Delay legal action and risk a six-figure cost increase

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Company directors considering legal action in commercial disputes risk a six-figure legal costs hike if they delay acting for just a few more weeks.

Senior business executives are largely unaware of upcoming changes that
could put their business at a considerable disadvantage, according to
experts at London law firm Hewlett Swanson.

In April, new legislation known as the “Jackson Reforms” will come into
force – significantly reducing the costs that can be claimed back from the
opposing party in a commercial dispute.

Lee Dunnill, a Partner at Hewlett Swanson explains how the change will leave
businesses with legitimate business claims to foot the bill for possibly
many hundreds of thousands of pounds if they delay acting for much longer.

“Under the current rules commercial organisations can mitigate or entirely
extinguish the costs of commercial claims. They also have the option of
insuring the business against the risk of losing which means claims can be
pursued without any working capital requirements or risks to the balance
sheet. That, however, is about to change.

“In speaking with directors and senior executives over recent weeks it has
become clear that very few are aware of the options available, or the fact
that things are about to change.”

The current rules allow commercial organisations to recover success fees and
the costs of ATE insurance premiums from the opposing party. Under the new
rules, neither will be possible. Instead, fees and premiums will have to
come out of the damages recovered from the opponent.

Lee added: “In some cases, claims will simply no longer be commercially
viable regardless of how sound the arguments are in favour of legal action.
I am urging any company involved in a business dispute to consider the cost
of delay very carefully. The difference between engaging lawyers now and
waiting until after April could represent a substantial cost and a major
lost opportunity.

“Companies that are already engaged in a legal dispute might want to
consider switching to a conditional fee agreement, litigation funding or
After The Event insurance funding model while those fees and premiums are
still recoverable.”

Joy Barnett, Hewlett Swanson’s Head of Dispute Resolution, concluded:
“Unsurprisingly, litigation funders and ATE insurers are beginning to see an
increase in enquiries in the run up to April. But with limited funds
available, it is unlikely that there will be enough to go around. Companies
that wait for just a few more weeks could find that they have missed the
boat. The advice really is very simple: act now or lose out.”

Risk sharing arrangements with lawyers currently available include
Conditional Fee Agreements and Success Fees, litigation funding (where a
third party funder meets the costs of the claim in return for an interest in
the amount recovered), and After The Event insurance policies to meet the
opponent’s costs in the event that a claim fails. ATE insurance covers the
costs of the opponents, certain disbursements and legal costs.