Getting ripped off in business is never fun and recruiters are not immune from the behaviour of unscrupulous rivals. Sadly, the chances of being relieved of your candidate database, for example, are only likely to increase in the current economic climate.

What is equally unfortunate for those wronged recruiters is that they are less likely to have the necessary funds to pursue a nasty and hard-fought litigation. They may not want to expose the company to the possibility of a large costs order against it, should things not go to plan in any proceedings.

There are, however, alternatives available. Two of the most attractive options, which many lawyers do not make use of, are third-party litigation funding and after the event (ATE) insurance.

Litigation funding

In short, litigation funding is where a third-party funder invests in a claimant’s claim. The funder pays some or all of the claimant’s costs as a direct investment in the claim (with the obvious aim of a recovery for the funder). If the case is successful, the funder may take around 20-40% of the ‘winnings’ — ie, the amount recovered from the claim. The bigger the risk, the higher the percentage return. While each funder will have its own requirements, the three usual requirements for funding are:

• a claim in excess of £100,000
• good prospects for success (usually very good prospects)
• that the defendant will be able to pay any judgement debt found against it — ie. the defendant is good for the money.

The investors do their own due diligence and may use their own solicitors or barrister (in addition to your own) to confirm the position.

There are around five or six companies that hold themselves out to be professional litigation funders. Most of them are insurance companies. There are also a number of other funders, such as hedge funds, that get involved from time to time.

The following is a litigation funding scenario:

• The claimant has a case that is worth £500,000
• The legal costs are £150,000
• The arrangement is that the funder pays £100,000 of the costs and wants to recover 30%
• The funder would recover £150,000 and the claimant would recover £350,000. Both the claimant and the funder would also usually recover the majority of their costs.

It the claim fails, it is likely that the funder be exposed to an adverse costs order (ie. paying the defendant’s costs) in the amount it has invested - the £100,000. The claimant would generally be exposed to the remainder (whatever that may be).

Litigation funding can be a very attractive option for many claimants in the current financial climate.

ATE insurance

ATE insurance is a slightly odd concept, but one which can be equally (if not more) attractive to a claimant as litigation funding.

The arrangement is generally that in the event of an unsuccessful claim, the insurer will cover the amount that the claimant has to pay towards the defendant’s costs. The general rule in litigation is that if you lose, you pay the other party’s legal costs. It is that payment that is insured.

However, the beauty of ATE insurance is that premium is not paid until after the judgement is handed down — hence ‘ATE’ insurance. And the premium is only paid if you win. So if you win the case, a (hefty) premium is then payable to the insurers, but that premium is generally incorporated into the costs order made against the defendant — ie. the defendant will normally pay most or all of the premium. If you lose the case, you pay nothing and the insurer pays your opponent’s costs (and sometimes your barrister’s fees too).

Again, each insurance company will have its own requirements and, as always, the premium will be based on the risk to the insurer.