Barristers play a vital role when it comes to securing alternative funding options such as third party funding or ATE insurance. As a key cog in the legal budget, Counsel’s fee arrangement can directly impact upon the economics of a case, which following Jackson’s reforms are increasingly significant. However, economics aside, even the most fundamental of instructions are evolving in style. When providing a merits Opinion, barristers are now faced with key dos and don’ts as to how Opinions should be drafted to maximise the chance of the client achieving their objective without, of course, altering the independence of the assessment.
A slow and steady undercurrent is running through the legal market, from which no litigation practice whether small, magic circle or even the Bar, is immune. The age of the hourly bill has peaked. The market is evolving into a much more diverse array of retainer options led by client demand. Through the era of conditional fee agreements (CFAs) many commercial litigation barristers have been resistant to altering their fee arrangements from hourly billing. For some this may continue, but others will inevitably see increasing pressures to be more commercially flexible when it comes to securing appealing instructions. Some savvy clerks are already recognising that with this change in demand come commercial opportunities and are reshaping their retainer menus in preparation.
A common misconception when discussing alternative fees is that they are “no win no fee”. While clearly it’s open to barristers to offer a full no win no fee retainer in exchange for a success fee uplift, in reality for most larger instructions a partial CFA might be the more palatable option e.g. where say 30% or 40% of the fees are at risk with the balance paid on a standard fee paying basis.
However, other options exist. For example, where a client is illiquid yet nonetheless has a good and potentially valuable case to pursue, deferred (whether full or partial deferment) but insured fees could be an option. Under this arrangement the barrister’s deferred fees are not at risk per se as they will be payable either via the claim recoveries or via the client’s litigation insurance. Where a case is particularly tight on its cost-to-damages ratio, meaning third party funding is not viable, a deferred but insured fee could be a possible way forward.
In truth most law firms will already be acting on some form of alternative fee on the majority of their litigation cases even if they prefer to categorise it as such. For example, a discounted fee in the event of a loss is effectively a form of alternative fee arrangement.
Many law firms have a keen eye on the future possibilities of damages based fee arrangements (DBA), the dreaded (according to some sceptics) contingency fee. Assuming the rules are ultimately amended (as expected) to make DBAs a more appealing option for law firms (e.g. allowing for partial DBAs) this will directly affect how law firms appoint Counsel. Even where Counsel refuses to adopt a risk-bearing retainer, increasing pressure will be put on the hourly rate, with pressure also to cap brief and refresher fees from the outset.
Litigation funding companies who finance commercial cases are always seeking as much certainty as possible over legal budgets; after all, from their perspective it’s purely a financial transaction. Contrary to popular opinion this doesn’t necessarily mean pressuring law firms into carrying a larger percentage of their fees at risk, it can simply mean agreeing a fixed budget. This means if the case exceeds the original budget then the firm agrees to bear the risk of the balance on an alternative fee. Such pressures will likely be passed onto Counsel regarding their fees. Litigation funders have become wary from past experiences, they don’t want the “gun to the head” scenario whereby they are asked to invest more money beyond the budget or else the legal team downs tools.
Ultimately all these pressure points will impact on the Bar, as counsel’s fees are such a crucial part of any legal budget. It’s no longer feasible to ignore the financial changes occurring throughout the legal market.
The Merits Opinion – It needs to be more than “reasonable”
Where a claim value is fairly sizeable or the legal issues are reasonably complex it’s not uncommon for litigation funders to insist on an Opinion from Counsel on the merits as part of the due diligence. This may be obtained directly by the funder but in the vast majority of cases the request is made via the client’s engaged solicitors and therefore the barrister instructed on the case will provide the Opinion.
When a funder considers an Opinion they will often treat it as the balance check to the solicitor’s assessment. Generally speaking, a solicitor may be more optimistic in their merits assessment than Counsel. However, some barristers can swing too far the other way and ultimately be too cautious in affirming a strong view one way or another to enable a funder to determine whether or not a case is suitable for funding.
While many consider it to be wholly artificial, litigation funders and insurers are often looking for the barrister to provide a percentage prospect of success assessment. The threshold to achieve is a 60%+ assessment in favour of the client. Any Opinion which substitutes such an affirmative statement with phraseology such as “the claimant has a reasonable case”, will raise alarm bells with funders. The term “reasonable” is often considered by funders/insurers to mean an assessment of circa 51% or at best somewhere between 50-60%, whereas the funder wants to hear that Counsel believes the merits are “good” or “strong” and that, notwithstanding the analysis of the potential defences available to the opponent, Counsel is confident the client will prevail.
How the Opinion is drafted could make the difference between the client securing funding or not. Without question it’s one of the most critical documents in the due diligence pack. Funders are not looking for sure-fire certainty but, as they are essentially being asked to place a financial bet on the outcome of the client’s case, they are looking for something that helps them determine the odds. Therefore anything less than affirmative statements could result in the funder looking to other opportunities.
A recovery based merits assessments
To compound the pressure on Counsel further still, funders are interested in anticipating not only the chances of succeeding on liability but also the level of quantum. In some cases it can be advisable, where possible, to break down the merits assessment in accordance with different levels of recovery. For example, if the claimant potentially has a £200m claim, but circa £190m relates to potential lost “future profits” the funder is probably going to want an assessment on the chances of the client being awarded the first £10m claim with a separate estimate for the £190m lost profits claim. Should the legal budget be estimated to be circa £3m, then a funder might be nervous about investing if the £10m claim has a 70% chance of success but the future profits claim only a 50/50 chance. This is because a funder might charge circa x3 times the level of their commitment, which on the basis of a £10m recovery would swallow up the lion’s share of the client’s recovery. Therefore, depending on the appetite within the funding market, it might be prudent to focus the claim on the £10m with a reduced legal budget rather than incur the extra cost to pursue the more speculative lost profits claim if that’s likely to render the whole deal unworkable.
Counsel is an integral part of any legal team. As the cost of financing litigation is now such a critical part of so many litigation and arbitration cases it is no longer possible for the Bar resist the changes occurring throughout the market. However, change does not necessarily mean less profit; savvy clerks and barristers will be aware that by utilising the various retainer, funding and insurance options that exist, life could actually be more lucrative than the old favoured hourly rate.
Carolyn Holmes, Associate Director at TheJudge, Litigation Funding Brokers and Advisers.