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Funding legal costs in commercial litigation

Funding legal costs in commercial litigation

funding legal costs

When deciding to bring or fight a claim, an important factor is costs. Any party that is seeking to resolve a commercial dispute must have the sufficient resources to fund their case. A party to a dispute may be liable for any legal fees and disbursements they incur, as well as the costs of the other party, unless an alternative method of litigation funding or insurance is put in place. The availability and suitability of alternative funding approaches should always be considered: The SRA Handbook, particularly the SRA Code of Conduct, the SRA Financial Services (Scope) Rules and the SRA Financial Services (Conduct of Business) Rules, set out guidelines for solicitors around litigation funding and ATE insurance. The SRA handbook was updated last year to implement the EU Insurance Distribution Directive (EU) 2016/97, which details obligations for lawyers assisting clients directly with ATE insurance. The penalties for non-compliance are severe and breaches can lead to lasting reputational damage as well as costly professional negligence claims.

Annecto Legal fills the gaps when clients need access to professional legal advice on any issue. It removes financial uncertainties and the need for balance sheet protection against unforeseen major uninsured legal expenses at a low cost. We understand that covering the costs of legal support is not always simple, and that disputes can be disruptive and inconvenient.

Types of litigation funding and insurance


After the event insurance (ATE Insurance) 

An after the event insurance product is a form of legal expenses cover that is frequently used in commercial disputes and no win no fee claims. ATE legal expenses insurance is perhaps best thought of as similar to a ‘swap’.

For either no upfront fee, or a small upfront fee, the insurer will take on all of the risk of the potential adverse cost award. As a result of this, the client has then swapped their obligation to pay the defendants in the event of a loss with the obligation to pay the insurance premium in the event that the case is successful.

After the event insurance is often used in third party funding, conditional fee agreement and damages-based agreement cases.


Third party funding agreements (TPF)


Third party funding (TPF) is an arrangement in which a funder with no prior connection to the dispute agrees to finance all, or a part of, the legal costs. In return, they will ask for a success fee that clients pay from the proceeds that will be recovered in a successful claim. TPF can also be used alongside other available litigation funding options, such as ATE insurance and damages-based agreements.

With the assistance of TPF, you can avoid taking financial risks as the funder will pay for everything in return for a share of the damages. If you lose the case, the funder bears all of the costs, and you will not be required to pay anything.

If a third party litigation funding provider takes on the risk of your litigation finance, it will free up your cash flow and shift all the risk from your balance sheet.

In return for taking on the risk of the litigation finance, the third party funder will usually seek in the region of a fifth to a third of any damages recovered. This means that you will keep up to 80% of the reward without having to take on any of the risk. The exact share of damages will depend on the claim value, the legal costs and the risks in the case.

In some cases, TPF arrangements can be complex, and third-party funders will require a lawyer to give an independent assessment of a case to determine its prospects of success before they will agree to provide litigation funding. Annecto Legal can provide advice and guidance to those seeking third party funding.


Damages based agreements (DBA)


A damages based agreement, also known as a contingency fee agreement, is a type of legal arrangement made between a client and a solicitor in which the solicitor agrees to fund a client’s case and share the risk of litigation. In return, the solicitor will be paid a percentage of the damages recovered as long as the client’s case is successful.

Instead of being paid at a conventional hourly rate, a damages based agreement ensures that the solicitor’s fees are only payable in the event that the case is successful.

Damages based agreements are often used in conjunction with an after the even insurance policy, to protect the client from having to pay the opponent’s legal costs if the claim loses.


How can Annecto Legal assist when funding legal costs?


Annecto Legal can assist clients and help them realise the true value of their commercial litigation and dispute resolution claims. The firms that we work with are experienced lawyers that are frustrated with the traditional hourly rate funding model.  We work on a case by case basis on their behalf to advise on the litigation funding alternatives that are available.

Get in contact with an expert member of our team to determine which litigation cover is the correct litigation funding choice for your case.

Our firm is authorised and regulated by the Financial Conduct Authority as an Appointed Representative of 2direct Limited. We have a registered office located in Manchester.

Call us today 0800 612 6587, or our business development director, Mark Beaumont, can be contacted by email

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Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS


0800 612 6587


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