combined with insurance policies, have been used in the personal
injury market for a number of years to enable parties to bring
claims in circumstances where they might otherwise be unable to
afford to do so. However, such products are not limited to that
market and should be explored as a funding option in many
commercial and recovery claims – including those in the motor
finance industry. This is particularly so in this new era where, as
reported in the last edition, arrears are on the increase, but a
shortage of cash may engender a reluctance to litigate.
CFAs
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So what is a CFA? As the name suggests, it is an agreement
between the solicitor and the client whereby the client agrees to
pay all, or a proportion, of its solicitor’s costs on condition
that the claim is successful. If the claim is not successful, then,
dependant upon whether the agreement is a “no win, no fee”
agreement or a discounted agreement, the client either pays no fees
to its solicitor or only the agreed discounted amount, say 70 per
cent of the solicitor’s usual hourly rate, plus
disbursements. If the claim is won, the client pays his
solicitor the full agreed hourly rate, plus a success fee which can
be up to 100 per cent of the hourly rate. Recovery of the costs
incurred in the successful claim, together with the success fee, is
then sought from the losing party.
The benefit for the client is that the client and the solicitor
share the risk of the litigation. If it is lost, no fees, or a
reduced level of fees are payable to the solicitor (along with
disbursements). If the claim is won, although the CFA will often
provide that the client remains ultimately responsible for the
solicitor’s costs, they will be recoverable from the losing party.
It is a requirement that formal notice of the CFA is given to an
opponent so that they are aware of the additional liability they
may face in having to pay the success fee should they lose.
Tactically, if a claim is strong, the giving of such notice can
often lead to an early settlement offer by the other side to avoid
paying the success fee on what could be substantial costs should
the claim go to trial.
Insurance – before and after the event
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By GlobalDataCFAs are often combined with either before the event (BTE) legal
expenses insurance or after the event (ATE) legal expenses
insurance. Such insurance is available for use without a CFA and
there is now a positive obligation on solicitors to discuss such
insurance with their clients.
BTE insurance might cover both own and opponent’s legal costs up
to a given level. Such insurance might have been specifically
obtained or be an “add-on” to a director’s and officer’s policy or
other insurance policy. They can be limited in both coverage and
include a restriction as to choice of solicitor.
ATE insurance is, as the name suggests, acquired after the
event, i.e. the claim to be insured has arisen. It can be taken out
to cover an opponent’s legal costs and disbursements, own
disbursements and own legal costs if a “no win, no fee” CFA is not
also being entered into. The policy for such a premium can be
between 25 to 40 percent of the total amount of fees and
disbursements being insured. That premium itself can be insured,
paid in stages, deferred until the proceedings have ended, or in
certain circumstances, payment might be made contingent upon the
claim being won.
If the claim is won, the insurance premium, along with a
proportion of the costs incurred, should be recoverable from the
opponent as an additional liability so long as they have been given
notice of it. If the claim is lost, the policy will cover the
opponent’s legal costs and disbursements plus own costs (if such
cover has been taken out) and the premium may also be payable.
Tactics and peace of mind
A combination of both a CFA and ATE insurance, or just ATE
insurance on its own, can be a powerful weapon tactically as well
as a sensible decision commercially. By giving notice to an
opponent of the CFA and/or ATE policy, they will appreciate that
the solicitors and insurers consider that the prospects of success
for the case are such that it is worth them sharing the costs risks
of it and that the costs consequences of losing will be more acute
than usual. The ATE insurance will also give peace of mind that,
win or lose, the costs of the litigation are contained.
The author is a partner in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team, and has considerable
experience in acting for clients in commercial and recovery claims
on both a CFA basis and in relation to the obtaining of ATE
insurance
Greg Standing
