The future cost of litigation

Behind many a closed door lies a scandal. The Financial Times’ recent exposé of the Presidents Club’s dirty dinner evinced the venom and volatility all too often associated with a reputational crisis. No reputation safe, no blushes spared.

It comes as little surprise that research by Thomson Reuters’ Practical Law reveals £26.2bn was set aside by FTSE100 companies over the course of 2016 to cover the costs of litigation, regulatory fines and compensation. Subject to increasingly stringent regulation, the banking sector accounted for over half of this total figure. In contrast, the insurance sector only accounted for one percent.

Will these numbers shrink in 2018? It’s unlikely the legal challenges contributing to these costs will decline: the implementation of GDPR on 25 May and the governments’ flirtation with a new corporate offence regarding the failure to prevent tax evasion, has the potential to set fines soaring. Likewise, companies may be hit with a growing number of lawsuits for failing to offer equal pay for equal work, particularly as the tide turns against a sheepish acceptance of ‘laddish banter’ in the workplace to promoting a safe working environment for women, no matter the industry.

Future prospects for minimising the impact of the City’s legal challenges may seem bleak were it were not for the growing rise of litigation funders. As third-parties willing to take the risk for a greater share of the reward if successful, litigation funders have the potential to slash the costs associated with commercial disputes. Backing the right horse in other parties’ litigation can be lucrative business for such funders. Companies and individual litigants are increasingly acquainting themselves with litigation funders, equipping themselves with the power to shape the risk and reward of certain litigation or, in some instances, providing them with the opportunity to bring a case that would otherwise be financially prohibitive to fight.

The growth of litigation funding is beneficial to litigation PRs too, opening doors to more well-resourced claimants as well as the traditional instructions from defendant corporations with reputations to protect.

With funding, lawyers and litigation PRs on hand, companies and individuals can more confidently tackle reputational crises head on, should they find their concealing doors being prised open.

 

28 January 2018

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