Without wanting to refer to the ‘credit crunch’ it is, in some ways, causing businesses to become smarter – especially when it comes to risk management and the recovery of debts or resolution of disputes.
Whereas 18 months ago, companies may have prioritised relationships over cash flow and may have been inclined to delay aggressively chasing debts, some companies are now more actively pursuing debtors in order to stay afloat or commencing proceedings because agreement cannot be reached and losses are at an unacceptable level.
There are methods which you can adopt which can reduce your risk to the exposure of costs and ways in which you can pursue the litigation without it doing irreparable damage to your cash flow. To reduce the risk you can take out After the Event (ATE) insurance to cover the possibility of having to pay the opposition’s costs. It is possible to reduce the cost of the litigation by entering into a Conditional Fee Agreement (CFA) or by obtaining third party funding. Also, consideration should be given to mediation as a tool to contain costs.
ATE insurance can be purchased after a dispute has arisen and while it is generally obtained to pay the opposition’s costs in case you lose, there are numerous innovative options available. For example, you can defer paying premiums until the end of the litigation and you can even take out an insurance premium against having to pay the original premium paid for the ATE insurance.
A CFA is an agreement between you and your solicitors whereby your solicitor defers payment of part or all of his costs and gets paid a success fee if you win. The downside of losing is usually covered by an ATE policy.
Third Party funding is a relatively new concept in which a hedge fund or other institutional investor is prepared to fund litigation on behalf of a client, in consideration for a percentage share of the damages. This is ideal for circumstances in which the case has good prospects but the company has limited funds available to pursue the claim.
A policy of trying to resolve your dispute through mediation can also mean that the settlement of the litigation can be facilitated at a much earlier stage and before considerable costs have been incurred in pursuing that litigation.
By seeking alternative funding packages and reducing your financial exposure, you will find financial assurances that you may need when embarking on litigation or mediation in this difficult economic climate.