Litigation Risk Management and Funding Methods
Litigation Risk Management and Funding Methods
Although disputes are unwelcome, they frequently arise in various business settings. Many disputes can be settled through dialogue or negotiation, avoiding the need for legal involvement or solicitors. Even when legal experts become involved, alternative resolution methods often bypass the need for court proceedings. However, there are instances where no alternative options are available.
Entrusting the litigation process to a legal department does not eliminate the risks that can impact both you and your business. Understanding these risks from the outset can not only establish a solid foundation for success in your case but also offer a genuine opportunity to minimise the adverse effects on your business operations, management time, and the challenges faced by those in leadership positions.
Given that commercial litigation can incur significant expenses, it is vital to be well-informed about funding and insurance options to guarantee a cost-efficient approach to resolving disputes. At Annecto Legal, we assist corporate clients and commercial solicitors in finding funding and insurance coverage, offering reassurance.
Managing litigation risks
Litigation risk management refers to the strategic approach a business employs to recognise, evaluate, and mitigate potential legal disputes and challenges. Successfully navigating through the intricacies of litigation risk is crucial for safeguarding a business’s interests and minimising adverse impacts on its operations, finances, and reputation.
Crucial components of litigation risk management include:
- Early case assessment: Identifying strengths and weaknesses, potential outcomes, and legal risks at an early stage enables proactive measures. Thorough risk assessments aid in understanding the likelihood and potential severity of legal challenges.
- Preventive measures: Implementing preventive measures, such as robust contract drafting and compliance programs, decreases the likelihood of disputes arising. Proactive steps may involve establishing clear policies and procedures to address common legal issues.
- Alternative Dispute Resolution (ADR): Advocating the use of alternative dispute resolution methods, such as mediation or arbitration, forms part of a litigation risk management strategy. These approaches often yield quicker, and less costly resolutions compared to traditional litigation.
- Documentation and record-keeping: Maintaining accurate and detailed records is essential. Proper documentation serves as evidence in case of a dispute and demonstrates compliance with laws and regulations.
- Legal compliance: Regular legal compliance risk reviews by external or in-house counsel help identify potential risk areas and ensure the business operates within legal boundaries.
- Insurance coverage: Assessing and securing appropriate insurance coverage is vital for litigation risk management. This helps alleviate the financial impact of legal proceedings.
- Strategic communication: Clear and transparent communication with stakeholders, including employees, clients, and investors, is crucial. Transparency regarding potential legal risks and their management fosters trust and credibility.
- Engaging legal professionals: Involving a legal team in the decision-making process and seeking guidance on potential risks is invaluable. Legal professionals offer insights into the potential legal implications of business decisions.
Adopting a comprehensive approach to litigation risk management can help businesses to better position themselves to navigate the legal landscape, protect their interests, and maintain a legally sound business environment.
Financial implications of commercial litigation
When determining whether to pursue a commercial litigation claim, the financial implications of potentially being responsible for the legal expenses of both parties if the case fails is often the primary consideration. The expenses associated with legal services in commercial litigation must always be factored in, as they can significantly impact a business and their balance sheet.
Nevertheless, similar to other aspects of business, there are numerous methods to finance endeavours and mitigate risks through insurance and similar tools.
Businesses employing suitable litigation management strategies can transfer costs and risks away from their balance sheet, during both the duration of the dispute, and the if the case proves unsuccessful. The sole financial aspect that remains is the ‘contingent asset’ – the funds received if they win to cover costs and damages.
Since it only offers potential benefits, the associated management time related to any commercial litigation claim can be viewed as a favourable return on investment.
Alternative funding methods
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. 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 claim is unsuccessful, the funder will lose their investment.
Damages based agreement
A damages based agreement (DBA), also known as a contingency fee agreement, is a type of arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of potential 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 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 commercial litigation?
In business dispute cases, 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 litigation funders, insurers and lawyers that seek alternatives to the traditional hourly rate funding model.
We can assist with a variety of cases including intellectual property disputes, breach of contract, shareholder disputes and more.
Unfortunately, because of the high costs of legal actions in the UK, we only assist in disputes which are valued at over £250,000, at the absolute minimum. We would like to be able to help on other claims, but we just don’t have access to any products that can assist on smaller matters.
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.
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