Time to talk litigation funding

In periods of economic strain or unpredictability we often see the scale and prevalence of commercial disputes rise. Disputes which arose during pandemic lockdowns are very recent examples of this.

Because taking disputes to court can be expensive and cashflow is vital, it is important for businesses to have access to funding mechanisms, particularly when other forms of dispute resolution have not been successful. In the current economic context, the need for such funding will be felt all the more intensely today.

Currently, there are some measures businesses can take to help cover the cost of litigating.

There is the option for Scottish solicitors to agree to undertake the legal work on a "Success Fee" basis, meaning that the business only pays legal fees in the event the case is successful, but it can be difficult to secure that agreement and there are still potential costs to be covered by the business for things like court fees or experts. So these arrangements are not a "one size fits all" solution.

The other option is litigation funding, when a third party without financial connection to or interest in a case funds the cost of litigation. The funder's return comes if the litigant is successful and the funder takes a portion of the money that is recovered through the process. South of the Border the litigation funding market is booming.

It is easy to assume that Scottish companies are readily able to tap into this pot of financial backing, but this is often not the case. The commercial disputes in Scottish courts are often not of a high enough amount to bring these larger litigation funders on board.

The implications of this could be significant. The longer it takes a business to resolve a commercial dispute, the greater the burden on the bottom line. If we cannot support our businesses with access to funding solutions, they will slow down.

Yet for investors looking at the Scottish market, litigation funding may also grow in appeal in the coming years. With the Scottish courts now allowing “group proceedings”, commonly known as class actions elsewhere, it's likely that funders will be attracted to the potential value - and therefore returns.

Indeed, in late 2021, it was reported that the litigation funding market had reached £2bn in the UK, and many believe that a steady rise in class action lawsuits in the English courts is contributing to this. For investors, if group proceedings do follow that trend in Scotland, we could witness the same effect.

So we must start to talk about litigation funding; the resilience of Scottish businesses could be at stake.