30 May 2013Print This Post

SMEs reluctant to instruct lawyers – is litigation funding the answer?

DIY justice: cost makes SMEs go it alone

Posted by Helen Smith, senior broker at Litigation Futures sponsor TheJudge

Earlier this month, the Legal Services Board (LSB) published research showing that just 12% of legal disputes ultimately result in external lawyers being instructed. Yet, a survey carried out by YouGov for the LSB showed that over 45% of small businesses say legal disputes “had a tangible effect on their company in loss of income, additional costs or loss of reputation”.

Of those surveyed by the LSB, over half admitted that they deal with legal disputes without any external advice. Yet only 5% said they had an in-house expert.

So why are SMEs, who seemingly readily admit that disputes have a negative impact on their business, reluctant to do anything about it by instructing professionals to represent them? We can only speculate of course but perhaps the answer lies in the fact that only 12.6% of those surveyed by the LSB thought lawyers provided a cost-effective means to resolving legal disputes.

This certainly seems consistent with the result of various discussions we’re having with many lawyers in that it seems unequivocal that even financially sound clients are becoming more price sensitive and are increasingly looking for value for money when it comes to legal services.

So would the promotion of external funding and risk-transfer solutions such as litigation funding and insurance by the law firm help acquire and retain the business of SMEs who perhaps currently view external legal advice as a last resort?

Put yourself in the client’s shoes and imagine you need to instruct a law firm to represent you in a legal battle. The business’s legal budget is extremely tight and you have the choice between two firms. The first will charge an hourly rate and isn’t able to offer any flexible retainer or funding options. The second can offer you external funding which will pay the lawyer’s fees as the case progresses (with you only having to reimburse that funding and pay a success fee if the damages claim is successful) and insurance which protects the downside risk of having to pay adverse costs. Which would you choose?

It is perhaps optimistic to suggest that there is only one reason why SMEs seem to be reluctant to take external legal advice but, with the current economic climate tightening legal purses more than ever before, and clients’ changing attitudes towards retainers and funding options, it’s not a bad guess to suggest the cost of legal services may be one of the barriers.