Rachel Rothwell's blogs

The solicitors’ profession was punching the air in celebration last week when the Legal Services Board announced its intention to finally bring will-writing into the regulatory fold.

There is no shortage of evidence about the misery caused by unscrupulous will-writers; a story from last year about a firm that dumped its documents on the pavement after going bust springs to mind as one of the worst examples. But it must be pointed out that the vast majority of those who write wills, whether they are solicitors or not, are competent and professional individuals, who provide a good service; and indeed the non-regulated sector has proven very successful in offering, for example, home visits, which make it as easy as possible for people to make a will (when it comes to writing wills, people are always looking for an excuse to do it tomorrow, not today). These reputable firms will probably welcome the opportunity to pin the badge of regulation on their lapels (though they may be less keen on the accompanying cost). But proper regulation should - at last - see off the rogues.

The new regulatory rules will cover the activities of will-writing, probate and estates administration, whoever does it - so they will apply to solicitors as well as everyone else. The LSB clearly has its doubts about the effectiveness of solicitors’ current regulation in these areas, asserting that problems with quality, service, transparency and fraud exist in both the regulated and unregulated sectors (although it does concede that the worst sales practices, and problems with the safekeeping of wills and options for redress, are largely confined to will-writers rather than solicitors).

The LSB says the way solicitors are regulated at the moment puts too much emphasis on controlling entry to the profession, without being targeted to the risks. Instead, it wants to see front-line regulators like the Solicitors Regulation Authority conducting more risk-based monitoring and supervision in relation to wills. The level of inspection a firm should expect would depend on the regulator’s analysis of the risk they present; so you might assume that a well-run firm whose wills are written by qualified staff would receive fewer visits.

Bodies that want to regulate will-writing will need to place a tick in the box to show they have the following in place: a mandatory register of the organisations they have authorised to write wills; a fit and proper person test before anyone can be licensed to write wills; a code of conduct covering sales practices; a requirement that firms must have an appropriately trained workforce; a strategy for supervision and enforcement, with financial penalties for transgression; requirements for firms to have in-house complaints procedures (they will also be subject to the Legal Ombudsman’s gaze); and professional indemnity where the provider has access to consumers’ money (for example in estates management).

All of these will be welcome and essential developments, and frankly hard for anyone to argue with. But just as important is one further requirement: any body wishing to regulate will-writing must have a strategy in place to educate consumers about the process of making a will. With so many people still failing to cross that job off the to-do list, any development that raises the profile of will-making can only be a good thing.

Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.

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With damages-based agreements (or contingency fees as they used to be known) coming into being next April, the Civil Justice Council has now set the wheels in motion to begin drawing up the all-important rules that will govern how the new fees are actually going to operate.

I am told that the CJC has just set up an experts’ working group on DBAs, which will hold its first meeting after Easter. It will be chaired by veteran solicitor Michael Napier, who recently chaired the CJC group responsible for the new code of conduct for third-party funders, and going further back in history, was heavily involved in drawing up a model agreement for conditional fee agreements. Napier believes that a similar agreement will be needed for DBAs; and no doubt, he’s right.

As I’ve outlined before, there are plenty of nuts to be cracked before DBAs make their grand entrance onto the civil litigation scene (having previously been confined to employment tribunal work).

Given that solicitors will effectively become funders of litigation when they act under a DBA (which entitles them to be paid out of the client’s damages), many of the issues will be similar to those recently tacked in relation to the third-party funders’ code of conduct. For example, the working group will need to figure out how much control the lawyer should be allowed to have over the litigation, and what happens when, for example, the solicitor wants to settle, and the client wants to press ahead.

Another question will be whether solicitors should be obliged to ensure a client has obtained independent advice on the funding agreement.

The obligations imposed on funders under their new code of conduct may give an indication of what rules might be in store for solicitors on these client protection matters.

There is one issue in particular where the third-party funders will be doing all they can to influence the DBA rules, and that is in relation to capital adequacy requirements. Under their new code, funders are obliged to show that they have the cash needed to fund a case for three years. There is plenty of noise being made in the funding community about the fact that law firms will have a massive advantage over funders if they are not subject to similar requirements when acting under a DBA, and so effectively funding a case.

Many of the questions to be answered are similar to those thrown up by CFAs, in which solicitors are also acting as de facto funders. But with DBAs, the rewards for the lawyer could be much greater, and the level of damages obtained will have a direct effect on the solicitor’s fee.

It may be a full year before DBAs are set to burst onto the scene, but the CJC’s experts group has got a lot of work to do before then.

Rachel Rothwell is editor of Litigation Funding magazine. The current issue features a discussion of the impact of DBAs by a group of leading experts

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One of the big uncertainties of the Jackson reforms is how big damages-based agreements (‘DBAs’, or contingency fees as they are more commonly known) are going to be.

For the first time outside of employment cases, from April 2013 lawyers will be able to take their fees from their client’s damages. In personal injury cases, they will be able to take only a maximum of 25% of damages, but for commercial cases it has not yet been decided whether there will be any cap.

Jackson has suggested that a working party should be set up to work out this kind of detail, but when I asked him at a recent seminar (hosted by City firm Herbert Smith) what his own view was in relation to a cap on contingency fees, he said that while he had an open mind on the issue, he could see the logic in there being no cap in commercial cases, which were between ‘two adult parties’.

If commercial DBAs are not capped, we could see them taking off in the commercial arena in a much bigger way than many solicitors realise. Unlike conditional fee arrangements, where the success fee is linked to damages, in DBAs the rewards could potentially be sky-high. We’re likely to see complex arrangements developing to reflect the amount of work a lawyer does on a case (it would be rather unfair if a lawyer were able to claim, say, 30% of a client’s settlement, if all they had actually done was write one stern letter to their opponents, for example).

If DBAs take off, this will also be a big opportunity for third-party funders, as law firms look to share their risk and need finance during the course of litigation.

But what will be the appetite among clients? Views are mixed on this one. For the client with a decent claim but lack of funds, they may find it easier to persuade a lawyer to take the case on under a DBA than they had under a CFA; and the client may well be prepared to hand over a decent chunk of their damages in return for the certainty that they will pay nothing if they lose.

But one lawyer who acts for very large commercial clients has suggested that, at this end of the spectrum, clients prefer to pay the traditional way and get what they believe to be truly independent advice from their law firm, rather than giving their lawyer a direct interest in the outcome.

In terms of the type of law firm that will be attracted to DBAs, the expectation is that the magic circle will not really be interested. In the US, where contingency fees are already well established, the biggest law firms do not tend to use them.

Discussing this issue recently with a funder, he predicted that, from a magic circle firm’s point of view, offering DBAs could put partners in a tricky position. He painted a scene in which one of the firm’s biggest corporate clients might want to pursue litigation under a DBA rather than the usual hourly or discounted rates. The litigation partner could find themselves under pressure from their corporate colleague to agree, to keep an important client sweet. But even if the case were ultimately successful, it would still mean tying up members of the litigation practice for a lengthy period without seeing the benefit until the case concludes or settles. For a litigation partner under pressure to maintain the current year’s fee-income, that may not be an attractive prospect.

That said, it is far from safe to assume that DBAs will be an irrelevance for the magic circle. Ultimately it will depend on clients; if they begin to demand it, then in the current environment, firms will have to start offering it - whether they like it or not. For the smaller and mid-range firms that already offer CFAs, and are expected to embrace the new DBAs with some gusto, there is another key issue to be dealt with; namely the risk of over-exposure. Voices from the funding and insurance sectors are beginning to raise the prospect of minimum capital adequacy requirements for firms that want to take on DBAs. Otherwise, if a law firm does come unstuck, could the solicitors’ compensation fund (paid for, of course, by a levy on every solicitor) be left to pick up the bill?

DBAs raise plenty of questions, and much will hang on the way they are implemented. The legal profession needs to start thinking about this now, so that it can influence the rules governing DBAs while they are still in the process of being drawn up. April 2013 may seem like a long way off, but the discussions are already beginning.

Rachel Rothwell is editor of Litigation Funding magazine. The current issue features a discussion of the impact of DBAs by a group of leading experts

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Third-party litigation funding (through which investors fund someone else’s case in exchange for a percentage of damages if they win) does not normally receive much mainstream attention in the UK, given that it is a relatively small sector here.

But last week the House of Lords devoted considerable floor time to debating the potential dangers of this method of funding, as peers discussed an amendment to the Legal Aid, Sentencing and Punishment of Offenders bill. The amendment, which was eventually withdrawn, sought to introduce statutory regulation into the sector, instead of a new voluntary code of conduct which was published in November.

The Lords were most worried about the prospect of third-party funding (which, at present, is almost entirely focused on commercial cases) being introduced into areas involving individual litigants, such as personal injury. Funders could potentially offer to finance a claimant’s case in return for a cut of their personal injury compensation.

In that context, there is a clear argument for proper statutory regulation to protect an individual claimant who, unlike a corporate client, might be in a vulnerable position when negotiating a deal with funders. But in my view the practice should not be banned outright, given that, for some claimants, it might be the only way of bringing their case and obtaining access to justice. After all, under the Jackson reforms, solicitors will be able to take a share of personal injury claimants’ damages, limited to 25% of the compensation.

But what about commercial cases?

One of the arguments frequently made against third-party funding in commercial litigation is that it fuels unmerited claims. Those who oppose litigation funding often point to the US as a dangerous example of the kind of litigation frenzy that would develop, if we allow funders to establish themselves here to the same extent as they have done across the Atlantic. Indeed, an allusion was made during the Lords debate to problems arising from ‘the American type of litigation’.

But it is often forgotten that there is a fundamental difference between litigation in the UK and the US: namely, the adverse costs rule. While in the US, funders who lose a case do not face the prospect of paying the other side’s costs if they lose, here they do. That in itself is enough to ensure that third-party funding will not lead to a rise in weak cases being brought in the UK courts; and indeed many believe that it is the lack of an adverse costs rule, rather than the presence of third-party funders, that truly lies behind the litigation excesses of the US.

In the UK, far from taking a gung-ho approach to litigation, funders are remarkably cautious, and in fact most will not touch a case unless it has a 70% prospect of success. That’s hardly fueling unmerited litigation. It would be interesting to know how many cases financed by litigation funding actually win; but that information is normally subject to client confidentiality.

Returning to the House of Lords debate, peers also noted that Lord Justice Jackson, in his final report, said that while a voluntary code of conduct should be established for third-party funding, this should be ‘re-visited’ if and when the funding market expands. The voluntary code was published, and approved by Jackson, only last November. But as the Lords debate drew to a close, Lord McNally suggested that: ‘It is a question of whether [third-party funding] has now expanded to a point where the matter should be re-visited’.

I would suggest that, by approving the voluntary code less than three months ago, surely it can be inferred that Jackson does not believe the market has yet expanded to require more than self-regulation at the current time. Otherwise, surely he would not have only just put his weight behind self-regulation?

With third-party funding expected to begin playing a more central role once the civil justice reforms come into force in April next year, we can expect to hear plenty more views emerge on this developing and controversial funding sector in the coming months.

Rachel Rothwell is editor of Litigation Funding magazine

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