New legislation means use of litigation finance on the rise in Scotland - Edward Gratwick

You need only to have paid cursory attention to the debate taking place within the Conservative Party leadership contest to know it's difficult to find agreement on what to do about current and future challenges facing the UK economy.

The only thing for sure is that times are going to be tough and everyone – politicians, people and businesses alike – will have to find a way to respond.

The markets and economy are shifting rapidly, even on a weekly basis, and this has knock-on effects on all aspects of doing business – not least dealing with disputes. It's well-known that litigation tends to be on the rise as the pressure rises on all parties in a downturn.

Businesses can be put off the idea of pursuing litigation by the concerns over the cost, risk and uncertainty involved. Time spent dealing with a court action can feel like an expensive distraction from day-to-day business. This is true even where they have good claims and where the Court action (or arbitration or mediation) could provide effective remedies.

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

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

For example, it wasn’t possible to enter a damages-based fee agreement – one such agreement being struck down in a high-profile Scottish case in January 2020. These agreements have, however, long been available in England and have become an important tool, alongside litigation funders and insurance, to help businesses manage the risk and cost of litigation.

The 2018 Act removed that barrier, allowing Scottish solicitors the flexibility to enter similar arrangements with their clients, and allow those clients to pursue the claims that they might otherwise have felt uneconomic.

Litigation funding and flexible fee agreements are about being able to spread the risk and cost of litigation for the clients, allowing them to obtain remedies where it would not otherwise be commercially viable to do so. We are now seeing the use of litigation finance on the rise in Scotland and the market is set to mature rapidly in the current climate.

From having a focus on insolvency practitioners pursuing claims for insolvent companies, the litigation funding market in Scotland has moved on and is set to have a bigger impact in the private sector. Looking at the economic challenges which lie ahead, it will be more important for businesses to ensure they protect themselves and their financial interests when disputes do arise, while offsetting the financial risk of litigation.

Being part of an international law firm, which has been to the fore in applying litigation finance strategies for clients in multiple jurisdictions, through its Control Service, the team at Addleshaw Goddard has watched the evolution of litigation finance in the UK, including the growth in third party litigation funders looking beyond the City of London for opportunities.

Given that the full range of litigation finance is still relatively new to the Scottish market, getting the right advice and being clear about how it can benefit management costs, cashflow and risk is vital for commercial clients looking at making claims that already exist or are almost certainly going to arise.

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

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