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Dispute resolution as an investment for SMEs - 1st March 2021 - Click for larger version Dispute resolution as an investment for SMEs - 1st March 2021

Why do venture capitalists fund litigations on behalf of organisations and individuals in which they otherwise have no interest?

Because litigations can be investments (see some further background in relation to litigation funding in the UK below).

The same proposition applies to you, as the owner of an SME, and any disputes or problems that your business might be facing.

If you invest funds, and your time, into tackling a dispute or a problem - then you can produce a return; the funds recovered, or commercial opportunity protected or created, as a result, can exceed the value of the investment.

Here are two very different (redacted) stories, from the real world, of SME clients of Macdonald Henderson that invested time and money into setting-about a dispute and enjoyed the benefit of a return:-

Real World Example A

Our clients purchased the entire share capital of a business for several million pounds.

The share purchase agreement included a number of warranties, or guarantees, about the state of play of various parts of the business.

Some of those warranties were breached. Our clients did not entirely get what they had been promised.

Claims were intimated. Efforts to resolve without litigation were made. A pre-litigation offer was made by the sellers.

However, our clients refused that offer and instructed Macdonald Henderson to raise court action for the financial cost to the business of putting the breaches of warranty right.

Ultimately, after around 12 months of court procedure but before a final Hearing, a settlement was negotiated.

The settlement represented around a 300% return on the financial investment.

Real World Example B

On the opposite side of a battle, and with much lesser sums at stake (just short of £30,000.00) – our client was tenant under a lease, which included provisions for payment by our client of service charges.

At the start of year 6 of the lease, the landlord invoiced our clients for service/maintenance costs incurred by the landlord over the course of the prior 5 years.

We advised our client why it was too late for the landlord to raise these charges.

Again, efforts were made to resolve without litigation. Our clients made an offer (given that even in the event of complete success all costs would not be recoverable by our client, and neither would management time) but the landlord made a “final “ counter-offer. Our client refused to accede to that counter-offer.

The landlord raised a court action.

On this occasion, we advised our client to firmly dig in its heels – if needs be, we advised that we should see the court action to a conclusion. Once court action was raised, our client made no further offers, except for both parties to walk-away without any monies changing hands.

After around 6 months of litigation, the landlord agreed to drop the claim.

Comparing our client’s costs against what would have required to have been paid to the landlord to settle the claim pre-litigation, a 175% return on the investment was produced.

Emotional investment

It has to be said that dispute resolution and litigation for you, as an owner of an SME, will almost always also command emotional investment. Your business is personal.

Disputes can also drain management-time and litigation, like almost all investments, is subject to risk.

How do you, as your starting point, mitigate risk and lost management time and give your business the best chance of producing a return on your financial and emotional investment?

For one, invest in appointing the right lawyer for your business (of course!).

Concise and decisive advice from a lawyer, who recognises and is prepared to match your own commitment and focus on achieving a result (if possible without litigation) for your business, is key.

Macdonald Henderson would be delighted to be engaged to help you to take on any challenges facing your business and come out at the other end with a return on your investment.

Tel: 0141 248 4957

Litigation funding is a recognised and growing “asset class” for investors in the UK. Litigation funders pay the costs of litigation in exchange for a share of any sums recovered. In March 2020, the balance sheets of the UK’s top 15 funders was reported to have increased to £1.9bn, a 46% increase on the previous year. A current, topical, example of litigation funding in practice is the funding of insured companies’ claims in connection with business interruption insurance.

Last updated: 4.16pm, Friday 26th February 2021

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