The cost of litigation is a problem. Even relatively simple County Court claims can cost over £15,000 if they conclude in a trial. Complex High Court claims can cost hundreds of thousands or millions of pounds.
Litigation costs so much because of the complexity of our legal system and modern commerce. In most cases, complicated commercial relationships generate very large amounts of written material. Lawyers need to understand these relationships and review the written material generated by them in order to advise their clients and prepare their cases for submission to Courts. These activities take significant amounts time to complete.
At the moment, lawyers charge their clients for litigation services on the basis of hourly rates, so the end cost of litigation is the sum of the total hours worked on the case multiplied by the hourly rates of the lawyers involved. Court timetables also take many months, sometimes years, to reach trial. Even ignoring Parkinson's Law (work expands to fill the time available for completion), the potential for legal proceedings to cost hundreds of thousands or millions of pounds is clear.
Furthermore, as it impossible to predict exactly how much time it will take to reach trial, lawyers are also loath to give anything more than an estimate as to what a case might eventually cost. For many clients, the uncertainty of the eventual cost of legal proceedings is often as significant a problem as the scale of the cost.
In the context of the current economic climate, and in the interests of giving access to justice to greater part of society, it seems that this model is becoming unsustainable for all but the very largest corporations.
However, by using alternative methods of funding, lawyers can provide access to a wider audience.
Capped and fixed fees
There is no real reason why lawyers cannot give contractually binding quotations for the costs of various stages of the litigation or even for the entire process. In most cases this may be expressed as an agreed cap on the fees that will be charged. The fees will still be based on the number of hours multiplied by the hourly rates of the lawyers involved, so the eventual fee may be less than the agreed cap, but never more.
This places some risk on the lawyer and, in return, they may wish to impose a minimum fixed fee. However, fee caps are very common in transactional legal work and in many transactional matters the lawyers do significant amounts of work which will not be charged to the client because the agreed cap has already been reached. The real reason why this type of arrangement is not used in litigation matters is because litigation is more uncertain in outcome and because large cases can generate very large fees.
However, where the cost of litigation is becoming unsustainable, my view is that fee-capping is going to become the norm for commercial litigation sooner rather than later. Good litigation lawyers should have nothing to fear because they will continue to attract business in the context of giving their clients realistic and carefully worked quotations for the cost of representation.
Conditional fee arrangements
Conditional fee arrangements (CFAs) or success fees are arrangements allowing lawyers to share their client's risk in litigation in return for a greater return in case of success. Under a CFA, a lawyer can agree with the client that the client will pay nothing or a discounted fee in the event the client's case fails. In return, the lawyer can charge his or her normal rates plus an uplift of up to 100% in the event that the client's case succeeds.
For the client, the attractiveness of the arrangement arises out of the probability that if the case succeeds, a very significant percentage of the lawyer's costs, including the uplift, will be payable by the other side. So, assuming the other side can pay, the client will only pay a portion of the lawyer's costs if it wins and nothing if it loses. Furthermore, the client can also protect itself from any liability to pay the other side's costs in the event that it loses the claim, with after the event insurance.
There is a catch, of course, which is having a case that the lawyer believes is sufficiently likely to succeed to make a CFA attractive.
Notwithstanding that, I believe CFAs are also going to feature more significantly in the commercial litigation market in the future (although much will depend on the eventual outcome of the Jackson report into litigation costs and funding). Again, this is not something for lawyers to shy away from. Good litigation lawyers should be prepared to back their judgment. More widespread use of CFAs should also reduce the number of cases that are inappropriately litigated, because lawyers and insurers will not be prepared to fund them.
Clients can encourage this change by being demanding and, if necessary, moving their business to more commercially minded law firms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
