By Tadgh Kelly: Solicitor – Underwriting Director
Estimate read time 3 minutes 57 seconds
UK tech start-ups face real financial risk when disputes reach court. This article explores how security for costs applications can threaten viable claims – and how commercial litigators can help their clients manage this challenge through informed strategy and effective use of ATE insurance.
The United Kingdom continues to stand out as one of the world’s foremost centres for innovation. With more than 13,500 active start-ups – around 28% of all ventures in Western Europe – the UK’s technology ‘ecosystem’ is expanding at an annual rate of over 26%. Yet behind this momentum lies a vulnerability that commercial litigators know well. When disputes arise, start-ups are among the least equipped to absorb the financial shock of litigation.
For those advising such companies, the challenge is rarely about legal merit alone. Financial fragility often dictates strategy. A claim that is sound in law may be precarious in practice if the claimant cannot meet a security for costs order. Defendants know this, and applications for security are often used tactically to discourage proceedings or to force settlement on unfavourable terms.
Security for costs orders are intended to protect defendants from insolvent claimants, but for early-stage companies they can pose a serious threat to survival.”. Cash flow is already tight, capital is earmarked for development and growth, and investors are wary of funds being tied up in court for years. In these circumstances, the prospect of lodging substantial sums as security can cause a meritorious claim to falter before it begins.
For litigators, understanding the pressures facing a start-up’s finance team or board is essential. The reputational optics of litigation can unsettle investors. CFOs may question the wisdom of tying up capital in court, and potential funders can perceive the dispute as a distraction or risk. Advisers who recognise these sensitivities are better placed to help their clients balance commercial and legal realities.
When finance meets litigation strategy
In practice, the presence of a well-structured After the Event (ATE) insurance policy with a suitably worded anti-avoidance endorsement (“AAE”) can be decisive. Courts in the UK accept that a valid ATE policy with an AAE can serve as adequate security for costs. This enables a claimant company to pursue its case without diverting scarce working capital. Rather than a sales tool, ATE functions as a means for lawyers to protect their clients from financial exposure while keeping litigation strategy intact.
Temple’s ATE policies are usually structured so that the premium becomes payable only if the claim succeeds. For early-stage businesses, this alignment with outcome rather than process is key. The policy can reassure investors and management that the company’s position is being managed responsibly and that the claim will be pursued on its merits, not abandoned for lack of liquidity.
Illustration – a start-up defending its intellectual property
A technology start-up in the incubation stage must take on a global tech company for copyright infringement. The smaller company’s funds are tied up in product development, and it has no reserves to meet a potential security for costs order. The defendant applies to the court for such an order, knowing the start-up may have no choice but to withdraw.
The claimant’s solicitors obtain ATE cover with an AAE. The policy provides protection for the opponent’s costs and disbursements if the claim fails, and the court accepts it as valid security. No cash is lodged, the claim proceeds, and the start-up avoids the destabilising effect that a large payment into court would have caused.
The case illustrates how ATE can neutralise a procedural tactic that might otherwise prevent a claim from being heard on its merits. For litigators, it underlines the importance of considering ATE early – not as a last resort, but as part of sound litigation planning.
A changing funding environment
The need for such planning is growing. Venture capital investment in UK start-ups fell to £16.2 billion in 2024, the lowest level since the pandemic. Funding conditions are tighter, disputes are increasing and the sectors most affected – technology, life sciences and fintech – are among those most reliant on intellectual property. Start-ups in these areas are particularly exposed to contractual disputes, shareholder issues and infringement claims.
In this climate, litigation risk management is an integral part of business advice. By helping clients explore ATE cover as a substitute for security for costs, commercial litigators can enable access to justice without undermining a client’s financial position. It is a practical demonstration of understanding not only the law but the commercial pressures shaping the client’s decisions.
Conclusion
The UK’s start-up community is flourishing, but its financial foundations can be fragile. For lawyers advising these companies, an appreciation of the CFO’s perspective is part of effective representation. Understanding how ATE insurance can address the problem of security for costs is not about product knowledge – it is about strategy, credibility and responsible client care.
Tadgh Kelly
Solicitor – Underwriting Director
Tadgh Kelly
Having completed internships at the European Commission in Brussels and the World Trade Organisation in Geneva, Tadgh went on to qualify as a practising solicitor in 2008.
Tadgh spent more than 18 years in private legal practice with Pearts Solicitors, Dublin where he was primarily involved in property disputes, personal injury, medical negligence, judicial review, high value commercial residential property transactions, and trust and probate planning.
Tadgh joined Temple Legal Protection Ireland as Senior Underwriting Manager in 2024 to head up Temple Legal Protection’s expansion into the Irish and European markets.
His knowledge of the commercial legal sector and litigation practice is invaluable to the business and our clients in Ireland, providing specialist local knowledge and experience to our solicitor clients.
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