Alternative Fee Arrangements
Covid-19 and the enforced lockdown has turned life upside down for many businesses and individuals. As the world adjusts, contentious issues will inevitably arise - performance may not be forthcoming and contracts may be breached.
In these challenging times, parties may want to pursue their claims but have a heightened need to maintain control of their legal expenditure. In order to help ‘unlock’ both of these objectives Lewis Silkin has committed to a new initiative called LS Unlock. It is designed to help individuals and businesses pursue claims by removing or reducing the cost risk of litigation.
LS Unlock comprises a free initial assessment of significant commercial claims together with a menu of alternative fee arrangements which can reduce and, in certain cases, eliminate the upfront cost of pursuing a claim.
LS Unlock is designed to:
- Generate greater certainty and predictability in respect of litigation costs
- Provide innovative solutions which go beyond discounted hourly rates
- Share risk and reward, so that Lewis Silkin has “skin in the game”
LS Unlock enables us, in these difficult times, to work in true partnership with you. Whatever your needs, our specialist commercial disputes team can find the right solution for your situation.
For information about our commitment-free initial claim assessment please click here. If, after an initial assessment, you wish to take the next step and engage in dispute resolution you can choose from the menu of alternative fee arrangements set out below.
By pairing our initial commitment-free assessment with one or more of the alternative fee arrangements below, LS Unlock allows you to bring your claim, from inception to conclusion, in a way that manages, reduces or eliminates your upfront costs.
Alternative Fee Arrangements
Under our fixed fee arrangement, we agree with you a fixed fee quote to cover the cost of the legal work, rather than hourly billing. We accept the risk of any potential legal over-spend falling within the scope of our agreed work. In return you agree that the fixed fee will be payable even if the relevant work is completed for less than the quoted sum.
A fixed fee arrangement is suitable for those who want absolute cost certainty, allowing fixed budgeting for legal costs. This arrangement generally works best for smaller litigation matters where outcomes/processes are relatively predictable or follow a common pattern. Fixed fees also work well for phase-based billing, where the scope of each phase can be fixed immediately prior to commencement of work.
Blended Hourly Rates
A single hourly rate is applied to all our work on a matter, regardless of the seniority of the lawyer working on the matter.
A blended rate is suitable for any matter where a more predictable legal spend is desirable. It is well suited to less complex disputes but can be considered for any claim.
Blended rates and fixed fees do not have to be a stand alone model and can be used in conjunction with a Conditional Fee Agreement, which can help reduce upfront costs.
Fee Estimate With Collar
This is a risk sharing model which provides greater cost certainty than a traditional fee estimate, but with more flexibility than a fixed fee.
The ‘collar’ refers to a percentage costs range around the estimate. A £100,000 estimate with a 10% collar would mean a range of £90,000 to £110,000. If our final costs are within the collar/range, we charge the original estimate, namely £100,000. The exact treatment of any costs which fall above or below the collar would be subject to negotiation. Typically, we would offer a further discount on any costs above the collar.
Collared fee arrangements can be tailored to fit most circumstances but can be useful in large disputes where greater certainty is required for a phase of the case.
Conditional Fee Agreement
A conditional fee agreement (“CFA”) is an agreement which provides for the payment of fees, in part or in whole, depending on the outcome of the dispute. A success fee mechanism operates to share both risk and reward.
A CFA can operate on a traditional “no win no fee” model, or on a reduced fee basis. For example, in a case where our fees would normally be £200,000, we might agree a 25% CFA so that we effectively discount our costs to £150,000 with any additional payment dependant on the outcome of the dispute. If the outcome of the case was unfavourable, there would be nothing more to pay. If the claim was resolved in line with, or in excess of, a pre-defined outcome then a success fee would be payable. The success fee could see us recover at least the 25% discount, depending on the outcome of the case.
We would discuss with you pairing a CFA with an after the event insurance policy (“ATE”, see below) to minimise the risk of an adverse costs award if the claim is lost.
After The Event Insurance
An ATE insurance policy is purchased after a dispute has arisen to guard against payment of the other side’s costs. ATE insurance can also be used to ensure that you are reimbursed for your own disbursement costs (such as expert fees) in the event the claim is unsuccessful.
Premiums are calculated in a number of ways with the most common being a percentage of the cover taken. For example, if you take out an ATE policy to protect you against £100,000 of adverse costs you would pay a percentage of the £100,000 figure to the ATE provider.
Premiums can range in price but are often phased across the life cycle of the litigation so if the case settles early, the premium paid may be relatively modest. ATE policies are also sometimes available with “deferred and self-insured” premiums, meaning the insured party does not have to pay the premium until the end of the case, and does not have to pay it at all if the case is lost – ie the insurance is effective to cover the cost of the premium itself as well as the adverse costs if the case is lost.
ATE is most relevant if you are worried about your ability to pay your opponent’s costs if you lose the case. ATE (or a related product such as a deed of guarantee) can also be used as a substitute for putting up security for costs.
Damages Based Agreement
A Damages Based Agreement (“DBA”) is available to claimants and provides for you to pay fees only in the event of a successful claim. The sum you pay is expressed as a percentage of the compensation received by you. Costs can still be recovered from the other side on the normal basis.
DBAs may be paired with an ATE policy in order to ensure that you are not exposed to the other side’s costs or your own disbursement costs in the event that the claim is unsuccessful. Typically, DBAs would only be considered for higher value claims where there is a clear path to enforcing judgment against the defendant.
The key advantage of DBAs for clients is that there is no liability to pay our fees unless we win the case and secure recovery. There is no need to pay our fees up front or as the matter progresses.
Third Party Funding
Third Party Funding involves a specialist litigation funder paying a claimant’s legal costs in return for a share of the damages if the claim succeeds. The arrangement, from the client’s perspective, is similar to a DBA in that the funder will receive a share of the recoveries from the litigation, based on a percentage of damages or a multiple of the amount invested, except that the agreement is with the funder and not the client’s law firm. Funders will usually fund all or part of the claimant’s costs including disbursements, which means that the claimant’s law firm receives funding during the course of proceedings from the funder. Many funders provide ATE insurance as part of their package.
Funders assess each case on the merits, but some operate certain rules of thumb to “weed out” claims that are unlikely to be profitable. For example, some funders apply an informal damages:costs ratio of 10:1 (i.e. the damages recoverable must be at least 10 times the estimated costs to trial). Other funders apply a minimum value threshold before they will fund a claim, although such thresholds have declined over time. And other funders will only accept a claim if the following two outcomes can be achieved in tandem: (a) the funder is able to recover 3-4 times their investment while (b) the client is able to keep at least 50% of their damages. Some funders will apply all these rules (and more) before investing in a claim.
We have good relationships with a number of litigation funders and can explore funding solutions on your behalf. In order to secure third party funding, however, it is often necessary to prove the merits and value of your claim to a high degree of certainty. In appropriate higher value claims, and at our discretion, we are able to help our clients by conducting further due diligence and investigation work to build their cases and prove the merits of their claims in detail. All of this due diligence work can be done on a non-recourse basis, which means that if the claim is not successful you will not pay for the initial cost of “building” your claim.
In these difficult times we want to work in true partnership with our clients. The alternative fee arrangements described above are designed to offer help during a period of genuine uncertainty.
We invite companies, individuals and insolvency office holders involved in a dispute to get in touch.
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