Whilst most retailers are concentrating their efforts on building their share in a slowly recovering market, they probably feel that the time and cost of getting involved in litigation is something which can be postponed (or even forgotten about completely). However, with the funding landscape about to change dramatically, those businesses that have a claim but are concerned about the risk and costs of bringing it should seek advice immediately.
In May 2011 in our briefing 'A Future for Conditional Fees', we reported on the changes proposed by Lord Justice Jackson following his exhaustive review of the costs of civil litigation for the subsequent litigation. A disturbed passage through Parliament and strong lobbying from a number of sectors has meant concessions to some, most notably insolvency practitioners, and delayed implementation. However, the pressure for change has been constant and while many feel that the changes are hurried and ill-conceived, their implementation in April 2013 now appears certain.
The Current Position
Businesses have, for a number of years, been able to fund their claims by way of a Conditional Fee Agreement (CFA) backed with after-the-event insurance (ATE). This means that the legal costs of bringing the claim can be significantly reduced, and in some cases removed completely, whilst the risk of adverse costs is removed through ATE insurance, the premium for which only becomes payable upon success and can be claimed from the opponent as part of the costs.
In essence, this means that, if unsuccessful, the Claimant faces a significantly reduced legal bill and, if successful, the majority of his costs, including the success fee claimed under the CFA and the ATE premium, are borne by the other side. This imbalance (which significantly favours the Claimant) is what the reforms are intended to address.
The Proposed Changes
In relation to commercial cases the major changes envisaged by Lord Justice Jackson were:
- Success fees under CFAs cannot be recovered from the unsuccessful party, meaning that a successful Claimant must pay this out of his damages.
- The ATE premium cannot be recovered from the unsuccessful party, meaning that a successful Claimant must also pay this out of his damages.
- The introduction of contingency fees (also known as 'damages-based agreements'), where lawyers' charges will be based on a percentage of the damages recovered, rather than on the basis of fixed hourly rates.
The Future
The reforms are intended to ensure that the costs of funding litigation are not unfairly borne by the Defendants and there is no doubt that they go some way in achieving that aim. However, it has also been said that the reforms will provide potential Claimants with a choice of funding options from which they are able to choose the option most suited to their circumstances. Whilst this is true, it hides an important truth: namely that none of the funding options available after 1st April 2013 will be anywhere near as advantageous, in terms of both risk and cost, as the options which are currently available.
Those options will remain available until 1st April 2013 and the change in law will not affect any funding arrangements entered into before that date, even if Court proceedings are issued after that date.
Conditional fees are available for claimants in virtually all types of commercial litigation. Retailers and other businesses that have a claim but are concerned about the risk and cost of bringing that claim are therefore urged to discuss that matter with a specialist lawyer on a no obligation basis as soon as possible and in any event well in advance of 1st April 2013.
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.
