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How to pay for your day in court

06 August 2010

What happens when you are faced with a substantial legal claim but you do not have the money or financial backing to fight the case in court? Litigation specialist Razi Mireskandari explains the funding options available.

THE PROBLEM

The leasehold owner of a restaurant in London's East End, part of freehold premises which had a number of flats above, was refurbishing it when the landlord noticed subsidence and pursued the restaurant owner for damages. With the pressure mounting, the restaurant owner needed to know the options available.

Building disputes such as this are commonplace in the restaurant, hotel and catering industry and often result in large-value claims at court. Many businesses and individuals simply cannot afford to pursue legal claims even when there is a good chance of success. Court cases can be prohibitively expensive and the financial exposure daunting. A major deterrent is the potential liability for an opponent's costs if the claim is unsuccessful.

THE LAW

The restaurant owner had no defence to the landlord's claim and the landlord obtained judgment against him for more than £100,000. In order to avoid bankruptcy, the restaurant owner mortgaged his house to pay the landlord. But he successfully sued the builder for his negligence and thereby recovered the damages he had to pay the landlord.

The three-day trial, heard in the Technology and Construction Court in London, centred on the builder's lack of care when refurbishing the restaurant. The builder was insured and blamed the architect. The restaurant owner obtained expert advice and was able to show the court that the builder was liable for the damage to the flats.

On winning this hard-fought case, the restaurant owner recovered all the money he had previously paid to the landlord in damages and did not end up losing his home as a result.

EXPERT ADVICE

Given the restaurant owner's financial position, he was represented on a conditional fee agreement (CFA), also known as a "no win, no fee" funding arrangement, under which the majority of the costs risk for his legal advice were shifted to his solicitor. The solicitor also obtained "after the event" (ATE) legal insurance cover at no charge to him so that if he lost his claim he would not have to pay the builder's legal costs.

The CFA scheme, together with the ATE insurance, allows clients to enforce their legal rights while removing, or radically reducing, the amount paid in legal fees and indemnifying clients against having to pay the opponent's costs should the client lose.

ATE insurance is obtained - at no cost to the client - after the matter causing the dispute has occurred, and is applicable to all litigation matters.

The CFA shifts a significant part of the client's cost risk to the law firm, which only recovers its full fees from the client if the claim is successful. It works in harmony with ATE to limit the client's exposure to legal fees and to the opponent's costs.

CHECK LIST

Contact your solicitor as soon as the problem arises. They can then discuss with you whether a CFA is appropriate and whether ATE is available. Many solicitors are able to provide ATE insurance automatically without having to apply to the insurers.

BEWARE!

A fundamental point about pursuing litigation is that it can be hugely expensive, particularly when considering the potential liability for an opponent's costs. Without a CFA or ATE insurance in place it may make little or no commercial sense to pursue an otherwise good claim.

CONTACT

Razi Mireskandari, head of litigation and managing partner, Simons Muirhead & Burton Solicitors

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