You Want to Bring a Claim – But is it Worth it?

It is easy to overlook the importance of small and medium-sized enterprises (SMEs) – defined as businesses with 0-249 employees (with small businesses defined as having 0-49 employees, medium-sized business as having 50-249 employees, and large business as having 250 or more employees) to the UK.

According to the last statistical release issued by the government (dated 14 October 2015) SMEs account for three fifths of the employment and almost half of turnover in the UK private sector, making them absolutely vital to the success of our economy.

It is precisely this vital contribution that SMEs make to the economy which makes it essential to ensure the sector has access to the legal remedies which underpin effective business. Whilst turning to litigation should be a last resort, without the rule of law business cannot thrive. After all, unless SMEs are able to recover losses and/or get their bills paid the SME sector will collapse.

In this context “access to justice” is not about the enforcement of fundamental human rights but the law being commercially accessible so that it can play its part in supporting and promoting proper business activity. So are SME’s able to rely on the legal system to deliver the support they need at appropriate cost?

The answer to that turns on:

  • the willingness of your lawyers to share risk and reward with you and the connection those lawyers have with insurers/third party funders; and
  • the value of the case.

Claims of less than £10K – these are defined as small claims and legal costs are very rarely recovered. Do not instruct lawyers for such cases as even if your claim succeeds you may well be out of pocket.

Claims of between £10K and 150K – unless your claim is a very good one against a defendant who is good for the money, only instruct lawyers who (1) are prepared to cap their fees in case the claim fails or you cannot recover costs and (2) can insure you against adverse costs should you lose. But good luck –   not many good firms are willing to do this for claims in this range.

Claims of between c150K and c1M – you should insist that:

  • your lawyers cap their fees at an acceptable level in case you lose. You can then budget to pay this by instalments and you will thereby limit your worst case financial exposure scenario to a predetermined, agreed amount;
  • your lawyers obtain insurance cover for you at reasonable premium in case you lose and have to pay your opponents costs. The better policies only charge a premium if you win and this is payable out of what you recover.

Claims of £1M plus – the options widen significantly for such substantial claims with third party litigation funders willing to support your claim and share risk and regard with you and your lawyers.

It’s important to bear in mind that in England, the loser is invariably ordered to pay the winner’s reasonable and proportionate legal costs. In practice this usually allows you to recover only about 70% of your actual costs.

The days when lawyers can simply charge very high hourly rates for the work they do, irrespective of outcome – certainly for claims made by SMEs – are over. To paraphrase JFK: do not ask your lawyers to estimate your prospects of success; instead ask the extent to which they are willing to share risk and reward with you and make sure it makes commercial sense. Good lawyers are not just good at the law; they also have sound commercial judgement and understand the businesses for whom they work. If they are not willing to link their fees to a successful outcome you should ask yourself why; it may be a better indicator of prospects of success than a percentage guestimate!

 

This 21 February 2017 article in the Solicitors Journal re enforces the above.

 

Razi Mireskandari
Senior Partner