What Are My Options for Paying for Litigation in England and Wales?

As a business entering into a dispute, you should prepare for the high legal costs that could come with litigating. Litigation (especially complex commercial disputes) involves many costs. As such, businesses are increasingly leaning towards financing litigation through third-party funding. The costs involved in litigation can include: 

• court fees; 
• solicitor fees; 
• barrister fees; and 
• expert witness fees. 

Litigation funding can help you remove the cost of litigation from your balance sheet, hedge against risk, and prevent you from diverting resources away from growing your business. This article will explain some of the main features of litigation funding and your options regarding different funding arrangements. 

What is Litigation Funding?

Litigation funding (sometimes called litigation finance) typically refers to the way in which you will pay for your case costs. Often, the term refers specifically to third-party funding arrangements. This is where a third party provides you with the financial resources to pursue your court claim.  Third-party funding is used if you are a claimant or a plaintiff who could potentially receive a large monetary sum as part of your case. Litigation funding is common and is even used by law firms. In some instances, firms may wish to hedge against the risk of failing in any particular legal claims. 

Notably, you are more likely to benefit from a legal defence fund as a defendant rather than as a litigation fund. 

How Does Litigation Funding Work?

In litigation funding, the third party will offer to fund all or part of your case (depending on your funding arrangements), and will also be entitled to a portion of a potential damages award if your claim is successful. 

If your case is unsuccessful, however, you will typically not owe any money to the third party. Thus, the third party is splitting the cost of pursuing the litigation with you, and also takes on the financial risk of failure in the claim. 

As a result, litigation funding essentially lowers both the risk and reward of taking a case to court. In other words, you pay less money to initiate your legal proceedings, but you also receive less money if you have a successful outcome. 

Because of this, a litigation fund is more likely to offer funding if they have a good reason to think that you are likely to win your case (for example, because you have a legal team with experience and a strong claim). 

Why Use Litigation Funding?

Receiving funding from a litigation fund might look like a loan in some ways. However, you would generally not treat these as loans but instead as an asset purchase or as a venture capital investment. Because of this, third party funding for litigation should not affect your business’s balance sheet. This can therefore be advantageous for your business if a healthy balance sheet is important for receiving future investment. 

Similarly, using third party funding can also help you pursue multiple simultaneous claims especially if your business’s legal budget is limited. Moreover, your business will also not have to disrupt the money that it is spending on general operations to be able to finance litigation. 

Finally, it can help you ‘spread the risk’ of pursuing a court claim. This can be attractive even if you have the capital to pursue the claim without further funding. 

However, you may also choose to not use third-party funding. This can occur if you are happy to take on financial risks for the potential reward of receiving more damages. This could be a viable option if you have a good claim and reason to believe that you will receive a costs order in your favour. A costs order is where the losing party will pay for some or all of the legal fees of the successful party. 

How Do I Pay For My Lawyers Once I Have Litigation Funding?

Litigation funding gives you the resources necessary to pursue your court claim. However, you still need to decide how to pay your legal fees (including lawyer fees) once you have the funding. As a result, it is often used alongside:

• conditional fee agreements, where you only pay your lawyer on the condition that they succeed in your claim;
• damage based agreements, where you pay your lawyer a percentage of the damages that you are awarded; or
• fixed fees, where you pay your lawyer per hour of their service.

In some cases, you can combine different funding arrangements. It is important that you understand the risks and potential financial rewards of litigation before proceeding with any potential financing agreements.

Key Takeaways

As a business entering into a commercial dispute, you will want to explore different ways of funding litigation. In recent years, litigation funding has become a popular way of covering legal costs. Litigation funding is where a third party finances your litigation and receives a portion of your final award. 

Litigation funding can be attractive for a number of reasons. For example, you may wish to hedge against the financial risk of losing your case. You may also want to avoid using your own cash reserves or disrupting cash flow, or manage your balance sheet. If you would like to further explore litigation funding, LegalVision’s experienced dispute lawyers can help determine which pathway is best in your situation as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page. 

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