Philip Evangelou considers the counter-party risk for firms acting on a CFA, & the impact that insufficient ATE & recoverability can have on the CFA relationship
Frederick B Wilcox once said: “Progress always involves risks. You can't steal second base and keep your foot on first.”
The popularity of conditional fee agreements (CFA) in commercial litigation is growing as UK firms are ever-more tuned into its ability to aid the acquisition of new clients. However, there are some basic lessons that firms need to adhere to ensure the CFA works for lawyer and client alike.
Credit worthiness
The first test that should be considered is the credit worthiness of the defendant. As some of the fees are usually paid by the client, an estimate of their share of the costs should be made clear at the outset.
Conducting searches of a defendant’s net assets is a preliminary step that ought to be conducted before entertaining a CFA. The preferable asset class is real estate
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