Access to Justice: Funding Litigation

May 16, 2011

Litigation is expensive. If you become caught up in a dispute with your agent or principal, you will immediately be worried about the potential costs of the dispute. Although most cases settle before trial, the legal costs of a dispute escalate quickly and you can never guarantee how long it will take to settle the claim, if indeed it can be settled at all. The uncertainty that this causes is very stressful for litigants.

There are, however, various methods of funding the costs of litigation, and in each case it is necessary to establish whether a funding method is (a) available and (b) appropriate.
Set out below are some of the options available for insuring against of funding the costs of litigation.

Before the event insurance


The most familiar form of funding, before-the-event insurance ("BTE insurance") is insurance taken out before a dispute arises, to cover future legal costs. This sort of legal insurance often comes as part of home insurance policies. The extent of the cover will vary from policy to policy (as to the extent to which it will cover your own costs and whether it will provide cover for the costs of the other party if you lose).

After the event insurance


After-the-event-insurance ("ATE insurance") is insurance taken out by either a claimant or a defendant after a dispute has arisen. It provides cover against the cost of losing the litigation and being ordered to pay the costs of the winning party. Most policies will also cover the cost of your own disbursements, such as your barrister’s fees.

The premiums are usually quite high, and can often be up to 70% of the cover provided. However, usually it is possible to agree with the insurer that the cost of the premium is incurred in stages throughout the case, which will help. If you lose the case, you will have to pay the insurance premium, but the insurer will pay the costs of the winning party that you are ordered by the Court to pay. If you win the case, you will be liable for the cost of the premium, but you will normally be able to recover the this cost from the losing party.

ATE insurance will not always be available. The insurer will almost always want a barrister's opinion that your case has good prospects of success, and you are highly unlikely to obtain ATE without legal advice that your case is a strong one. In addition insurers will be concerned to make sure that your opponent is not a man of straw after all, they will be looking to recover the premium from your opponent if you win!

Third party funding

Another potential source of funding for litigation is Third Party Funding. Third Party Funding is where an investor provides complete or part funding for litigation with which it has no connection. The funder invests in the litigation in the hope of profiting from its investment in other words, receiving a share of the damages recovered.

Third Party Funding is usually only available to claimants, and is very difficult to obtain. The claimant will usually require at least a 70% chance of success (which is very high in litigation terms), and funding will usually only be available for a very high value claim against a defendant with deep pockets. For these reasons, Third Party Funding is unlikely to be suitable for many agency disputes.


Related pages:

Agency, Distribution and International Trade more

Litigation, Arbitration and Alternative Dispute Resolution more

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