I have spent most of my career as a solicitor in commercial litigation after a false start as a matrimonial lawyer. Mostly my clients have been individual entrepreneurs and SME companies and I have been lucky enough to follow the successes and failures of some of those clients through the length of my career. What has been obvious from acting for the SME community is the difficulty they have faced in resolving disputes and the problems have only got worse.
It is obvious that in a dispute between a small company and a larger entity, there will be inequality of arms and the larger party will use that inequality to press the SME to settle cheaply or abandon a perfectly good case altogether. This is very often the case where a claimant is suing a defendant who has the benefit of professional indemnity insurance-the insurer will use tactics such as drawing the case out or making unnecessary applications in order to waste the claimant’s money.
The other issue relates to legal fees. The sad truth is that the ever increasing hourly rate charged by solicitors are a major disincentive to pursuing a just claim. The hourly rates for a partner in a medium sized London firm now range from £450 to £750. It doesn’t stop there. Inevitably “a team” will become involved, each of them recording time to meet targets leading to duplication and work in progress getting out of control. Monthly bills are rendered and must be paid before the case can continue. Very often estimates given at the outset of the case are exceeded. Sadly, too few firms are prepared to think laterally and engage with the client in finding alternatives to traditional billing.
The curse of hourly rate billing is that the final fees charged are not proportionate to the end result. For example it is absurd to charge a client seeking to recover a modest debt the full amount of the time spent which could lead to the bill to the client being more than the debt ! However, a solicitor may charge very little for a vital service to the client such as clearing intellectual property rights or reading articles or books for libel because not many hours were spent despite the fact that the protection given to the client is enormous. A change where client and lawyer agree a fee at the outset of a case which represents a fair assessment of the time to be spent on the case, the complexity of the work and the likely ultimate benefit to the client, would be of considerable assistance.
A sea change in the access to justice of SME claimants was the introduction in 1999 of the ability of solicitors to enter into conditional fee arrangements coupled with the ability to recover from an unsuccessful opponent not only legal costs but the premium for After the Event Insurance and the solicitor’s mark up on the deferred element of the conditional fee arrangement. This enabled claimants who would otherwise be reluctant or financially unable to enforce their rights to do so. It levelled the playing field against financially strong defendants. There was an automatic break on claimants pursuing unmeritorious cases because solicitors were unwilling to enter into deferring fees in cases in which there were not sufficient merit.
However, this advantage was lost by the abolition of the right to recover from an opponent CFA mark ups and ATE premiums at the passing of LAPSO in 2012. This occurred as a result of lobbying by the indemnity insurance lobby who railed against abuse by claimants in personal injury and defamation cases. However, in my view the baby should not have been thrown out with the bath water.
Funding of lower value claims would suddenly become realistic if the claimant could recover the cost of funding from the defendant. However, the other issues regarding third party funding would still exist.
Unity believes that the answer is what might be described as a not for profit fund. We envisage a fund where the investors are philanthropists or those seeking low long term yields from their investment with capital guaranteed by government. The fund would finance claims or defences with claims assessed by the fund managers. If the case was successful by way of judgment or settlement, the fund would recover the investment and a reasonable return on the investment.
Watch this space !