Do ‘No Win No Fee Agreements’ work in modern Commercial Litigation disputes?

Say ‘No Win No Fee’ and you might be forgiven for thinking of ambulance chasing TV ads, and scores of people falling off ladders… but Conditional Fee Agreements (CFAs), as lawyers know them have a much wider application.

CFAs became a significant aspect of the legal landscape since the introduction of the Access to Justice Act in 1999, and were heralded as the great successor to legal aid, to ‘level the playing field’ for David v Goliath, allowing lawyers to have a financial interest with clients where those interests aligned… ‘champerty’ (the law that prohibited this financial interest) was sidestepped, and sliced bread was overshadowed. Insurance? The loser pays! Uplift (the ‘success fee’) the loser pays! Nirvana!!

However, with the subsequent implementation of the Jackson reforms in 2013, which removed the recoverability of success fees and After The Event (ATE) Legal Expenses Insurance, questions have emerged regarding the effectiveness of CFAs in commercial litigation. As a litigator with over 24 years of experience, I have witnessed the evolution of funding options and analysed their pros and cons. In this article, I explore alternative funding options for commercial litigation and discuss the viability of CFAs in this context.

Historical Context: Access to Justice Act and Jackson Reforms

The Access to Justice Act, enacted in 1999, aimed to increase access to justice by introducing CFAs as a means of funding litigation. Under this system, a litigant could enter into an agreement with their lawyer, allowing them to pursue a claim without paying upfront legal fees. In return, the lawyer would be entitled to a success fee if the case was successful.

However, the Jackson reforms, implemented in 2013, significantly altered the landscape for CFAs. These reforms removed the recoverability of success fees from the losing party and also eliminated the recoverability of ATE Legal Expenses Insurance premiums. These changes had a profound impact on the viability of CFAs for commercial litigation. Can the client afford it?

Alternative Funding Options

Paying Privately:

The traditional method of paying privately for legal services remains an option. However, it can be prohibitively expensive for many litigants, particularly in high-value commercial disputes.

Before the Event Legal Expenses Insurance (BTE LEI): BTE LEI policies provide coverage for legal costs and expenses incurred before a dispute arises. This option allows litigants to have legal expenses covered without relying on the uncertain outcome of a CFA.

Contingency Fee Funding:

In contingency fee funding, the lawyer agrees to receive a percentage of the damages recovered if the case is successful. This option transfers some of the risk to the lawyer, but it may not be widely available or suitable for all commercial cases. Clients also tend not to like it – why should you give away a % of a large claim for ‘not very much’ legal work. It depends on what you value. Client have, in my experience, chosen the certainty of the hourly rate model (with or without success fee) so the lawyer gets paid for what they do, not what they achieve. Clients have struggled to embrace this as a concept, and then there is the flip side… what if the case devalues… or if loads of legal work has taken place already… what else is in it for the lawyer… there are serious questions over it, and lawyer and client rarely chose it.

Discounted Conditional Fee Agreement:

This funding option involves a hybrid approach where part of the costs is paid on a traditional private basis, and part is paid on a conditional fee agreement basis. It offers a middle ground between a CFA and private payment, reducing the financial burden on the litigant while still ensuring some payment to the lawyer. This has been a favourite of mine, and I recall a hi-tech case involving an engineering business that provided parts to a household name where there was a director and shareholder dispute. The clients had some funds, but lacked the complete conviction that they could afford to run the case to the end. It was a strong claim, so we shared the risk. Their money went twice as far, their outgoings were halved, and our uplift was cut by 50%. A multi-million pound settlement was reached, and the clients were over the moon.

Regular Conditional Fee Agreement:

Despite the limitations imposed by the Jackson reforms, CFAs can still be an effective option in commercial litigation. In cases where damages are likely to exceed £150,000 and costs are expected to be under £250,000 (plus VAT and expenses), CFAs can provide access to justice and mitigate financial risks. Cases at this level are ‘runnable’ – i.e. ‘losable’ for a large law firm like Wilson Browne Solicitors without ‘risking the farm’ and are large enough to fund the success fee and insurance premium out of damages to make it worth something for the client.

Third-Party Funding:

Third-party funders, such as litigation finance companies, provide capital to cover legal costs in exchange for a share of the damages recovered. This option allows litigants to pursue a case without personal financial risk, but the funder’s involvement may limit control over the litigation strategy.

Crowdfunding:

Crowdfunding platforms offer an alternative method of financing litigation. Litigants can appeal to the public for financial support, enabling access to justice for those without substantial financial resources. However, the success of crowdfunding campaigns may vary, and there are limitations to relying solely on public contributions.

Pros and Cons of Funding Options

Paying Privately:

Pros: Maintains control over the litigation strategy.
Cons: High costs may deter litigants, especially in complex commercial cases.

Before the Event Legal Expenses Insurance (BTE LEI):

Pros: Provides coverage for legal costs before a dispute arises, reducing financial risks.
Cons: May not cover all expenses and can be difficult to obtain comprehensive coverage.

Contingency Fee Funding:

Pros: Transfers some risk to the lawyer, enabling access to justice for cash-strapped litigants.
Cons: Limited availability and may not be suitable for all commercial cases.

Discounted Conditional Fee Agreement:

Pros: Reduces the financial burden on the litigant while still incentivizing the lawyer.
Cons: Balancing the payment structure may complicate fee arrangements.

Regular Conditional Fee Agreement:

Pros: Offers “no win, no fee” arrangement, aligning the interests of the lawyer and the client.
Cons: The success fee and ATE Insurance premium are no longer recoverable, increasing financial risks for the litigant.

Third-Party Funding:

Pros: Transfers financial risks to the funder, enabling access to justice without personal financial exposure.
Cons: Limited control over litigation strategy and potential reduction in damages due to the funder’s share.

Crowdfunding:

Pros: Provides an alternative means of financing litigation, especially for smaller-scale cases.
Cons: Success of crowdfunding campaigns may vary, and dependence on public contributions can be unpredictable.

The Viability of CFAs in Commercial Litigation

While CFAs may not be suitable for every case, they continue to play a crucial role in commercial litigation. In cases where damages are likely to exceed £150,000 and costs are expected to be under £250,000 (plus VAT and expenses), CFAs can be an effective funding option. By aligning the interests of the lawyer and the client, CFAs can level the playing field and drive a focus on settlement when opponents realise that they are against a law firm, barrister, insurance company AND the client. This realisation can temper attitudes and facilitate resolution.

Among the alternative funding options, the discounted conditional fee agreement and the regular conditional fee agreement remain viable choices, particularly when used in conjunction with Legal Expenses Insurance (LEI). By combining these options, litigants can mitigate financial risks, ensuring that costs are covered while incentivising their legal representatives.

After The Event Legal Expenses Insurance and Wilson Browne Solicitors

When considering ATE Legal Expenses Insurance, Wilson Browne Solicitors is proud to hold the nation’s oldest and longest-running Delegated Scheme from Market Leaders Temple Legal Protection Limited. This endorsement highlights our expertise and commitment to providing comprehensive coverage to clients engaged in commercial litigation.

Case Types

CFAs are particularly well-suited for a range of commercial disputes, including company director and shareholder disputes (including minority shareholder disputes) as well as breach of contract cases. In these situations, CFAs can be instrumental in levelling the playing field between parties with differing financial resources.

Company Director and Shareholder Disputes: In disputes among company directors and shareholders, power imbalances can often arise, with one party having greater financial resources or control over the company. CFAs can provide an opportunity for minority shareholders or directors with limited financial means to pursue legal action against those in positions of power. By removing the upfront financial burden, CFAs enable these individuals to assert their rights and seek a fair resolution.

Breach of Contract Cases: Breach of contract disputes can be complex and costly to litigate, making CFAs a favorable option for claimants. Whether it involves non-performance, defective performance, or other breaches of contractual obligations, CFAs allow claimants to pursue their cases without the financial risk of paying legal fees if the case is unsuccessful. This can incentivise claimants to pursue meritorious claims that they might otherwise be reluctant to pursue due to the associated costs.

In both company director and shareholder disputes and breach of contract cases, CFAs can effectively level the playing field, ensuring that parties with legitimate claims are not deterred by financial constraints. When used strategically and with appropriate Legal Expenses Insurance coverage, CFAs empower litigants to pursue their cases vigorously and enhance the likelihood of achieving a fair and just outcome.

It is important to note that while CFAs have proven successful in many instances, they may not be suitable for every case. Each situation should be evaluated on its merits, considering factors such as the potential damages, the estimated costs, and the specific circumstances of the dispute. Seeking professional advice from experienced litigators can help determine the most appropriate funding option for a particular commercial litigation matter. I have worked with CFAs since the late 1990s, I have lectured to the profession on them, and am proud to be a Tier Two listed partner in the Legal 500, the ‘who’s who’ of law, and on a personal level working in such a large team has real benefits to me: if I have not seen it, chances are one of my colleagues has. Adding this experience into the mix with the advantage that the right funding option has can give a real competitive edge to our clients, regardless of the opposition.

Conclusion

Conditional Fee Agreements have faced challenges following the implementation of the Jackson reforms, but they remain a valuable option for funding commercial litigation. While alternative funding options exist, paying privately may be cost-prohibitive, and other solutions may have limitations or be less accessible. CFAs, particularly when used in conjunction with Legal Expenses Insurance, can help level the playing field, mitigate risks, and drive settlement focus. As a litigator, I have had tremendous success with CFAs, and I continue to advocate for their use in suitable commercial cases. It is all about choosing the right lawyer, the right product, the right tactic, and each case is different… but No Win No Fee is here to stay.

Kevin Rogers is a Partner in the Commercial Litigation Team, Chair of the Board of Management and Head of the Commercial Business Unit at regional disruptor heavyweight Wilson Browne Solicitors. A finalist for National Law Society Solicitor of the Year 2020; President Northants Chamber (2018-21); Student mentor; Chair of a secondary school Trustee Board & Northamptonshire Law Society, Solicitor of the Year 2016.

He is in demand from his clients to advise on complex commercial disputes for local and national clients, with particular emphasis on breach of contract, shareholder and partnership disputes together with professional negligence claims. He acts for several industry sectors, including motor, logistics, print and construction. He enjoys negotiation, advising on the most appropriate route to resolving disputes – whether by informal negotiation, mediation or court proceedings.