In part 1 of our litigation funding series, we explain exactly what it entails, and why a business might choose to finance their litigation. We also look at a real-life example of how a company used litigation funding to resolve and ultimately win their case.
What is litigation case funding?
Litigation funding is where a third party – such as Escalate – invests money into a legal case to enable a litigant to take it forward.
By agreeing to fund the legal costs involved in litigation, the funders receive an agreed share of the final proceeds if the case is won. If a case is unsuccessful, the funder loses the money they invested into the case; however, the litigant won’t owe anything.
Solicitors in England and Wales are now obliged to explain litigation funding to their clients so that they can consider it as an option to help fund their case.
Why do businesses choose to fund their commercial disputes?
Pursuing a commercial dispute has traditionally been a costly, lengthy and financially risky process. For businesses involved in these cases, it can be extremely disruptive to their day-to-day running, compromise their cashflow profitability, and hinder their chances to scale up whilst involved in a dispute.
As a result, litigation funding gives the claimant the financial resources to obtain access to justice, and is a valuable tool for businesses that don’t have the funds at hand to finance their legal case. Without this cash injection, many of these disputes would otherwise stall or be written off altogether.
Some businesses choose to use litigation funding instead of tying up their own cash in a dispute. Since the average time for cases to be concluded can easily run into 18 months or longer, it makes sense for companies to free up their cash flow and use outside investment instead.
Litigation funding is best suited to meritorious cases where the claimant has a good chance of winning, but legal costs are likely to run high. Since no cost is involved until the very end of the process when a judgment has been made, it bridges the financial gap and makes pursuing a case much lower risk for the claimant.
For all these reasons, it’s often preferable for a company to release cash at the end of a case by paying the funder its cut of the proceedings rather than paying anything upfront.
Is litigation funding right for you?
Deciding whether to use litigation funding for your dispute depends on the unique circumstances surrounding the case. No two cases are ever the same in the world of dispute resolution. These are some of the most common benefits to consider:
Sharing or transferring some of the financial risks: Litigation costs can be unpredictable, and with unknown costs and time at stake, many businesses choose to share the risk.
Legal budget is limited and easily exhausted: A litigation case can divert working capital and attention away from core business activities. Moreover, in-house legal teams may not have the expertise required to pursue commercial litigation and may need to outsource this specialist area.
Multiple disputes can be pursued at once: Many businesses don’t have the finances to pursue every dispute. Funding allows them to pursue cases that would otherwise have remained dormant or written off altogether.
- The cost of litigation can be taken off the balance sheet: Sometimes it’s commercially advantageous to keep litigation costs off a company’s balance sheet, and helps ease cashflow worries.
- Increased chance of winning a case: Working with litigation funders gives companies access to specialised legal professionals who are experienced in this area of corporate recovery. It’s also worth noting that many funders only take on claims that have a high chance of success, which gives the claimant more confidence in resolving a claim in their favour.
- Sending a strong message: Under English law, it’s necessary to make the opponent in a case aware of a litigation funding arrangement. This can send a clear message to the opposing side that may encourage them to come to an amicable agreement sooner. Being fully funded with the financial resources to go all the way to High Court if necessary shows that a side is serious about winning their case, and in it for the long haul.
It’s also important to remember that litigation funding takes the form of a partnership between the litigant and the funder. Given that they share the risks and rewards with the litigant, reputable funders will work with you to agree strategy and tactics, and may also reserve the right to approval of the settlement.
A real-life case study of how litigation funding was used to win a case
This case study is a good example of how Escalate resolved a complex breach of contract case which involved multiple unpaid invoices, totalling £385,000. A domestic care provider had become embroiled in a dispute with a local authority, and despite engaging a legal provider to work on the case, they were unable to make any progress.
Faced with mounting legal bills and the prospect of having to drop the claim altogether, they instructed Escalate to step in and take over. We funded the rest of the case and were able to recover all funds, inclusive of costs, within four months.
The benefits of using Escalate
Unlike third-party funders, Escalate’s packaged solution is an ‘all-in-one’ solution that connects the dots between case funding, legal expertise, and full cost protection against case loss.
Bringing the funding in-house, all under one roof, streamlines the process and gives us greater control. There are no third parties, outside influence or vested interests involved.
Escalate work on all types of commercial disputes at various stages in their journey. We take on new cases and also accept claims that have already progressed but have stalled due to funding constraints or financial worries. We can also work with your current advisers (if you have any) and keep them engaged and involved to help unlock the dispute.
Once a dispute is accepted by us, the financial cost and risk are transferred onto Escalate. This gives our clients peace of mind that their case is being dealt with by a fully regulated law firm, safe in the knowledge that we only invest in claims that we believe we can resolve.
Quite simply, we only win when your case wins, so there’s a greater incentive for us to resolve your case successfully, as quickly as possible.
Litigation case funding is an ideal solution for businesses who either don’t have the funds to take a case forward, or don’t want to be exposed to unknown financial risk.
If you’d like to discuss a commercial dispute that you’re thinking of pursuing or are already engaged in, please get in touch for a no-obligation discussion on how Escalate can help.
Equally, If you are an incumbent adviser who believes Escalate might now be able to help you progress your client’s case via our funding and adverse cost protection, please do discuss with us.
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