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Litigation: Things businesses should consider

With litigation costs soaring since the recession, Nick Rowles-Davies gives his thoughts on what you should bare in mind before going to court.
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A recent survey conducted for the US Chamber of Commerce’s Institute for Legal Reform showed that UK expenditure on litigation costs have risen by almost 50 per cent during the economic downturn. It also showed that the cost of litigation to the UK economy was the highest in Europe – Britain saw a 48 per cent rise in litigation costs from 2008 to 2011.

These are staggering figures and it can be argued the perilous economic climate we have suffered for so many years has increased the number of businesses forced to use the Courts as a means of seeking payments due to them. What this means for businesses of all sizes is that cash flow, that could be used on other things, is being spent on legal fees.

Before they embark on what can be an expensive exercise, businesses of all sizes must think about their options and seek legal advice.

The first question is whether the case is worth fighting. This requires an assessment of the legal merits – will we win?

Then, as important is – can the opponent pay? There is no point pursuing an opponent who has no money.

Next, negotiate the most cost effective way of running the case. Lawyers have a duty to advise on the methods available to any business to fund a piece of litigation.

The options include, capped or fixed fees, discounted rates and even lawyers sharing the risk by being paid only on success. But, lawyers the same cash flow concerns as any other business so one alternative that works for the lawyers and the clients is ‘litigation funding’.

Litigation funding is where a funding company pays the legal bills and in return expects to receive a return of a multiple of the amount provided to the client or a percentage of the proceeds of the action. If the case loses, the funder walks away and writes off the investment. It is a system which has been very much pinched from America, but is growing in the UK. In the UK, there is around £500m worth funds available to invest in litigation from litigation funding at any one time – and this growing.

Additionally, the funding option it will allow certainty in costs exposure. A corporate litigant is insulated against the drain on financial resources and has the comfort of knowing that whatever the outcome in the case, their financial exposure is finite.

Litigation in the English Courts comes with a very high financial risk. A losing party to litigation is required to pay the winning party’s legal fees. Even without litigation funding it is important to consider this aspect. One useful way to mitigate against this risk is to purchase an after the event (‘ATE’) legal expenses policy to pay your opponents legal fees if you lose the case.

Lastly, any business involved in litigation should reassess their prospects at each key stage of the litigation. The merits of a case may change during the process and a constant reevaluation is necessary to avoid throwing good money after bad.

Check list: 

  1. Recoverability is key – don’t pursue an impecunious opponent
  2. Agree a budget for the case with the lawyers
  3. Always cover the down side – buy ATE insurance
  4. Reevaluate at key stages
  5. Consider alternative funding methods such as litigation funding

Nick Rowles-Davies is a consultant at litigation funding company Vannin Capital

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