Monday, August 8, 2022

New legislation means increased use of litigation funding in Scotland – Edward…

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You only have to pay cursory attention to the debate in the Conservative Party’s leadership contest to know that it’s difficult to reach agreement on what to do with the current and future challenges facing the UK economy.

The only thing that is certain is that times are getting tough and everyone – politicians, citizens and companies alike – must find a way to react.

Markets and the economy change rapidly, even weekly, and this affects all aspects of doing business – not least how disputes are handled. It is well known that litigation tends to increase as the pressure on all parties increases in a downturn.

Businesses can be put off by the idea of ​​litigation because of concerns about the costs, risks, and uncertainties involved. Time spent handling a court case can feel like an expensive distraction from day-to-day business. This applies even if they have valid claims and if the judicial proceeding (or arbitration or conciliation) could provide an effective remedy.

This is where litigation funding can play a crucial role. Until the Civil Litigation (Scotland) Act 2018 brought a significant change to litigation funding options in Scotland when it came into force in April 2020, there were severe limitations on the types of fee arrangements that solicitors could enter into with clients for litigation.

For example, it was not possible to secure a damages-based fee agreement – such an agreement was struck down in a high-profile Scottish case in January 2020. However, these arrangements have long been available in England and have become an important one, along with litigation funders and insurance companies, to help companies manage the risk and cost of litigation.

The 2018 Act removed this barrier, giving Scottish solicitors the flexibility to enter into similar arrangements with their clients and allowing those clients to pursue claims they might otherwise have found uneconomical.

Litigation funding and flexible fee arrangements are about spreading the risk and cost of litigation for clients and allowing them to seek relief where otherwise it would not be commercially viable. We are now seeing the use of litigation finance growing in Scotland and the market will mature quickly in the current climate.

The litigation finance market in Scotland has evolved from focusing on insolvency practitioners pursuing claims for insolvent companies and is expected to have a greater impact on the private sector. In view of the economic challenges ahead, it is becoming increasingly important for companies to protect themselves and their financial interests in the event of a dispute, while at the same time balancing out the financial risk of a legal dispute.

As part of an international law firm that has been at the forefront of applying litigation finance strategies to clients in multiple jurisdictions, Addleshaw Goddard’s team has, through its Oversight Service, monitored the development of litigation finance in the UK, including the growth in third party funders of litigation funded through the City of London to look for opportunities.

Given that the full spectrum of litigation finance is relatively new to the Scottish market, it is vital for commercial clients wishing to assert existing or near-existing claims to have the right advice and understanding how it may affect administrative expenses, cash flow and risk will certainly emerge.

Edward Gratwick is Legal Director in the litigation team at Addleshaw Goddard

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