STaRs Gazing - Solicitors’ obligation to advise on ATE and Litigation Funding in Commercial Disputes

Insight

Published

15 November 2022

The introduction of the SRA Standards and Regulations (“STaRs”), adopted in November 2019, has significantly changed the landscape for solicitors’ personal and professional obligations to their clients.

Whilst much ground has been covered following the implementation of STaRs, there has been limited commentary on a solicitor’s obligations when advising on cost mitigation and the application of ATE insurance and Litigation Funding. In order to fully understand these obligations, we need to look at the relevant codes contained therein.

Put simply, STaRs has shifted the emphasis solely from law firms and entity based regulation by introducing principles-based personal responsibility. Enshrined within the SRA’s Codes of Conduct, and for the first time, a clear distinction is made between the conduct expected of solicitors and for the conduct of firms, to the extent that solicitors are now personally accountable for compliance with the code.

In particular, there are two codes that solicitors should bear in mind when looking to advise their clients on ATE insurance and Litigation Funding. These are found within the Code of Conduct for Solicitors, RELs and RFLs and are outlined below:

“8.6

You give clients information in a way they can understand. You ensure they are in a position to make informed decisions about the services they need, how the matter will be handles and the options available to them; and

8.7

You ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter any costs incurred.”

Evidently, solicitors engaging with a client regarding their dispute are required to present information to their client in a way they can understand, and to ensure they are able to make informed decisions about the services they need and the options available to them. The specific mention of costs within the SRA’s Code of Conduct for Solicitor’s, by its extension, means that solicitor’s involved in a client’s dispute have a personal obligation to advise on the different options available on how to finance and mitigate the costs associated with its pursuit and therefore the suitability of Insurance and Funding solutions.

It can no longer be said that these obligations are dutifully discharged by simply providing clients with an insurer’s or litigation funders details or simply by acting in accordance with how the firm “does things” based off existing relationships. Solicitors instead need to be proactive about the advice they give upon engagement and throughout a client’s dispute – including how it is funded, the likely costs (both own sides and adverse) and the availability of funding and insurance products which transfer the risk, and possible consequent financial loss away from the client. Failure to do so may have repercussions on the firm, but also now on the individual solicitors whose advice fell short. These penalties can include fines, sanctions from the regulator or potential professional negligence claims brought by the clients.

Whilst it is established that authorised law firms and solicitors can advise on and distribute insurance given the status offered to the SRA as a designated professional body under Part 20 of the Financial Services and Markets Act 2000 there are further obligations that should be considered when choosing to do so. These are found within the SRA Financial Services (Conduct of Business) Rules, outlined below:

"11.1

Where you propose, or give a client a personal recommendation for, a contract of insurance, then in good time before the conclusion of an initial contract of insurance and if necessary, on its amendment or renewal, you must provide the client with information on whether you:

 

(a) give a personal recommendation on the basis of a fair and personal analysis;

(b) are under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings, in which case you must provide the names of those insurance undertakings; or

(c) are not under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings and do not give advice on the basis of a fair and personal analysis, in which case you must provide the names of the insurance undertakings with which you may and do conduct business.”

And  

"11.2

If you inform a client that you give a personal recommendation on the basis of a fair and personal analysis:

 

(a) you must give that personal recommendation on the basis of an analysis of a sufficiently large number of insurance contracts available on the market to enable it to make that recommendation; and

(b) that personal recommendation must be in accordance with professional criteria regarding which contract of insurance would be adequate to meet the client’s needs.”

Both the funding and insurance markets are constantly evolving, with new entrants and products becoming available all the time. Solicitors cannot reasonably be expected to be an expert in the field of ATE insurance and litigation funding in order to provide a personal recommendation following a review of a sufficiently large number of options on the market. Howden, as an independent insurance broker and working collaboratively with solicitors, can advise clients on all of the insurance solutions available and where suitable make introductions to credible litigation funders who have the relevant expertise and resources to see a case through to conclusion. By referring clients to an independent broker like Howden, who have a deep understanding of the product offerings and will provide clients with a formal letter of recommendation on their insurance solutions, solicitors can discharge their duties to their clients and remain compliant with their personal obligations under STaRs.

Rhys Williams

Associate Director, Litigation Risk Management, Restructuring & Resolution

Rhys Williams