Irwin Mitchell Says Some Solicitors Could Face Claims From Former Clients

Lawyers who failed to provide sufficient advice to their clients about potential litigation funding options available to them, specifically the availability of a form of legal cost insurance (After the Event or ATE insurance), could potentially find themselves facing a claims from former clients, says law firm Irwin Mitchell.  

ATE insurance covers a client’s legal fees if their legal case is unsuccessful and  Irwin Mitchell states that lawyers in England & Wales are “obliged” by their governing body to discuss all available insurance options with all their litigation clients and must advise whether specially purchased insurance should be obtained.

This means that any individual or business that has lost a legal case in England  & Wales in the past six years and has incurred substantial financial losses in respect of the legal fees they have incurred, either their own sides’ fees or their liability for the other’s sides costs, could potentially  claim against their former legal advisors if they were not informed about the potential available ATE insurance options at the time.

Jonathan Sachs, Partner at Irwin Mitchell and specialist in professional negligence, said:

Expert Opinion

Throughout the period of 2007 to today, a number of ATE insurers were offering claimants or, in some circumstances, defendants counterclaiming, adverse costs insurance which was in effect potentially free. The insurance premium for these policies was typically not charged on inception and would only be payable in the event of the claimant succeeding in his action. Under the regime that applied to civil litigation costs up to April 2013 and indeed beyond that date, where the policy was incepted before this time, the premium would be recoverable from a losing defendant. In the event of the case being defeated, this premium, known as a contingent deferred premium, was self-insured and therefore there was no cost at all to a losing claimant. Such insurance policies were provided normally on cases which a solicitor or barrister considered to have a 60% chance of success or above.” Jonathan Sachs - Partner

Sachs points out that when such cases were lost, ATE insurers have paid substantial sums to winning defendants  in respect of after the events liability and in some circumstances, such payments have exceeded £5 million.

Expert Opinion

The only difference for cases incepted after April 2013 is that the premium is not recoverable from the losing defendant and will have to be paid out of any damages won. In all likelihood, however this would be a small percentage of potential damages and therefore it remains sensible that all competent solicitors advise their clients to consider after the event insurance. And in some cases, such as mesothelioma and insolvency, the premium can still be recovered.” Jonathan Sachs - Partner

Daniel Brumpton, a Partner at Irwin Mitchell, believes many solicitors, including those in some of the major practices in England and Wales, failed to advise clients to obtain ATE insurance. He said:

However both Sachs and Brumpton  believe that the failure to advise on ATE insurance has had a devastating effect on some claimants.

Mr Sachs said:

Expert Opinion

The only difference for cases incepted after April 2013 is that the premium is not recoverable from the losing defendant and will have to be paid out of any damages won. In all likelihood, however this would be a small percentage of potential damages and therefore it remains sensible that all competent solicitors advise their clients to consider after the event insurance. And in some cases, such as mesothelioma and insolvency, the premium can still be recovered.” Jonathan Sachs - Partner

Carolyn Holmes, a Senior Associate at specialist Litigation Funding and Insurance Brokers, TheJudge  added: “The ATE insurance market has been insuring cases with up to £15m of legal cost indemnities for individual cases since before 2007.  The types of cases insured are diverse, covering  the whole spectrum of litigation. For example, we regularly received applications for ATE insurance for small business disputes through to large value patent disputes, shareholder and investor disputes, complex fraud cases and international arbitrations. Accordingly, the appetite is unquestionably there within the insurance market to support even the most complex type of cases and that continues to be the case today.”

Irwin Mitchell however does throw a note of caution to individuals or businesses  thinking about taking action against their solicitors, since despite the strictness of “Solicitors’ Code of Conduct”, there has been some reluctance on the part of the judiciary to treat any breaches of the code as breaches of common law duties. The Court of Appeal in the 2001 Sarwar v Alam case stated, “If a solicitor gives advice that is unsound, it will not necessarily follow that the advice was negligent.”

However on balance and despite there being no concluded case on this point, Sachs and Brumpton both feel that a failure to advise on ATE insurance is likely to be considered negligent.

Jonathan Sachs added:

Expert Opinion

There are already cases which are presently being settled without proceeding to court on this basis, for example a line of cases in which solicitors have been found to be negligent for failure to advise on Legal Aid/public funding. Failure to advise on ATE is just the next step in the same line."

“If you are a commercial claimant who lost their case, despite being told at the outset you had a good chance of winning, and have suffered multi millions in cost liabilities, then you may well feel aggrieved that your former advisors failed to advise that you could potentially have removed that cost exposure at no cost all.”
Jonathan Sachs - Partner

And for litigants worried about investing more money to sue their former legal advisors, he advises further:

Expert Opinion

It may very well be that an ATE insurance policy could now be obtained to bring such claims, and furthermore, there may be the possibility of third party funding or alternative fee agreements with their lawyers, which means clients can pursue their former legal advisors without any further cost exposure at all.” Jonathan Sachs - Partner

For more information on commercial litigation visit our Commercial Litigation & Dispute Resolution page or call us on 0370 1500 100.