David v Goliath litigation
Sivakumaran Sivathillainathan considers the increased importance of â€˜no win, no fee' agreements for SME and not-for-profit claimants post LASPO
The pursuit of High Court litigation against Royal Bank of Scotland and NatWest by a not-for-profit organisation is just one example of the growth in the importance of ‘no win, no fee’ agreements for SME and not-for-profit claimants following the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
Wenta, a not-for-profit organisation that provides support to fledgling businesses, is suing NatWest and RBS over their alleged mis-selling of a complex interest rate hedging product in April 2009. The defendant banks have denied any liability, and the claim is listed for trial in the High Court in October 2017.
Given that banks such as NatWest and RBS face extensive numbers of litigation claims at the same time, they have been able to use their positions as serial defendants to obtain volume discounts from Magic Circle and other large City law firms. Meanwhile, not-for-profit and SME claimants such as Wenta usually only have a single litigation claim to bring, which leaves them unable to exercise the same bargaining power and prevents them from benefiting from the same volume discounts.
With the benefit of volume discounts in legal fees and with superior financial firepower that SMEs and not-for-profits cannot hope to match, defendant banks have the incentive and opportunity to prolong litigation for as long as possible to exhaust the limited financial resources of the claimants and leave them with no alternative but to discontinue their claims (at which point the banks would then seek a contribution to their legal costs).
NatWest and RBS have budgeted to spend around £430,000 in the litigation against Wenta, a level of spending that would ordinarily force a not-for-profit claimant to discontinue its claim. Instead, Wenta decided to enter into a conditional fee agreement with its lawyers to continue the pursuit of its claim.
This is an increasingly familiar scenario for many SMEs and not-for-profits which, like Wenta, are using CFAs to maintain their ability to obtain justice, despite the considerable changes that have been wrought to CFAs (and their effect on the respective negotiating positions of litigating parties) in the post-LASPO legal landscape.
Previous arrangements protected access to justice for claimants without the benefit of extensive financial resources, particularly SMEs and not-for-profits, as the risk of paying legal fees to their lawyers was mitigated by CFAs and the risk of being liable to contribute to the defendants’ legal costs was mitigated by after-the-event insurance.
The ability of claimants to recover CFA success fees and ATE insurance premiums created additional litigation risks for defendant banks and incentivised defendants to settle meritorious claims at a relatively early stage in the proceedings rather than risk increasing the amount of success fees for which they would eventually be liable.
While those same incentives no longer exist for defendant banks in the post-LASPO landscape, SMEs and not-for-profits litigating against banks are nevertheless increasingly turning to CFAs to seek to ensure that their claims are determined on the merits rather than on the costs budgets.
Sivakumaran Sivathillainathan is a solicitor at LEXLAW Solicitors & Barristers