Using No-win, No-fee for Your Business
Barrister Tina Morgan urges business owners to open their eyes to the possibilities Conditional Fee Agreements can bring to their business
A recent YouGov survey conducted for John Kennedy Limited amongst small and medium-sized businesses (SMEs) found that over half (52%) of decision-makers were put off from pursuing a legal dispute by the cost. Yet 40% were unaware that Conditional Fee Agreements (CFAs), often called ‘no-win, no-fee’, were available to businesses.
Unsurprisingly, law firms tend not to promote that they offer CFAs for fear of jeopardising their income streams from large commercial clients who pay them by the hour. However, there are reputable law firms out there prepared to act for SMEs on a risk-sharing ‘no-win, no-fee’ basis.
Getting the right law firm to handle your dispute is crucial and yet this is where many businesses fall at the first hurdle. In my experience, SMEs will often turn to a solicitor they first used when setting up their company or have previously used for a family matter, such as a will. While these solicitors will have delivered a solid service, they are unlikely to have the experience and resources to handle a commercial dispute, and would almost certainly not act on a CFA.
Finding a firm willing to act on a CFA can be difficult; however, specialist business dispute companies are making it easier to access good firms that have the experience of doing these cases. These companies operate a bit like a dating agency and upon establishing the basic details of your potential case will introduce you to one of the firms on their panel at no initial cost to you. Typically, they will have access to some of the top solicitors in the country, all willing to work on a CFA – the nature of CFA’s means it is often the bigger and better-resourced practices that can offer them.
So what’s the catch?
Well, ‘no-win, no-fee’ can, but doesn’t necessarily, mean ‘no-cost’. Either way, cost-effective litigation is within reach of SMEs.
How does ‘no-win, no-fee’ work?
It may sound complicated, but actually it’s pretty straightforward so long as you enter it with your eyes open like any other commercial agreement you might enter. Under a CFA, a lawyer and a client agree to share the risk of the litigation by coming to a financial agreement on the fees payable based on the result of the case. If you lose, you will not be liable to pay your lawyer any fees; however, you will probably be ordered to pay the other side’s costs. To cover this risk, you can take out after-the-event (ATE) insurance, which will pay any costs ordered against you. Even better, the premium is usually both deferred and contingent on success as well, meaning you only pay the premium if and when you win or settle out of court in your favour.
If you win, you will be liable for your lawyers’ costs along with a ‘success fee’, which can be up to 50% of the damages awarded by court which your lawyer may or may not decide to charge (you will be told about this at the beginning). The success fee is by way of compensation for lawyers for taking the risk of not being paid at all. In all likelihood, the court will order that some, if not all, of your lawyers ordinary fees should be paid by the other side. You will then be required to pay any difference between what the court orders and what your lawyers’ ordinary fees are your lawyers’ uplifted success fee (if your lawyer applies one) and your ATE premium out of your damages. If it does not order all of them, the question of whether you will have to make up the difference will depend on the nature of the agreement you reached with your solicitor. In many CFA’s, the solicitor limits your liability to whatever is recovered from the other side, meaning that in effect your CFA is also a ‘win, no fee’ agreement. There are other funding arrangements available since the changes to these rules came into effect on 1 April 2013. Solicitors may now charge a contingency fee in what is known as a Damages Based Agreement. A contingency fee is a straight-forward percentage of the damages awarded to the claimant. High value cases may also attract funding from a Third Party Litigation Funder who will pay throughout the case for the litigation to run but will then take a share of the damages at the end – typically a third or a quarter.
Before proceeding, you must understand that there are two essential aspects in order for a solicitor to act on a ‘no-win, no-fee’ basis: firstly, the case has to have reasonably good prospects of success and, secondly, the person you are bringing the claim against has to have the money to pay up if you win.
Before pursuing a dispute, you should always remember that the burden of proof is on the person bringing the case. It is not good enough to say that it was a gentleman’s agreement or ‘she told me she would’. Verbal promises do not make a case, evidence is required at the outset, otherwise no solicitor will take on your case.
Furthermore, the person you are in dispute with must have enough money to pay not only the damages owed to you but also your legal fees.
It is a common misconception that a judge will make someone sell their house to settle a commercial dispute. A defendant is typically a company or an individual that has professional negligence insurance, and so has the wherewithal to withstand a judgment going against them.
What costs will you be liable to pay?
At your first meeting with a solicitor you will be told of all the charges and you should make sure you’re absolutely clear before deciding if you want to go ahead. The charges will mainly relate to disbursements, such as court fees for issuing a claim, which will differ depending on the court and size of claim. Depending on the strength of evidence, and often in larger cases, a solicitor may insist on carrying out a risk assessment at your expense. They may also ask you to obtain a credit status report on the defendant’s financial status.
Don’t expect that your case will go to court however. The vast majority of cases are settled before they reach court, which is reassuring for many business owners who find the prospect of attending court daunting. If your case doesn’t settle prior to reaching court, then you can expect your solicitor to spend time with you preparing for what will happen. Don’t ever be afraid to ask questions of your solicitor – that is what they are there for and you need to feel as comfortable with the process as possible.
Aside from costs, business owners often worry about the seniority or experience of the solicitor that will be working for them and whether they are capable of handling their case. Many think that by signing up to a CFA means they will somehow get a ‘lite’ version of the law and a lesser service. In fact, in a recent survey conducted for John Kennedy by YouGov, over a third of SME decision-makers thought that paying by the hour rather than through a CFA would mean they would get a better service from a law firm. This is simply not true. Law firms only take on cases on a CFA that they believe have a good chance of winning and will put their best people on them because they have a vested interest in the outcome. If they don’t win, they don’t get paid.
Many SMEs feel that their access to justice is blocked by the cost of resolving a dispute but this isn’t always so. “No-win, no fee” arrangements are still available for business disputes and can still be a very effective way of funding your litigation without affecting your “bottom line”.
Tina Morgan is a barrister and founder of John Kennedy Limited, a specialist commission-free business dispute consultancy that helps businesses start the legal process and has access to some of the UK’s top law firms.