Funding Disputes and Reducing Risk
We understand that funding legal costs can be an expensive burden and a significant obstacle to recovering what you are owed. Also, the risk of losing, and being ordered to pay your opponent’s costs, can present a serious threat to finances.
You may not be aware though that there are now various funding options and insurance products available so that in appropriate cases you can look to:
Our experts understand modern funding options and insurance. They can put together bespoke packages which, combined with pragmatic, commercially focused advice, will give your business the best chance of recovering what is owed with as little risk as possible.
The options available are set out below and they are not mutually exclusive so can be combined to give you the funding and/or insurance package which is best suited to your needs.
In appropriate cases third party funding can be used to help recover monies your business is owed. A specialist litigation funder can provide finance to cover the cost of litigation, arbitration or adjudication, in return for a share of what is recovered if the claim is successful. Funding is available for all or part of the costs of the claim, including legal fees, claims management fees, barrister’s fees, expert witness fees and other costs.
The funder only recovers its investment and uplift if a claim is successful. If it is unsuccessful the funder is not repaid and simply losses its investment. We will only work with funders with the right reputation, track record and financial resources.
One of the attractions of funding is that legal costs are off the balance sheet. It frees up cash flow and allows clients to focus on their core business.
Our experts will estimate the full cost of funding your claim which will be broken down into its various possible stages, whether that is in litigation, adjudication or any other dispute resolution process. In appropriate cases we will agree to fix or cap our fees for some or all of those stages so that you can budget fees and know that you are not going to face unexpected additional fees later on.
An hourly rate arrangement, where you pay on a time-spent basis at agreed hourly rates (depending on the level of lawyer), is the most common form of commercial dispute funding. It is difficult to accurately predict the total time that will need to be spent as this is dependent on many factors including how your opponent reacts to the claim or defence and how they conduct themselves through the litigation or other process. Even so, our experts will still estimate the cost of funding the claim for you, breaking it down into the various possible stages of the process, and would let you know if it was anticipated that the costs were going to be higher than estimated.
If you are successful and the usual order for costs is made (loser pays) then, typically, you should be awarded between 60% and 75% of what you have actually incurred.
There are insurance products available to cover the risk of losing and having to pay your opponent’s costs. These are often used in conjunction with the funding options.
These insurance products will not normally provide cover for your own costs and expenses but sometimes litigation loan providers offer an insurance policy (at an additional cost) to repay the loan if you are not successful.
Generally, in ‘business to business’ disputes the premium paid for one of these insurance products is not recoverable from your opponent whatever the outcome of your case claim. However, sometimes the payment of the premium for one of these products can be deferred until the conclusion of the claim, or might not be payable at all if the claim is unsuccessful.
These are also known as ‘no win, no fee’ agreements although they can be structured in a variety of different ways and rarely involve no fee at all in business disputes. In essence they transfer some or all of the risk for your own legal costs to us. We will typically look at these where we will charge a reduced percentage of our fees (say 50%) and we will only charge the rest, and a prior agreed success fee, if and when the claim is successful. If the claim is not successful we lose our investment.
You will usually be responsible for paying your own third party expenses, such as an expert’s fees if an expert is needed (experts are not permitted to enter into CFAs). If we need to instruct a barrister on your behalf then, depending on whom we recommend and whom you want to instruct, they can be retained on a CFA in respect of at least some of their fees.
In very strong cases we will consider a full CFA (as will some barristers) so that unless and until the case is successful you pay nothing apart from third party expenses.
A DBA is an agreement where we accept, in place of our usual fees, a percentage of the amount you are awarded or recover if you are successful (either at trial or if you settle). This is capped at 50% of the amount you are awarded or recover.
You will usually be responsible for paying your own third party expenses although if we need to instruct a barrister on your behalf their fees may be able to be included under the terms of the DBA depending on whom we recommend and whom you want to instruct.
There are specialist litigation loan providers although you are not restricted to them, and could apply to borrow from any lender. This type of funding may be a suitable option if, for example, your business has short term cash flow issues and so is unable to meet costs upfront or on an ongoing basis, but will be in a position to pay off the loan after the claim is finished.
Typically, loans for this purpose are provided as a draw-down facility so that your business can meet the costs as and when they need to be paid. Ideally, interest is only charged on the amounts drawn-down and not on the full undrawn loan facility from day one.
Repayment arrangements depend on the circumstances and provider and some loans do not require any repayment during the course of the claim. As you might expect, some providers may require security and these loans are repayable whether or not the claim is successful.
You should check for any existing insurance cover that your business might already have for legal costs. It might form part of another insurance policy, or perhaps come with membership of a trade organisation. Depending on the level of cover, legal expenses insurance may meet some or all of your costs, and your opponent’s costs if they are awarded against you.
If you have legal expenses cover available there are usually time limits for making a claim and so it is important to discuss this with us at the earliest opportunity.