By Nick Horton, Partner and the Head of Dispute Resolution. Contact Thomson Snell and Passmore 01892 510000.
Far reaching reforms to legal costs in litigation came into effect on 1 April 2013.
This article looks at one element of those reforms, namely risk sharing and insurance in commercial disputes, and asks what funding choices a business or an individual with a strong claim now has for pursuing a financially secure defendant.
The intention of the reforms was to level the playing field between claimants and defendants by not allowing successful claimants to pass onto defendants as part of their costs claim the “success fee” under a conditional fee agreement (“CFA”) or the premium under an After The Event (“ATE”) insurance policy which would have covered their potential exposure for their opponent’s costs if they had lost. Any claimant who was not advised of the protection available under the old regime should consult an independent solicitor to see if they have any redress.
Post 1 April, are CFAs and ATE insurance worthwhile? We would generally advise against taking out ATE insurance until court proceedings are actually necessary (because until that point a claimant can have no liability for its opponent’s costs) and even beyond that point it may sometimes be better for the claimant to take the risk. CFAs still definitely have their place, though, for claimants who do not have the funds to pursue cases as they proceed and who do not want to have to pay their solicitor (or only want to pay at a reduced rate) unless they achieve a result.
The law also now allows solicitors acting in court proceedings to charge by taking a certain percentage of the client’s damages if success is achieved and a recovery is made – ie to enter into a Damages Based Agreement (“DBA”) - and there is still the ability to seek 3rd party funding too. Funders will not ask for their money back if the case is lost but do expect a significant return on their investment and/or a percentage of damages if the client wins.
The watchword now is “choice”. Is your solicitor explaining the options and giving you the choice? And for your own costs, does that choice include no contingency, no success fee and no share of the damages but simply giving you clear budgets for each stage, commercial advice as to whether the next stage is worth it, and deferring payment to fit in with the wider picture?