Kent Solicitors

Conditional Fee Agreements - otherwise known as 'no win-no fee' agreements - in commercial litigation.

A solicitor's perspective

The use of Conditional Fee Agreements started in personal injury/road traffic accident cases and, after initial difficulties, these seem to be are working quite well. However, the issues there are usually limited to deciding whether the Defendant was at fault, deciding whether the Claimant was contributorily negligent, ascertaining the extent of the injuries, putting a price on them, ascertaining/guessing how long the claimant might be financially affected

Witness statements, medical and police reports become available at a fairly early stage and reasonably informed judgments on such matters can be made

How does this translate into commercial litigation? This issue needs to be addressed as economic conditions drive more and more potential litigants into asking for Conditional Fee Agreements, thinking that they are the solution to all their worries about the risks of litigation and legal costs

Obviously, the circumstances giving rise to the potential commercial litigation are many and various. There are a much wider range of variables, which can affect the win/lose outcome

Initially, the potential litigant, seeking a Conditional Fee Agreement, needs to understand the various risks involved and, if he does have access to money, decide whether to fund the litigation in the usual way or potentially paying more for someone else to assume those risks

The main risks are: Insolvency Risk (Opponent), Litigation Risk, Insolvency Risk (Own). Taking these in turn.

Insolvency Risk (Opponent)

In personal injury/road traffic accident cases, the Defendant is usually backed by an insurer or the Motor Insurers Bureau. There is little risk that having got judgment, one is not going to get paid

In commercial matters, the risk is significant. Who would have hesitated in, say, summer 2008 before suing, say, Woolworths or Lehman brothers on the ground that they might become insolvent?

If the potential litigant is asking for be solicitor to pursue this risk, what information is available to the solicitor about this risk? Company accounts filed at Companies House can be at least a year old and the late 2008 recession happened so quickly that they are certainly not a guide to the continued prosperity of the potential Defendant

If the potential Defendant is an individual, research at the Land Registry might reveal his potential ownership of land/house, but this does not help you assess the value of it, the amount of his mortgage and the size of any co-owners interest (e.g. what share does the spouse have?)

Did the client do any due diligence on the Defendants financial position before entering into the relationship, which gave rise to be litigation and if so, how reliable is the information?

Clearly, if the potential Claimant is going to pay someone else to assume this risk, the price is going to be high


Litigation risk

This is this is the risk that solicitors might more easily be able to judge? Or is it?

After seeing the client/potential claimant, is the solicitor in any position to judge, with any reasonable accuracy, the outcome of the case in the same way that the solicitor taking initial instructions from the potential claimant in a personal injury/road traffic accident case might be able to do?

Probably not! The solicitor will be in a better position to judge after he has written to the potential Defendant and received a response setting out the Defendants view of the situation

At this point, a solicitor might feel able to start discussing with the potential claimant the terms of the Conditional Fee Agreement

However, this is not foolproof. Experiences of the author includes the following situations

The claimant had a "cast iron" insurance claim for damage caused to his garden and wine cellar by the neighbours lake overflowing. Many months into the litigation, the insurers produced a well documented dossier on the claimants exaggerations of the damages caused to his wine cellar, "fiddles" on the VAT invoices of the ground work contractors restoring the garden and so on. He was lucky that the insurer was still prepared to settle (at a much lower amount, than the genuine claim was worth) and did not refer the matter to the police

An employee has a "cast-iron" claim for unfair dismissal against his employer. Some months into the proceedings, the employer produced a well documented dossier of the Claimant employees participation in an invoicing fraud involving suppliers to the employer

No doubt, the terms of any Conditional Fee Agreement can provide for such revelations, but the agreement starts to become complicated if it tries to cover all possibilities and the solicitor then has to bear in mind the next risk


Insolvency risk (own)

The Conditional Fee Agreement may provide that in certain circumstances, the claimant client will have to pay be solicitors basic charges or the success fee or both

This might be in the circumstances mentioned above where the Claimant has been up to no good or it might be where the claimant client, not the solicitor, is going to assume the Insolvency Risk (Opponent).

In other words, after several thousand pounds worth of work into the proceedings, the Defendant goes into liquidation. No money is likely to be received. The Conditional Fee Agreement requires that the claimant client now pay the legal costs incurred to date.

This is where the solicitor will have wished he had done due diligence of his own clients financial position

Conclusion

For a discussion about CFAs on nay litigation you have in mind , ring Michael Breeze on 07 900 195 195

Labels: conditional fee agreement no win no fee litigation