COVID-19 Disputes: Litigation Funding Helps Companies Monetise Claims In An Emergency

Publication Date07 May 2020
AuthorMr Ben Knowles
SubjectCorporate/Commercial Law, Litigation, Mediation & Arbitration, Coronavirus (COVID-19), Corporate and Company Law, Arbitration & Dispute Resolution, Contracts and Force Majeure, Operational Impacts and Strategy
Law FirmClyde & Co

At a time when cash flow is paramount, litigation funding allows companies to enforce their rights without diverting valuable resources, and even to monetise claims immediately in an emergency.

The Covid-19 crisis is already damaging many sectors of the economy: aviation first of all, but also insurance, tourism, retail and energy, to mention just a few. The price of oil has already slumped dramatically as a result of a falling out between Russia and Saudi Arabia, creating a perfect storm for the energy sector. How individual companies fare in these conditions will depend partly on their circumstances and the degree of support available from the state, but it will also depend on the decisions they make during the crisis. Some companies, inevitably, will make rash decisions, terminating or breaching contracts without legal justification, and sometimes where there is no practical need. This harms other companies, of course, who will have to deal with the consequences, which may well involve seeking damages through the courts or arbitration for legal wrongs.

Problems

In general, when the economy dips or experiences a sudden shock, companies bide their time before commencing legal proceedings. Litigation and arbitration cost money, and claimants often have to wait until business recovers and they have sufficient funds to hire lawyers and pay court or arbitration fees. Costs recovery is not a solution to the problem, because that occurs at the end of proceedings, regardless of when costs are in fact incurred.

As a result, even companies with strong claims sometimes wait even right up until the end of a limitation period (generally six years) before launching legal action, in the hope that by that stage cash flow problems will have eased. Unfortunately this has certain undesirable consequences, the most obvious of which is that companies do not obtain legal redress at the time they need it most. Another problem is that witnesses' memories fade over time, and their evidence becomes stale and unconvincing, potentially undermining the claimant's case. It is also inherently risky to leave legal proceedings to the last minute in case there is an argument about how long a limitation period runs, or a limitation deadline is inadvertently missed.

Even if companies do start legal proceedings promptly, these can be long drawn out, and companies often have to wait several years before receiving the compensation due to them. In current circumstances, where courts around the...

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