Whether you’re at an SME, a major multinational business, or you’re a sole trader, you’re under pressure to make the right decisions: decisions that become tougher when uncertainty is a major factor. In litigation, uncertainty is everywhere, and the result is lots of tricky decisions.
There is the obvious issue of whether you are likely to win or lose the case, but you also have huge uncertainty around cost: What will your legal fees be? Can fees change over time? Will you recover all your fees if you win? Will you also have to pay the other side’s legal bill if you lose? How long will all this go on for, tying up your cash?
The answers to some of these questions could be surprising, and as a result you may decide to avoid the expense of litigating. Of course, this could mean you are giving up on a significant potential gain for your business.
If you press on with litigation, it could be financially rewarding, but you could also be locked into a very expensive battle with no guarantee of success.
It’s a tough call. Could it be easier?
Well, reducing uncertainty would of course help.
Let’s assume you can’t significantly reduce the uncertainty that surrounds winning or losing (or if you could, you would have done so already), so we are left with the legal fees. If you had certainty over costs you would be in a better position to make a commercial decision. Better still, if you could remove your exposure to costs in its entirety, you could litigate without having to embrace any risk at all…
What would surprise many business people is that such a solution already exists. Indeed, over the last few years it’s worked successfully on well over five hundred legal cases. The solution is the Third Party Funding of Litigation.
Third Party Funding provides your business with a risk free way to pursue litigation: The Funder bears all of the costs and risks. The Funder will assess your case, and make a commercial decision about investing in it. They will look at the damages being sought (usually in excess of £250,000), the likely costs in bringing the action, and the typical time frame for the investment to produce a return (i.e. how long the case is likely to go on for).
If the maths works, the Funder will pay every single penny of your legal fees, reducing your exposure to zero. In return for paying, and taking all the risk, the Funder will seek a share of any damages awarded.
You would be forgiven for thinking that the Funder would look to keep most of the damages, in return for taking all of the risk. In actual fact, a typical case would see the Funder take maybe 20% to 30% of damages, with the client retaining 70% to 80%. So your business will bear absolutely no risk at all, and still keep over two-thirds of any damages. And if you lose, the Funder pays absolutely everything, including the other side’s costs.
Funding litigation on a non-recourse, off-balance-sheet basis allows businesses to turn legal claims into a valuable asset, which they can assess for no cost, and no risk. Given that this is such a useful tool, why haven’t you heard of it before? Well, that’s a good question, and one your own Lawyer might struggle to answer…
Nick Rowles-Davies, a consultant with Vannin Litigation Funding, says that since entering the funding market almost a year ago he is continually surprised by the lack of knowledge displayed by his solicitor colleagues about the litigation funding landscape. This is despite the new SRA Code of Conduct (the 2011 Code) which focuses on the outcomes for clients and increases the onus on solicitors to ensure their clients are well informed.
Nick says: “Regardless of whether the right option for your client is a standard retainer; fixed or staged fee; full CFA; discounted CFA (with the client paying) or a legal expenses insurer, the onus has, and always will be on solicitors to be aware of and present all of the funding options available.”
Given that Solicitors are required by their own Code of Conduct to advise clients on the various funding options available, if they do not give this advice they are risking a claim of negligence. These claims are increasing at an alarming rate simply because too many Lawyers fail to advise their clients correctly.
There are a number of reasons for this, and one is that many Lawyers simply do not understand all the issues around costs and funding. Another is that they may prefer to retain the status quo, where they are paid regardless of whether they achieve a good result for their clients. A third reason is that most lawyers are not business people, and they simply do not appreciate the needs of their clients, and the huge commercial advantages of Litigation Funding.
Just Costs Solicitors has presented well over 100 training seminars to Commercial Litigation practices in the last two years, in an effort to bring greater awareness of these opportunities, and explain the benefits.
However, with over five thousand practices registered in this field with the Law Society, there is much work to do…Clearly, this is a product that is going to be driven by demand from clients and not by supply from Lawyers.
Businesses need to be commercially astute in their dealings with their legal advisors. They should be asking about risk-sharing fee structures such as: fixed fees; no-win no-fee; no-win reduced-fee and other alternative funding arrangements. Any business considering litigation should seek to understand Third Party Funding and After-the-Event insurance (which protects against adverse costs in cases that lose).
These are all crucial tools in managing risk in litigation, but not all Lawyers will feel comfortable discussing them.
As a specialist within legal costs and funding, Just Costs Solicitors is ideally placed to provide impartial advice on all these areas, to both law firms and their corporate clients, with a national practice that focuses purely on the complex issues of costs and funding, working in partnership with Funders, Insurers and Commercial Litigation teams.
If you have questions about any of the above, please contact Mark Beaumont on 020 7758 2155 or email MarkBeaumont@JustCosts.com.