How to achieve justice in the face of increased legal fees proposals

With the revelation that a third of UK companies with potentially valid cases didn’t take action because of the financial cost, Annecto Legal’s Michael Lent, considers how SMEs can access justice, in the face of the increased court fees soon to be introduced.

Shortly the government’s controversial plans to increase litigation costs will be realised. Under this new system, anyone with a significant claim may have to pay a £10,000 upfront fee just to get their case heard: that could be an increase of over 600% on what they would have paid before. Lord Thomas, the Lord Chief Justice of England and Wales, has expressed ‘deep concerns’ about this ‘dramatic increase’, and is worried that the fees will have a ‘disproportionately adverse impact on small and medium enterprises’.

These new fees add to a growing, dangerous attitude among potential SME litigants, that they don’t have any options when it comes to getting their day in court. Research conducted last year found that a third of UK companies with potentially valid cases didn’t take action because of the financial cost, the time-consuming nature of the process, and the need to navigate our complicated legal system. As many businesses see it, seeking vindication isn’t worth the effort, and these fee hikes only make matters worse.

This is a dangerous misconception. The truth is, even after this disappointing development, there are still options for hesitant SME litigants. The trouble is, they often don’t know what they are – or how they can take advantage of them.

Traditional funding

Typical funding options such as pay-per-hour (PPH) and No Win, No Fee (NWNF) are disliked for several reasons.

The main problem with the PPH approach is its unpredictability. Cases can take months, or even years, to resolve, and under the British loser-pays system, tumbling down this particular rabbit hole can be risky indeed. With no guarantee of victory, a business owner might feel it is easier to give up their claim rather than let the billable hours accumulate until he or she faces financial ruin.

NWNF is the more superficially attractive option – as the name suggests, you won’t have to pay your own legal expenses unless you win at the end. But legal fees aren’t the only costs you’ll accumulate over the course of a case: sourcing expert testimony, for example, can be a serious drain on resources, and in a war of attrition between a small company and a larger, more affluent one, the odds are still weighed heavily in the latter’s favour.

A better approach

Fortunately, PPH and NWNF aren’t the only options small businesses have. Even considering the grossly unfair fee hike, alternative financing empowers would-be claimants and mitigates much of the trouble involved in pursuing litigation.

Instead of escalating hourly costs, the injured party can finance their case with help from a third-party litigation funding provider, in exchange for 30% to 40% of the final award. This has all of the benefits of NWNF and because your funder will deal with all expenses incurred during the process, it lacks most of the downsides.

Third-party funding, which should include ‘After the Event’ insurance, also eliminates some other unfortunate by-products of our legal system. With the various outgoing costs involved, even if someone succeeds in receiving compensation, they might find that getting it through the usual channels results in an untidy, ugly, and questionable balance sheet. Because a third-party provider will typically assume responsibility for expenses, the final award appears as one ‘contingent asset’ on the company ledger. Further ATE insurance protects against the costs of failure allowing the potential adverse costs of the litigation to be kept off the balance sheet – keeping accountants and the SME’s banker’s happy, and making the business more attractive to potential investors.

That said, possibly the most powerful benefit third-party funding provides is legitimacy. Solicitors aren’t charity workers, and they won’t spend time and money on a case they consider a loser. With the backing provided by third-party funding, your opponent will often settle instead of suffering a blow to their reputation in the courts.

Banks and larger corporations are used to getting their own way in the courts; wearing litigants down until they back off or run out of money. Like any bully, they don’t like fighting an enemy that might give them a bloody nose in return. People like to use the ‘David vs. Goliath’ analogy when they talk about SMEs taking on their larger opponents but what they don’t realise is how often David wins.