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Litigation Risk Management and Litigation Funding

Litigation Risk Management and Litigation Funding

litigation risk management

While nobody embraces disputes, they are often an unavoidable aspect of many businesses. Fortunately, most disputes can be resolved through dialogue or negotiation, bypassing the need for legal intervention or solicitors. Even in cases where legal professionals get involved, alternative resolution methods frequently evade the necessity for court proceedings. However, there are situations where no other recourse is available.

Even if you delegate the litigation process to your advisors, there are risks that can affect 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.

Considering that commercial litigation can result in substantial costs, it is crucial to be well-informed about funding and insurance options to ensure a cost-effective approach to dispute resolution. At Annecto Legal, we can aid clients in finding funding and insurance coverage, providing peace of mind.

Litigation risk management

Litigation risk management refers to the strategic approach a business takes to identify, assess, and mitigate potential legal challenges and disputes. Effectively navigating the complexities of litigation risk is crucial for safeguarding a business’s interests and minimising potential negative impacts on its operations, finances, and reputation.

Key components of litigation risk management include:

  • Early case assessment: Identifying strengths and weaknesses and potential legal risks at an early stage allows for proactive measures. Conducting thorough risk assessments helps in understanding the likelihood and potential severity of legal challenges.
  • Preventive measures: Implementing preventive measures, such as robust contract drafting and compliance programs, can reduce the likelihood of disputes arising in the first place. Proactive steps may include establishing clear policies and procedures to address common legal issues.
  • Alternative Dispute Resolution (ADR): Encouraging the use of alternative dispute resolution methods, such as mediation or arbitration, can be part of a litigation risk management strategy. These approaches often provide quicker and less costly resolutions compared to traditional litigation.
  • Documentation and record-keeping: Maintaining accurate and detailed records is crucial. Proper documentation not only serves as evidence in case of a dispute but also aids in demonstrating compliance with laws and regulations.
  • Legal compliance: Regular legal compliance risk reviews from external or in-house counsel can help identify areas of potential risk and ensure that the business operates within the bounds of the law.
  • Insurance Coverage: Assessing and securing appropriate insurance coverage can be a vital part of managing litigation risk. This helps mitigate the financial impact of legal proceedings.
  • Strategic communication: Clear and open communication with stakeholders, including employees, clients, and investors, is important. Being transparent about potential legal risks and how they are being managed can foster trust and credibility.
  • Engaging legal professionals: Having a legal department involved in the decision-making process and providing guidance on potential risks can be invaluable. Legal professionals can offer insights into the potential legal implications of business decisions.

By adopting a comprehensive approach to litigation risk management, businesses can better position themselves to navigate the legal landscape, protect their interests, and maintain a legally sound business environment.

Financial risks of commercial litigation

When deciding whether to pursue a commercial litigation claim, the financial implications of being liable for the legal costs of both sides if the case isn’t successful, are often the biggest factors to consider. The legal costs for the legal services involved in commercial litigation should always be taken into account as this can also have a significant impact on a business.

However, just as in any aspect of business, there are numerous ways to finance projects and manage risks through insurance and other such tools. Businesses using appropriate litigation management tools can shift the costs and risks away from their balance sheet in the event their case proves unsuccessful. The only financial element that remains is the ‘contingent asset’ – the money received if they win to recover costs and damages.

As it only has an upside, the associated management time relating to any commercial litigation claim can be seen as a good return on investment.

Funding a legal claim

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 

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. 

ATE insurance

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.

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:

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


0800 612 6587


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