Friday, 10 Sep 2010
Commercial litigation set to rise as 'no win, no fee' deals move into the mainstream
06 February 2009
More than three-quarters (77%) of the 139 commercial litigators questioned said that they expected the number of commercial disputes they handled to increase this year, as the recession bites and as companies and their lawyers become more aware of the benefits of using conditional fee agreements and 'after the event' insurance.
Eighty-five percent of commercial litigators that said their clients were becoming more interested in using CFAs backed up ATE insurance to fund their cases, as companies’ fighting funds diminish.
First Assist’s Managing Director Peter Smith believes that, while the economic downturn means that companies are more likely to need to litigate, they are less likely to have the financial resources to bring legal action and so will turn to conditional fee arrangements and after the event insurance.
The report highlighted that 68% of the commercial litigators questioned felt that the combination of CFAs and ATE enables cases to be brought that would otherwise not proceed for lack of funding, while 23% say the same of cases that would otherwise be too risky to go forward.
Peter Smith believes that the potential growth for CFA-backed litigation to grow is enormous. “In some other areas of litigation, CFAs and ATE are already the commonest used form of funding, but our research shows that for commercial cases, usage was just 7%.”
Despite the advantages, many commercial litigators have been reluctant to use CFAs or ATE until recently. The report highlighted that the main concerns among commercial litigators were whether policies would cover all the eventualities encountered in cases and whether the ATE premium would be fully recoverable from the losing side if the claim is successful. Respondents also expressed fears that, in the event of a protracted case, extending the amount of cover will either be unachievable or prohibitively expensive.
Smith says that his company’s ATE product addresses these concerns. “We know that some solicitors had a bad experience with some claims farmers in the personal injury market a few years ago, but we, like other experienced ATE players, have always provided products which meet the needs of clients,” he said
“Since launching Pursuit, we have now handled several thousand cases and we have never had to ask a client to pay a premium or to make up a shortfall, so the ATE really is at no cost to the client. We had a test case in our favour three years ago which has been very helpful. We always get our premium when costs are awarded or when a case is settled and we do not see any reason why it should be a problem in the future.”
On the issue of extending cover in the event of protracted proceedings, Smith points out that Pursuit provides automatic cover up to £2m – more than enough cover for 95% of cases. Cover running out is therefore not an issue, meaning that for companies with a good claim, there is no reason not to use an ATE-backed CFA.
“CFAs and ATE enable companies to bring cost-free, risk-free litigation. If they lose, they don’t pay a premium and we pick up their liability for their own disbursements and their opponents' costs. If the claim is successful, then the ATE premium, their lawyers' fees and other costs are paid for by the other side. It's a no-brainer,” he said.
By using CFAs and ATE, litigants pay minimal up-front costs and are insured against the costs of losing. The arrangement works through the solicitor agreeing to work on a 'no win, no fee' arrangement (with a maximum allowable fee uplift of 100%) while the client takes out an ATE insurance against the having to pay the costs of the other party and other disbursements if the case is unsuccessful.
The ATE premium is usually deferred, which means the client does not need to pay for the premium at the outset and is able to reclaim the cost from the losing party if the claim is successful. Most ATE premiums are also conditional which means that it is not payable by the client if the case is lost. This means, in principle,that the client faces no or very little outlay at the outset of a case and is almost entirely insulated from the consequences of an unsuccessful claim.
