The days when engaging in litigation meant paying a lawyer by the hour, come what may, and then taking an additional hit if you lost and had to pay the other side’s costs, are over. You can still work that way if you want – and there will be no shortage of lawyers wanting you as a client if so – but lawyers are under a professional obligation to discuss the many other ways now available to fund your case which often involve them sharing the risk.
Often called ‘no-win, no-fee’, and usually associated with personal injury claims, conditional fee agreements (CFAs) are also available for businesses. They have three key elements: the lawyer’s basic fee for doing the work; a 'success fee', which is an uplift on that fee of up to 100%, both payable on winning the case, the success fee compensating the solicitor for taking the risk of not being paid at all; and legal expenses insurance called ‘after-the-event’ or ATE insurance, which covers the risk of losing and having to pay the other side’s costs. This too is provided on a ‘no win, no fee’ basis.
However, it is important to note that ‘no win, no fee’ does not mean ‘no cost’. You will usually have to pick up the tab for other costs – such as court fees and expert witness fees. These can also be insured by the ATE insurance so the costs would be repaid by the insurer if the case is lost. In the event of success they will be claimed form the losing party.
So if you win your case, your solicitor will recover their basic fees, the success fee and the insurance premium from the other side. If, for whatever reason, they do not receive all of what they are owed, you will have to pay the shortfall if that is what you agreed at the outset. If you lose, the insurance will pay the other side’s costs.
Depending on the size of a case, it may be unreasonable to expect your solicitor to take the risk of working for months or even years and not getting paid anything at the end. The solicitor may also not be able to afford to carry the overhead for the length of the case. So an alternative is a ‘partial’ or ‘discounted’ CFA. Under this, you agree to pay part of the lawyer’s costs, but they get paid significantly more (and recoverable from the other side) if you win.
It is, however, important to note that the law is probably changing next April. After that, you will have to pay the lawyer’s success fee and the insurance premium even if you win – so if you think you might have a claim, you should speak to a lawyer sooner rather than later.
Damages-Based Agreements (DBAs) are a new funding option that will be allowed despite the upcoming changes in the law and should encourage a more competitive market place where solicitors will be more consumer/client oriented. Under a DBA, you simply pay the solicitor a proportion of your damages if you win. This directly aligns the lawyer’s interests with yours. However, regulations around DBAs, and particularly whether there will be a cap on what cut the lawyer can take, are still under discussion.
A growing number of clients and law firms are now turning to third-party litigation funding. Put simply a commercial funder, unconnected to the parties to the litigation, pays the entire legal bill in return for a share of the proceeds of the successful claim. If the claim is unsuccessful, the funder loses their money. Liability for the other side’s costs if the case is lost can be agreed to be covered by the funder or ATE insurance taken out, but the cost will be factored in to the calculation of how much of the damages must be given up on success.
This has obvious appeal to impecunious clients, especially if they are taking on a well-resourced opponent, but there are strong arguments towards investigating third-party funding even if you can afford it – for companies it takes the risk off the case off the balance sheet; for individuals it just gives peace of mind.
This may look an easy option but of course third-party funders will only invest in viable cases; across the industry at least 85% of applications are rejected. Those that secure funding have the benefit of an independent third party considering that their case is a sound one, a point that is not lost on the other side when considering their own tactics, in fact. However, it comes with a price; funders typically want 25% to 45% of the damages and many will not invest in cases worth less than £1m.
Businesses and individuals with smaller claims may be able to use another form of legal expenses insurance called ‘before the event’. This is either a standalone policy or is often attached to other forms of insurance (so you should check your policy wording carefully) and will often cover up to around £50,000 of legal costs in a variety of disputes. However, the insurer will usually insist that you use a solicitor of their choice, although they do not have an absolute right to do this.
Remember that your lawyer has a duty to advise you of all your funding options. Failure to do so would mean they are in breach of the Solicitors’ Code of Conduct and so do not feel shy about demanding a discussion about funding or else choose another solicitor.
William Evans is a barrister and consultant with Vannin Capital