The cost of justice

Regardless of spending patterns, high-net-worth individuals tend to be surprised by the sheer cost of legal action. It's not something they encounter in their day-to-day business dealings, where things they buy or sell have a fixed and clearly defined price. If something merits litigation, it's usually come out of left field and it's typically - contrary to the popular, grossly overstated notions about 'frivolous lawsuits' - quite serious.

As such, your client won't always know what's hit them if taken to court, and may assume proceedings can only be financed one way, which in turn may affect their decision to pursue justice. To pay and retain specialist lawyers on standard hourly rate models is to assume an elastic liability for costs.

They are paid by the hour and court cases can sometimes drag on for months (even years) at a time, regardless of whether or not it's a legitimate and realistically winnable case. Even if you manage to somehow arrange a fixed fee for your client, it won't take into account expenses such as expert witnesses that may be required to triumph.

Over time, even the most substantial fortune will begin to feel the strain. Ultimately, when a wealthy person has cause to sue, they'll usually be going up against someone of at least similar means, and quite often, substantially more.

The classic example is that of suing a bank. They tend to be old, rich, and (obviously) quite well-moneyed institutions, and they're often content to let legal expenses chip away at your client's estate; a prolonged legal case certainly won't make any meaningful difference to their funds.

Equally, if your client's suing for breach of contract, they could be up against a large supplier who can also afford to prolong proceedings until their opponent cuts their losses and runs.

Even if your client's going up against someone with (technically) inferior resources in, for example, a professional negligence case, it's easy for them to quickly become outmatched. These individuals will usually be insured against this kind of legal action, and insurance companies are not known for their love of paying out - if they think they can bully an opponent into backing down, they will.

There's also the fact that litigation has a downright nasty effect on your client's books. With constant, high-value monthly outgoings (sometimes for years depending on the complexity of the case) there'll be a lot of red in the ledger. Also if your client has other seemingly disconnected businesses interests, these types of cases can leave a bad taste in the mouths of potential investors.

Alternative funding

The aforementioned difficulties are often by-products of legal action, but it doesn't have to be that way. If your client has a robust case then there are multiple funding options which will limit risk and clearly define their cost exposure.

Third-party finance for example, provides a clear way forward for businesses or individuals attempting to seek justice. It simultaneously allows your client to pursue the recovery of lost money or assets, while protecting their estate. For a portion of the final award or settlement, it's possible to have all expenses covered by the litigation funder.

This includes solicitor fees and costs such as securing expert witnesses. Other products, such as After the Event (ATE) insurance, will prevent your client from having to pay the opponent's costs in the event their case fails. It's therefore possible to shift 100 percent of the costs and risks of litigation, in return for giving away between five and 30 percent of any damages recovered.

Litigation funding can be helpful from a bookkeeping perspective as well. Instead of several months of revenue-draining legal expenses, the costs and risks will be shifted to the funder's balance sheet. The damages claim will still appear as a contingent asset, making the accounts look more attractive to potential investors.

A wealthy individual may indeed want to pursue justice if they've been wronged, and need to know they've been advised of alternative litigation funding options. Clearly laying them out will not only ensure they're able to best protect their estate, but will also increase their confidence in your counsel.

Michael Lent is underwriting director at Annecto Legal

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