; instead, they rely on diversification and careful case assessment.

Importantly, solicitors have an obligation under the SRA Code of Conduct to inform clients of all available funding options. Unfortunately, this obligation is not always met, leading in some cases to negligence claims where clients later discover that alternative options were available but not explained.

Key types of business litigation funding agreements

After the Event Insurance (ATE Insurance)

Event ATE insurance is a well-established form of legal expenses insurance designed to cover the opponent’s costs if the claim is unsuccessful. ATE insurance functions much like a financial swap: in exchange for either no upfront premium or a small initial cost, the insurer accepts the risk of paying adverse costs. In return, if the claim is successful, the claimant pays the insurer a premium, usually calculated as a percentage of the amount insured.

The amount payable depends largely on when the case settles. If settlement is achieved early, the premium may be as low as 15% of the insured amount. If the dispute proceeds all the way to trial, the premium may range from 40% to 60%, depending on the insurer and the specifics of the case.

In many cases, ATE insurance is used alongside conditional fee agreements (CFAs), with the client paying a success fee to the solicitor only if the claim is successful. This combination allows both legal fees and adverse costs to be deferred or shifted, significantly reducing the financial exposure of the claimant.

Contingency Fees / Damages Based Agreements (DBAs)

A damages based agreement (DBA) or contingency fee arrangement allows a solicitor to take on the case without charging fees as the matter progresses. Instead, the solicitor’s remuneration comes from a percentage of the damages recovered at the conclusion of a successful claim.

This fee arrangement is attractive to clients who want to avoid ongoing legal invoices and prefer a structure where the solicitor is only paid if the claim is successful. It also aligns the interests of the solicitor and client by focusing attention on the case outcome rather than billable hours.

Third Party Funding (TPF)

Third party funding involves an external litigation funder financing the claimant’s legal fees in exchange for an agreed proportion of any damages recovered. TPF is often used alongside ATE insurance, CFAs, and DBAs to create a balanced and flexible funding agreement.

With TPF, the funder bears the financial risk of pursuing the claim. If the claim is unsuccessful, the client pays nothing. If the claim is successful, the funder typically receives between 20% and 30% of the damages, although the exact terms depend on the complexity, value and prospects of the case.

Funders usually require an independent legal assessment to evaluate the merits of the claim. Annecto Legal assists clients in liaising with funders, ensuring the case is properly presented and securing the most favourable terms available.

How can Annecto Legal assist with business litigation funding?

Annecto Legal works to help businesses realise the value of commercial claims that might otherwise remain unenforced. Our partners, many of whom have backgrounds as litigation lawyers, are committed to moving away from the traditional hourly billing model and promoting more efficient, risk-managed alternatives.

We advise on the full range of litigation funding and insurance options, helping businesses understand which structure best suits their dispute, financial position, and appetite for risk. By supporting businesses throughout this process, we help ensure that strong claims are not abandoned simply because the funding model is unsuitable.

Get in touch with an expert member of our team to find out which litigation cover is the right business litigation funding choice for you. Call us today 0800 612 6587, or our Director, Mark Beaumont, can be contacted by email mark.beaumont@annectolegal.co.uk