Commercial lawyers: new target for claims

Back in May, I wrote a blog about a new industry springing up in which personal injury lawyers were likely to get sued for undersettling claims.

Now, there is a fresh source of negligence claims – and this time, it is the commercial lawyers who will be the target.

This is not about undersettlement, but rather about the advice that firms gave – or more importantly, didn’t give – in relation to funding and insurance; and how much this ended up costing the client.

After-the-event and third-party funding broker TheJudge tells me that it identified this as a potential source of claims some time ago. When it discussed the idea with Irwin Mitchell, the firm was keen to take it forward – and IM is now actively pursuing this type of claim.

So what precisely are the claims about? Essentially, we are talking about commercial claims where a law firm failed to take out ATE insurance for their client, or failed to have a proper conversation with them about the possibility of funding the case through a conditional fee agreement (which might ultimately involve sending them to another law firm) or using third-party funding.

These are likely to be deep-pocketed clients.

If the case ultimately failed, the client will have lost out financially - not just if no insurance was taken out (especially during those halcyon days of recoverability), but also if the client was not alerted to the option of laying off its risk through a CFA or third-party funding.

It is often supposed that well-financed clients would not be interested in CFAs or third-party funding, but that could prove to be something of a dangerous assumption. Lawyers have a professional duty to explain funding options, but they don’t always do so as meaningfully as they could, and they don’t always keep a proper record that they have done so.

As James Delaney of TheJudge pointed out to me, these types of cases have been brought before, but until now, it has been on an ad hoc basis. So far they have always settled.

Delaney notes that the real prize will be in unsuccessful high-value litigation – which might have involved £10-15m in legal fees – where the client could have laid off all that risk if they had been properly informed about the options.

The obvious question is, how will Irwin Mitchell – or any other firm that decides this is a potentially lucrative source of new claims work – actually find these cases? And that’s the beauty – the starting information is on the court record itself. It is a matter of finding the judgments, and – subject to professional rules – contacting the clients involved and asking what advice they were given in relation to their funding options. A very targeted approach.

If that were not enough, as well as the claims that lost, there will also be those that never got off the ground in the first place.

Where a client had a strong claim but lacked the resources to fund litigation the traditional way, they may have a potential action for loss of chance, if it can be shown that alternative funding routes would have been available. Those cases may be harder to find, of course.

These issues have been around for a while, but Irwin Mitchell is showing an appetite for turning them into a regular meal. In the current dog-eat-dog world, it wouldn’t be surprising if others followed.

Rachel Rothwell is the editor of Litigation Funding magazine

Follow @Rachel_Rothwell