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LPS - A User's View - B & W Electrical

LPS - A User's View - B & W Electrical

The legal system is biased towards the bigger companies having smaller and medium sized organisations at a financial disadvantage when disputes arise.

That's the view of John Barrow, Managing Director of B & W Electrical (Pty) Ltd, specialist electrical and instrumentation contractors handling contracts for the mines, major corporations and industry.

B & W recently completed a contract for a major company which resulted in a claim as a result of increased scope of work and a major acceleration effort. The client agreed to pay only for a portion of the increased scope and there was also a dispute over the ultimate value of the acceleration, which B & W claimed was equivalent to the original contract sum.

Although B & W is a medium sized company with an annual turnover of some R40 million, it was faced with lengthy and expensive arbitration as the case proceeded. Barrow believes that the larger company was banking on B & W having to settle before the costs became prohibitive.

"However, we were fortunate to be advised to consider post dispute insurance, which was recently made available locally by Legal Protection Services, a company jointly owned by Binnington Copeland & Associates and Legal Risk Management of the UK."

"The policy is unique in that it can be taken out after litigation or arbitration has commenced and it is available to cover both our own costs as well as the other sides' costs in the event of a defeat," explained Barrow. "When confronted with a large company with unlimited financial resources we would normally have been squeezed and forced to settle. Large companies tend to play on this."

However, with post dispute insurance Barrow says his company was able, for a stated premium, to limit the downside exposure in the arbitration.

The policy itself does not fund the litigation but can be used as collateral security for raising finance to assist a plaintiff who is cash strapped to fund its disputes, the policy being ceded to the financial institution as security.

In the event of defeat and an award of costs against the insured, the insurer makes payment to the financial institution up to the level of the indemnity. If however the plaintiff succeeds, the costs are awarded together with the award of capital allowing the loan to be repaid from existing resources.

"With this form of insurance small to medium sized companies such as B & W can afford to get into arbitration or litigation without worrying that, should the case proceed to its logical conclusion, we would be unable to fund it. Furthermore, we did not have to be concerned about the cash flow burden," added Barrow.

According to Chris Binnington, joint Managing Director of Legal Protection Services, the new policy is also of particular interest to insolvency practitioners as they are required to put up security for costs for claims which they are pursuing on behalf of creditors, as well as any other party involved in litigation or arbitration. The policy covers all actions with the exception of defamation cases.