Businesses consider new legal funding options
Businesses involved in legal disputes are starting to plan for new funding options for legal costs and expenses which may reduce their litigation-related risks and costs.
Radical changes to the rules governing funding of legal disputes, including new rules stopping you recovering legal costs from opponents if you win, look set to come into force in stages, with the new rules fully in force from April 2013.
Key changes include:
• Significant reform of the rules regarding ‘Conditional Fee Arrangements’ (CFAs).
• Introduction of contingency fees in the form of ‘Damages-Based Agreements’ (DBAs).
CFAs can be used in any commercial dispute as well as in personal injury and other private litigation. They normally take the form of a ‘no win, no fee’ agreement, entered into by you and your solicitor. They usually say:
• You only have to pay your solicitor’s fees and expenses if you win.
• If you do win, your solicitor is also entitled to charge a success fee — a percentage (not exceeding 100 per cent) of his standard fees — to reward him for taking your case on and risking not getting paid. Currently, your solicitor cannot charge a success fee calculated as a percentage of your damages — this is a contingency fee, and is not allowed.
• You have to pay disbursements to third parties yourself. These may include, for example, court fees and/or barristers’ fees.
If you win, the court usually orders your opponent to pay all or a proportion of your solicitor’s fees and expenses. Whilst you are responsible to pay the success fee to your solicitor, your opponent may also be ordered to pay it for you in whole or in part.
You can also take out ‘After the Event’ (ATE) insurance either as an alternative, or as well as, entering into a CFA. Your ATE insurance will cover your disbursements in any event, and your liability to pay your opponent’s legal fees and expenses if you lose.
If you win, the court usually also orders your opponent to reimburse your ATE insurance premiums.
Under the new rules, you will not be able to recover either CFA success fees or ATE insurance premiums from your opponent if you win (although there are some exceptions in certain personal injury and medical negligence claims). Instead, they will be payable out of the damages awarded to you by the court.
However, in some instances such as personal injury cases, there will be a cap on the success fees your solicitor can charge, and it is likely the courts will increase the awards they make to some extent, to help successful claimants meet their new liabilities.
However, the new rules will introduce a type of contingency fee in the form of DBAs. These are agreements to pay your solicitor a sum dependent on the damages you receive. DBAs will be available in all the circumstances that CFAs can currently be used, including any commercial claim.
DBAs look set to be used extensively in commercial disputes, although working parties have yet to decide on the details, which will affect how flexible and useful DBAs will be.
Businesses involved in frequent and/or important litigation will need to consider whether to enter into DBAs with their solicitors, and on what terms.
Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.
This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.