Conditional Fee, ATE Insurance, and a Settlement Offer That Changes the Costs Risk
Your firm acts for a former finance director, Ms Okafor, in a wrongful dismissal and whistleblowing claim against a bank. The claim is valued at £340,000. You have a conditional fee agreement with a 75% success fee, and after-the-event insurance with a £250,000 limit. The bank has made a without-prejudice offer of £95,000, open for 14 days, plus a contribution to costs of £35,000. Your client's substantive costs to trial are estimated at £180,000; incurred costs are £70,000. The bank's costs are £120,000. If the claim fails, your client is exposed to adverse costs, subject to the ATE policy. The client wants to reject the offer because 'it is an insult' and wants to take the case to trial. The trial is in eight weeks. The client has not been told that the offer may have costs consequences.
1. What advice should you give on the settlement offer, including costs risk?
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Advise in writing. The offer is £95,000 plus £35,000 costs. If the client rejects it and fails to beat it at trial, the court may order the client to pay the bank's costs from the date of the offer on an indemnity basis, with interest, and may reduce or deny the client's costs. That can dwarf the difference between the offer and the claim. Compare the offer with the realistic recovery, not the £340,000 label. Consider the risks on liability and quantum, the trial in eight weeks, and the client's exposure to the bank's £120,000 costs. The ATE policy covers adverse costs up to £250,000 but may have exclusions and a shortfall. A counteroffer or mediation may be better than outright rejection. Record the client's instructions if she still wants to proceed. Do not let her reject the offer out of indignation without understanding the costs consequences.
2. What professional conduct issues arise from the CFA and the ATE policy?
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You must ensure the CFA complies with the applicable rules, that the client understands the success fee, the ATE premium, and what is recoverable from the other side. The client must give informed consent, free from pressure. Explain that the success fee is paid out of the client's damages or costs recovery if the claim succeeds, and that the ATE policy may not cover every adverse costs scenario. Check for conflicts: the firm's interest in the success fee may encourage trial, while the client's interest may favour settlement. Do not give financial advice beyond your competence; refer to an independent costs or insurance adviser if needed. Keep a written record of the advice on the offer. If the client rejects a reasonable offer, confirm the instructions and the risks in writing.
3. If the client rejects the offer and loses at trial, what are the likely costs consequences and how does the ATE policy respond?
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The bank will seek its costs from the date of the offer on an indemnity basis, plus interest. The client may also lose the protection of any costs award. The ATE policy responds to the insured adverse costs, subject to its limit of £250,000 and any exclusions. The bank's costs are estimated at £120,000, so the policy may cover them, but the client may still be liable for disbursements, the ATE premium, any excess, and costs not covered. The success fee is not payable if the claim fails, but the client may owe disbursements under the CFA. If the total exposure exceeds the policy, the client is personally liable. Advise on the risk of enforcement and possible bankruptcy. Consider whether the offer can still be accepted, or whether a negotiated settlement before judgment is possible.