Litigation Funding and Legal Funding
Litigation Funding and Legal Funding
Legal disputes can present substantial financial risks for businesses due to the significant expenses associated with litigation. However, disputes are often an unavoidable aspect of conducting business. This is where the use of litigation finance comes into play as a valuable legal tool, delivering considerable benefits to both businesses and their internal legal teams.
Litigation funding operates as a strategic asset, providing financial assistance to those involved in legal actions. This support allows them to navigate complex litigation or arbitration proceedings without compromising their financial stability. At Annecto Legal, we can assist businesses in obtaining legal finance to address any potential legal disputes that may arise.
What is litigation funding?
Litigation funding, also known as or non-recourse third-party litigation funding, is a practice whereby a third party provides financial backing to businesses involved in legal disputes. In exchange, the third party receives a portion of the potential financial recovery from the case.
This type of funding is commonly used to support the costs associated with legal proceedings and may extend to covering expenses across portfolios of cases or deferring the costs linked to defending claims. External financing is a frequently utilised strategy by businesses to efficiently manage expenditures and optimise budgets. A diverse range of options is available to corporate entities.
Litigation finance plays a crucial role in enhancing access to justice by allowing businesses with potential legal claims to pursue their cases without being hindered by limited financial resources. This funding method is applied in various legal contexts, including commercial disputes, intellectual property litigation, class-action lawsuits, and more.
The capital involved in litigation finance is typically non-recourse, meaning that it is not considered debt. This financial arrangement implies that the investment and returns are contingent upon the successful resolution of the legal matter, effectively shifting costs and risks off the balance sheet for the duration of the legal battle.
Litigation funding options
If a business dispute does arise, it can lead to high levels of legal costs. Fortunately, there are funding and insurance options available to assist when conducting litigation in a cost-effective manner. These methods include:
Third party funding
One funding method that is commonly used for business disputes is third party funding. Third party funding acts as a form of non-recourse financing for litigation. If they believe the case has potential prospects of success, third party litigation providers take on the financial risk of litigation so that clients can pursue a claim without having to worry about the legal fees associated with it.
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. If the case is unsuccessful, the funder will lose their investment.
Damages based agreements
A damages based agreement (DBA), also known as a contingency fee agreement, is a type of funding arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of litigation. In return, the solicitor will be paid a percentage sum of the damages recovered as long as the client’s case is successful.
DBAs provide that, instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the case is successful. Therefore, these types of funding agreements allow clients the opportunity to pursue a case without having to worry about the solicitors’ fees associated with it. In some circumstances, however, fees for Counsel and other disbursements may still be payable by the client.
After the event (ATE) legal expenses insurance is taken out after the event that has led to a dispute has taken place, to protect you in the case of your claim being unsuccessful. ATE insurance can protect you from paying your opponent’s legal costs should your claim not be successful.
However, ATE insurance is not free, and it is important to remember that if your case is successful, you may have to use some of your award to pay the cost of the insurance premium, which will be included in the terms and conditions.
After the Event insurance is often used in conjunction with a Damages Based Agreement, or third party funding.
How can Annecto Legal assist with legal funding?
In cases of business disputes, obtaining timely and cost-effective legal advice is crucial to saving money and safeguarding your position. The utilisation of the litigation funding industry is becoming increasingly common in business litigation matters.
Annecto Legal assists clients in recognising the value of their commercial disputes by working closely with litigation funders, insurers, and law firms that are exploring alternatives to the traditional hourly rate funding model.
If you have been involved in a dispute or are pursuing a legal claim, 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.
Get in touch
* Annecto Legal can only assist on case where the loss is in excess of £100,000, with the exception of data breach claims. If you need assistance on a claim worth over £100,000, please get in touch using our form or the details below:
Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS
0800 612 6587