The Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act due to come into force in April 2013 might represent both a blessing and a curse for corporate defendants. The proposed changes include the abolition of recoverable conditional fee agreement (CFA) success fees and After The Event (ATE) insurance premiums.
Both of these uplifts are currently additional liabilities that corporate defendants potentially have to bear if they lose or settle a case in the claimant’s favour. The positive news for defendants is that with recoverability removed these costs will now be borne by the claimant. The impact will inevitably be most prominent in lower value cases, many of which will potentially become uneconomic for claimants to pursue. This could benefit corporate defendants, in particular those in the insurance and financial sector, with a lower volume of claims being issued against them.
Unfortunately at the other end of the scale, another impact of the changes could swing in claimants' favour. In larger commercial disputes, for example, the introduction of damages-based agreements (DBAs) will potentially increase the risk appetite of claimant law firms eyeing significant contingency fee returns, particularly those firms who have previously felt the rewards available under CFAs were too small to warrant the risk of carrying large amounts of work in progress on a deferred basis. In addition to the arrival of DBAs, the litigation funding and commercial ATE market is continuing to gain traction. In short, the news for commercial claimants is that the risk capital to support large value disputes against corporate defendants is more widely available than ever before.
As the countdown to LASPO has begun, the first quarter of 2013 is likely to result in an increase in the number of smaller value claims issued, as claimants and their lawyers rush to get actions moving in a final bid to take advantage of the current recoverability rules.
Of course the burgeoning litigation funding market is not completely without opportunity for corporate companies. To the extent the company is a claimant (or counterclaimant), the increased rivalry within the litigation insurance and funding market is bringing with it much needed price competition. Thus, while the high cost of external funding may have been unpalatable for most boards in the past, as the cost falls there will be price points at which boards will need seriously to consider whether the scale tips in favour of utilising litigation risk hedging strategies with external suppliers. Certainly the much hyped notion of in-house legal departments becoming profit centres could yet become less of a myth and more of a reality.
This article has been contributed by James Delaney, a Director of The Judge.