The following FAQs answer some of the key questions relating to funding for litigation.
Please note that the questions and answers on this page are for general information only and must not be used as a substitute for legal advice. You should always take legal advice which is tailored to your specific circumstances.
What costs information am I entitled to from my solicitor?
In the letter of engagement, and at any time as the matter progresses, your solicitor has a duty to give you the best possible information about different fee arrangements and the likely overall cost of your matter.
It is common practice for the engagement letter to contain an estimate setting out the likely fees you will incur. This estimate will usually require updating on a regular basis as your case progresses, as it is not always possible to provide an accurate estimate at the outset of a matter.
You should also be informed of your right to challenge or complain about your bill, and should be given information about any other payments you may be responsible for, such as disbursements, which include things like court fees and expert or Counsel’s fees.
What options are available to me to fund a legal claim?
Depending on the nature of the dispute, there are likely to be a number of funding options available to you, which might include one or more of the following:
- Hourly Rates
- Fixed Fees
- Deferred Payment Plan or Loan
- Legal Expenses Insurance
- Third Party Litigation Funding
- Conditional Fee Agreement (CFA)
- Damages Based Agreement (DBA)
How do I decide on the best way to fund a legal claim?
Your solicitor will undertake a full review of your needs and financial circumstances alongside the merits of your case and your objectives. It might be in your best interests to combine different methods of funding e.g. private funding and a CFA, or ATE and third party litigation funding.
Often your solicitor will approach an independent broker who will undertake a review to come up with the most suitable method of meeting your specific funding needs.
LEGAL EXPENSES INSURANCE
How do I know if I have legal expenses insurance?
Consideration should be given as to whether you have any existing insurance for legal costs, known as 'before the event' (BTE) legal expenses insurance.
Many common insurance policies, such as buildings or contents insurance, car insurance or directors’ and officers’ liability insurance, include legal expenses insurance. Legal expenses insurance is often sold as part of your insurance policy so check with your insurer when taking out a policy. We will review our clients’ cover if they do hold legal expenses insurance.
What is ‘after the event insurance’ (ATE)?
Where you do not already have suitable legal expenses insurance in place, there is usually an option to take out ATE insurance in order to help fund a case after a dispute has arisen. ATE insurance typically covers disbursements and your opponent’s costs in the event that you are liable to pay any or all of these, and can be used alongside other methods of funding such as CFAs or DBAs.
ATE insurance can be obtained through your solicitor or directly through a third party broker.
What level of premium is payable for ATE and is that premium recoverable?
The level of premium payable depends on the type and level of cover sought and assessment of the risk, can typically be 30% to 45% of the sum insured, or may be calculated as a percentage of the costs incurred at the date a claim is successfully concluded by negotiation and/or in court proceedings.
Some insurers may be willing to offer ATE at lower premiums if the insured is willing to accept a high insurance excess.
For ATE policies taken out before 1 April 2013, the ATE premium may in whole or in part be recoverable from the losing party in litigation. The level of recovery will depend on the reasonableness and proportionality of the insurance premium and ATE cover.
For ATE policies taken out from 1 April 2013, the ATE premium will seldom be recoverable from the losing party in the litigation, so it is not always suitable as a funding option. There are still some cases where the ATE premium will be recoverable from your opponent so we will advise you as to recoverability depending upon your type of case.
THIRD PARTY LITIGATION
What is ‘third party litigation funding’ and when can it be used?
Third party litigation funding is where a third party, who has no prior connection to your litigation, agrees to finance all or part of the legal costs in return for a fee which you pay from the proceeds you recover.
You may wish to consider third party litigation funding if, without it, you would not be able to afford to pursue a legal action. If your legal budget is limited, third party funding could also allow you to finance multiple claims. You may also wish to consider third party funding even if you are able to fund litigation because it will enable you to share the risk of pursuing a claim.
Is my case suitable for third party funding?
Funders generally prefer to take on cases that have already been investigated to determine the strengths and weaknesses of the case, to ensure that the claim is not merely speculative. Therefore a solicitor may be required to carry out a preliminary assessment of the merits of the case. However, you should also note that certain funders may expressly state that they will not pay for expenses incurred before the claim was brought to their attention, or before their confirmation that they would fund the claim – hence why it is important that you notify a third party funder as soon as possible once you are aware of the potential dispute if you intend to use third party funding.
If your solicitor believes third party funding may be of interest to you, they should explain this as soon as possible and in detail, so that you can make an informed decision.
How to I obtain third party litigation funding?
Firstly, identify and research potential funders – this can be done through the Law Society’s Litigation Funding magazine or your solicitor should be able to put forward some options. You should then approach the funder to discuss the claim and to explore the potential arrangements. If you do not have a solicitor, you should provide a written summary of the key aspects of your claim. You will then need to complete a written application for funding, providing detailed information and documentation to the funder. If you do have a solicitor, he or she will need to provide these documents, including:
- A proposal form;
- A detailed summary of the case;
- All relevant contemporaneous documents;
- Any pleadings (Pleadings are the formal allegations made by the parties of their respective claims and defences submitted to the court) and correspondence;
- (If relevant) the solicitor’s advice on the strength and weaknesses of the case; and,
- A costs budget and detailed timetable.
Once the funder has carried out preliminary due diligence, it will make an initial decision about whether it is willing to fund the claim. Subject to this decision, the funder will then offer terms of agreement for you to sign.
Will litigation funders or legal expense insurers have any control over my case?
Insurers may have a panel of solicitors who they regularly instruct, however you will ultimately have the freedom to choose which solicitor you wish to instruct.
It is important to note that, for ethical reasons, funders must not have excessive control, be able to withdraw from the case unreasonably or extract an unconscionable amount of money from the case. Excessive control might mean the funding agreement is void and unenforceable. “Excessive control” includes:
- Taking or influencing strategic decisions;
- Seeking to interfere in the solicitor/client relationship; or,
- Controlling or meddling in settlement negotiation.
Is third party litigation funding regulated?
Yes, through the following bodies:
- Financial Conduct Authority
- Claims Management Regulator
- Judiciary.gov.uk – see the Code of Conduct for Litigation Funders
- Financial Ombudsman
- Association of Litigation Funders of England & Wales.
Do I have to pay any expenses on an on-going basis or does the litigation funder or legal expenses insurer pay for everything?
In some cases, funders may expressly state that they will not pay for expenses incurred before the claim was brought to their attention, or before they agreed to fund the claim – hence it is important that you notify a third party funder as soon as you are aware of any potential dispute.
If the claim is unsuccessful, the funder may lose its investment and therefore not be entitled to receive any payment.
CONDITIONAL FEE AGREEMENTS
What is a Conditional Fee Agreement (“CFA”)?
A CFA is an agreement with a lawyer/ organisation who provides legal services on the basis that their fees are only payable in specified circumstances. These are also commonly known as ‘no win no fee’ agreements and the most common example is that you will only pay your solicitor’s legal fees if you ‘win’ your case. CFAs are available for both Claimants and Defendants. Lawyers will often charge a ‘success fee’ when acting under a CFA, which again is only payable in certain circumstances.
What is a CFA ‘success fee’ and will I recover it from my opponent if I win my legal claim?
A success fee is an additional amount payable for the legal services you have received, on top of the fees you have incurred. A success fee must be expressed as a percentage uplift on the amount which would be payable if there was no CFA in place. The maximum uplift is 100%, however in personal injury cases this is limited to 25% of the damages awarded. For example, if you win your case and your solicitor’s fees are £50,000, where there is a 50% success fee you would pay an additional £25,000 to your solicitor. Success fees are often charged under a CFA to reflect the risk to the solicitor that, if you do not win, they won’t be paid any of their fees at all.
DAMAGES BASED AGREEMENTS
What is a Damages Based Agreement (“DBA”)?
A DBA is an agreement between lawyer and client under which the client agrees to pay the lawyer a percentage of sums recovered in a claim. The agreement normally requires payment in the event that sums are recovered either by settling the claim or after trial. DBAs were unlawful in contentious work (except in employment claims) until 1 April 2013.
What are the advantages and disadvantages of entering into a DBA?
- Improved cash flow. You won't have to pay any legal fees (except expenses, such as expert's fees, but not including any barrister's fees) until recovery of money in your claim
- Improved certainty on costs. You will be better placed to predict the costs of your claim, and if the case is lost you will not have to pay your own legal fees (other than expenses)
- Decreased winnings. Even in the event that you are successful in your claim, you run the risk of having a sizeable amount of your winnings deducted to cover your solicitors “success fee”.
- Additional costs. It is likely that you will still need to find the means to fund your disbursements and opponent’s costs in the event that you lose, either of which could be substantial.
How will I be charged under a DBA?
In circumstances where we agree a DBA and agree to be paid a percentage of sums recovered if you win, we must pay any barrister’s fees and any VAT out of that percentage, in addition to our own fees.
When you win or settle your claim, we would be paid our fees from the funds you receive. We would receive no fees at all during the dispute. If you lose, we would not receive any fees. Even if you win but are unable to recover the damages awarded or settlement sum from the losing opponent, (for example because your opponent has gone into administration or has no assets), again we would not be paid.
How is the fee calculated?
The fee is simply a percentage of sums recovered. For example, where we agree a fee of 20%, if you are awarded damages of £500,000, we would be paid £100,000.
What costs are recoverable from the opponent when a solicitor has acted for you on a DBA?
You can recover costs from a losing opponent on a normal hourly rate basis. Whatever is recovered from the opponent will be deducted from the amount owed by you to us. But your opponent will not have to pay more than the percentage payable by you under the DBA. This will be particularly relevant where the fees incurred on an hourly rate basis are a high proportion of damages recovered.
Is it necessary to notify the opponent that a DBA has been entered into?
No. There are no requirements to notify the opponent.
COSTS AND SETTLEMENT
What legal costs will I be responsible for paying if I lose or win my claim?
The general rule in litigation is that the unsuccessful party will be ordered to pay a proportion of the costs of the successful party. The court has a very wide discretion when making costs orders. It is incredibly rare to recover 100% of your costs, even if you wholly and fundamentally succeed in the litigation.
Factors that are taken into consideration by the court when determining costs include the conduct of the parties and the effect of any offers to settle that have been made during the course of the proceedings (often in the form of “Part 36 offers” – see below).
What is a Part 36 offer and what are the related cost consequences?
There is nothing to stop a party making an offer to settle in any way it chooses. One way is for a party to make an offer compliant with Part 36 of the Civil Procedure Rules (often referred to as a “Part 36 offer”), and there can be tactical and cost advantages to making a formal offer under Part 36..
Part 36 offers in the prescribed form aim to encourage parties to try to settle a dispute. They set out the costs and other consequences that a party will face if it refuses a reasonable offer to settle made under Part 36.
The costs consequences of making, accepting or rejecting a Part 36 offer vary and depend upon a number of factors, all of which can be explained to you by your solicitor.
What are the cost consequences of refusing to attend mediation/ADR?
There is an ever increasing expectation that parties will attempt alternative dispute resolution (ADR), and in particular mediation. If a party unreasonably refuses an offer of mediation then that party is at a real risk of not being awarded their costs even in the event that they are successful at trial.
In the case of BXB v (1)Watch Tower And Bible Tract Society Of Pennsylvannia (2) Trustees Of The Barry Congreation Of Jehova's Witnesses  Ewhc 656 (Admin), Mr Justice Chamberlain set out the four applicable principles to consider when a party unreasonably refuses to engage in ADR/mediation.
(a) Whether to order that costs be assessed on the standard or the indemnity basis is for the discretion of the judge, having regard to the conduct of the parties and the circumstances of the case. But an award of indemnity costs requires something that 'takes the case outside the norm': Excalibur Ventures LLC v Texas Keystone Inc. (No. 2)  1 WLR 2221, .
(b) An unreasonable refusal to engage in ADR may justify an award of indemnity costs to a claimant, even where the claimant recovers very substantially less than originally claimed: Garritt-Critchley v Ronnan  EWHC 1774 (HHJ Waksman QC). One reason for this is that '[p]arties don't know whether in truth they are too far apart unless they sit down and explore settlement': ibid, .
(c) Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds: PGF II SA v OMFS Company 1 Ltd  EWCA Civ 1288,  1 WLR 1386,  (Briggs LJ). This is in part because 'a failure to provide reasons for a refusal is destructive of the real objective of the encouragement to parties to consider and discuss ADR, in short to engage with the ADR process': ibid, .
(d) However, a finding that a party has unreasonably refused even to engage in discussion about ADR produces no automatic results in terms of a cost penalty. It is simply an aspect of the parties' conduct which must be addressed in a wider balancing exercise: ibid: ; Gore v Naheed  EWCA Civ 369,  3 Costs LR 509,  (Patten LJ).
Fiona Simpson (Français)
Dr Rosa Malley