Can No Win No Fee Really Be Used for Business Disputes?

Small and medium sized enterprises (SMEs) are often deterred from taking a legal dispute to court because of fears about the high level of potential legal costs. Owners of SMEs often feel that they cannot get justice because of the cost of legal action, but this need not be the case.

Many small businesses are unaware that no win no fee agreements can be made available to businesses too. These agreements, officially called Conditional Fee Agreements (CFAs), can be a very useful way of pursuing a legal case without risking the business’s profits.

Too few solicitors offer no win no fee for business litigation

Despite this, there are relatively few solicitors which offer to take a commercial litigation case on a CFA basis. Why is this? Well, many commercial solicitors just don’t understand how efficient no win no fee agreements can be for business litigation. Other solicitors worry about the impact on their law firm’s cash flow because taking on a large commercial case means they risk not getting paid if they lose. Even if they do win, when acting for SMEs on a no win, no fee basis, the law firm is going to have to wait until the case is settled to earn any fees which when compared with other clients who pay regular interim bills as the case progresses, can create significant cash flow problems for the law firm in question.

Often SMEs fall at the first hurdle – finding the right law firm to handle your particular business dispute. Most small businesses will approach a solicitor they have used previously to set up the business, or who they have used for a personal matter like conveyancing. Although there is nothing wrong with the services these law firms offer, they often do not have the experience or resources needed for the successful management of a commercial dispute, and probably would not agree to working on a CFA.

It’s not always easy to find a law firm willing to work on a CFA, particularly if you live outside a big city. If you are looking for a firm to take on a commercial litigation on a no win, no fee basis, you will more often than not find that you have to appoint a solicitor from outside your local area – some enterprising law firms, like us here at Bonallack and Bishop, do exactly that, offering no win no fee representation for business clients nationwide.

How It All Works

No win no fee in the world of business litigation can sometimes mean no cost, but doesn’t always. Litigation using CFAs is therefore more cost-effective for small and medium sized enterprises.

Treat entering into using a CFA for commercial litigation just as you would any other sort of commercial agreement. Using a CFA, the solicitor and their client agree that they will share the risk of pursuing the case. A financial agreement will be drawn up agreeing the fees which will be paid based on the end result. If the client loses, no fees will be payable to the solicitor but they will probably have to pay the opposition’s legal costs. After the event insurance (ATE) is usually take out to cover this risk, and this policy should pay out any costs. Some ATE insurance premiums are deferred and also dependant on success, so clients only pay if the case is won, or when you settle the case out of court.

Success Fees

In addition to your costs if you win, you will also be liable to pay an additional “success fee” to your solicitor, calculated as an additional % of the damages awarded by the court. These fees will be agreed with your solicitor right at the beginning of the process.

The Commercial Reality of No Win, No Fee

Before leaping headlong into the search for a no win, no fee solicitor, it’s important to understand that there are two key aspects which must be met for a solicitor to agree to take on a case on this basis. First, the solicitor must think that there is a reasonably good chance of winning the case, and second, that the person or organisation being claimed against must have enough money to pay all damages owed as well as the legal fees.
Remember also that the burden of proof in these cases is on the people who are bringing the case. You must have strong evidence to show, or no solicitor will be prepared to take your case on.

Disbursements

But exactly what costs might the client be liable for? At the first meeting with your solicitor he will take you through all of the charges and you should make sure that you know exactly what you’re getting into before agreeing to go ahead. The charges are mainly concerned with disbursements [a legal term for external additional costs] like court fees to issue the claim in the first place, which vary depending on the amount being claimed and the court concerned.

Depending on how strong they feel your evidence is, the solicitor may also want you to pay for a risk assessment. They might also ask for a check to be made into the other side’s financial situation.

If you don’t have the cash to pay these charges up front, that doesn’t mean that you can’t work with a solicitor under a CFA. Often arrangements can be made with third party finance companies who lend the money to cover costs for court fees and other disbursements.

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Changes to No Win No Fee Agreements Over the Years

“No win no fee” is one of those phrases which we hear almost daily in conversation or in the media. Conditional Fee Arrangements (CFA), to give no win no fee agreements their proper name, came into existence as a way of helping those people who could not afford to pay legal fees upfront to bring a claim for compensation to court.

When no win no fee was introduced in 1995, they were seen as a way of keeping justice available to all and levelling the playing field, taking income out of the equation. Solicitors offer no win no fee agreements when taking on a wide range of cases ranging from business litigation to contested probate, but vast majority of them are used for accident and medical negligence claims. These cases often involve road accidents, criminal injury, or work-related accidents and industrial disease. The only proviso is that the person making the claim must have suffered some sort of financial loss or injury through an event which was not their fault, but someone else’s.

A no win no fee agreement does just what it says on the tin. In principle, if your solicitor or law firm doesn’t win your case, then you don’t pay any legal fees. It’s worth bearing in mind, however, that most no-win no fee agreements do include a clause allowing solicitors to charge a cash price if the client fails to cooperate with the claim e.g if the claim looks a strong one but, regardless of the strength of the legal case, for one reason or another, the client decides not to go ahead.  This basic concept has not been changed since no win no fee was introduced in the Nineties, but there have been a number of amendments to the way the system works over the years.

In the early days of no win no fee back in 1995 a solicitor would not get paid at all if the case was lost. Simple as that. If they won and the claimant was paid a sum in compensation, then the solicitor would take as their fees a percentage of the sum awarded as the fee. In 1999 this arrangement was changed under the Access to Justice Act, to having the losing side paying the legal fees. This meant that even if you didn’t have to pay your own solicitor under a no win no fee agreement, you would still have to pay the other side’s legal fees and expenses. These fees were usually covered by a special policy taken out to insure against this risk.

 

April 2013 changes

The latest changes to no win no fee came about in April 2013, and again changed the way legal costs are covered with both successful and unsuccessful claims.

These changes now cap, or limit, the success fee taken out of the compensation which the client is awarded, at 25% of the total amount. This means that solicitors are still allowed to advertise that they work on a no win no fee basis, but, they choose to claim the success fee back from the client,, are no longer allowed to say that a successful claimant will get 100% of the compensation which they are awarded. If a claim is lost there will be no compensation, but the “after the event” insurance should ensure there are no legal fees to pay either.

The best person to talk to about the changes to Conditional Fee Arrangements and how they might affect you is your solicitor. They will be able to offer you detailed advice and guidance on your specific case, and give you an idea on how the changes would affect your compensation claim whether you win or lose.

For Specialist No-Win No Fee Solicitors – Contact Us Today

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