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.
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.
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.