Funding update: third-party backing for credit card claims, DBA insurance launch and more

Humphries: new wave of claims

City law firm Humphries Kerstetter (HK) has secured third-party funding to launch of a new wave of claims against MasterCard and Visa on behalf of a host of companies.

The move follows the firm’s recent negotiation of a series of settlements with the card schemes on behalf of Tesco and WH Smith.

The claimants are seeking damages for losses alleged to have been caused by infringements of domestic and European competition law in relation to the setting and implementation of multilateral interchange fees and a declaration as to the unenforceability of the fees.

HK – led by well-known solicitor-advocate Mark Humphries – has been instructed by a further 27 companies and groups of companies, including a further supermarket chain, various well-known high street retailers and other merchants. It is understood that a large number of others are considering joining the funded group.

These claims are fully funded by Therium Capital Management Limited, backed by after-the-event (ATE) insurance.

Meanwhile, well-known litigation finance broker TheJudge has launched an insurance product to back damages-based agreements (DBAs).

The take-up of DBAs continues to be minimal amidst uncertainty over the legality of hybrid DBAs, in which some fees are paid on a traditional basis with the rest at risk under a DBA, meaning that firms are left with an ‘all or nothing’ choice.

TheJudge said that following a successful trial with several top-50 law firms, it has launched an insurance policy taken out by the law firm to cover a portion of the firm’s fee risk under the DBA.

As between the law firm and the client, the arrangement is an all or nothing DBA. However, if the case is lost or a judgement cannot be enforced, the law firm can make a claim under the policy to be reimbursed up to an agreed level of hourly fees incurred. Policies will typically cover around 50% of the fees to ensure some risk alignment between the firm and insurer.

The premium is only paid if and when the contingency fee is recovered.

TheJudge director Matthew Amey said: “It helps with the age-old challenge of how law firms financially account for the WIP incurred when operating on a contingency basis. The insurance provides certainty over a level of fee realisation to help firms plan for the future.

“No-one is suggesting that DBA insurance will give rise to the rampant use of DBAs in the UK commercial litigation market. Firms needs to manage their cash flow and therefore reach a sensible balance between billable hour work and alternative fees.

“However, by cherry-picking the cases the firm believes in and laying off  a portion of the fee risk, the law firm could off-set much, if not all, the discounts provided on their billable hour retainers, boosting realisation returns across the department or firm.”

Mark Shillito, UK and US litigation head at Herbert Smith Freehills said: “The flexibility to be able to offer our clients a range of innovative fee arrangements is vital if we are to continue to meet their changing needs. However, pricing arrangements must be sustainable for the law firm as well as attractive to the client.

“Being able to share the contingency fee risk with insurers enables law firms to align their interests with those of the client and demonstrate their confidence in the claim whilst maintaining an element of financial certainty when working on a contingent basis.

“This could prove to be a real game changer in the use of DBAs by law firms in the UK.”

Late last year we reported on a small City law firm that took on a major case on a DBA, which was set to net it one of the largest pay-outs yet under this form of funding.

In other funding news, Legal Protection Group – an ATE business launched last October in Bristol by several former DAS employees – has opened an office in London “to offer greater levels of local support to the important London market”, according to underwriting director Phil Bellamy.

Finally, those using ATE insurance should be aware that, as a result of the autumn 2016 budget statement, insurance premium tax rose as of today from 10% to 12%.

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