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How to Fund Litigation

The search for options into how to fund litigation cases has become increasingly common. Litigation can be expensive. Many claimants and defendants are concerned about the cost of litigation, especially given the fact that the losing party usually has to pay the other side’s costs.

However, there are many options available other than just private funding where you “pay your solicitor as you go” so to speak. These include:

  • Legal Expenses Insurance– Many policies such as car, travel, directors’ and officers’ liability insurance etc. include cover for possible future legal problems.
  • After the Event Insurance– If you do not have legal expenses insurance in place, then there is usually the option to take out insurance after the legal dispute has arisen, referred to as after the event insurance. This covers your opponent’s cost, if you are liable to pay them, and may be able to cover your own legal fees and disbursements in your policy. It can be used in conjunction with Conditional Fee Agreements and Damages Based Agreements.
  • Conditional Fee Agreements– Your solicitor may agree to charge a reduced or no fee if your case is unsuccessful and their normal fee plus a “success” fee if you win your case.
  • Damages Based Agreements– Your solicitor agrees to accept a percentage of the amount awarded to you. If you lose, you will not need to pay your solicitor but may be liable for the other party’s costs.
  • Third Party Litigation Funding- this is where a professional investor funds all your legal costs, including adverse costs, in return for a share of the proceeds if you win.
  • Fixed Fees and Caps- Else, unlike some legal firms, will always keep you updated on your case and the associated costs. In some instances, we will be able to give you a fixed fee for your case or place a cap on your our costs.
  • Deferred Payment Plan– In some cases, your solicitor may agree to defer payment until the matter is concluded. This option is particularly useful for contentious probate cases where money is tied up in the deceased’s estate.

Andy Rudkin, Head of Dispute Resolution at Else Solicitors, helps companies and individuals to find and put in place the right litigation funding options for them. If you are considering litigation or need to defend a case, then you are invited to call Andy on 01283 526239 or at andy.rudkin@elselaw.co.uk who will guide you through your funding options.

The rest of this article will look at:

  • Legal Costs Information;
  • Your Litigation Funding Options in Detail and
  • How to Choose Your Best Funding Option

 

Legal Costs Information

Your solicitor has a duty to give you the best possible information about different fee arrangements (as discussed below) and the likely overall cost of your case. They should discuss the various options with you, along with the associated costs, and give you an indicator of your likelihood of success.

After the initial meeting, you will then receive a letter of engagement from your solicitor. This is an important document which you should read carefully before deciding if to engage that solicitor on your behalf.

Your letter of engagement will contain an estimate setting out the legal fees you will incur as well as other costs such as disbursements for Court, expert and/or Counsel’s fees. This estimate will be updated as your case progresses as it is not always possible to provide an accurate estimate at the start.

Some legal firms will go over their estimate without telling you. This is poor practice but, unfortunately, not uncommon. These solicitors believe you want to resolve your case regardless of the cost. If this has happened to you, then your letter of engagement should inform you of your right to challenge or complain about your bill.

Else Solicitors will always keep you updated on your costs and let you know if it is going to cost more well before we reach your estimate. We pride ourselves on our transparency. You may also have the option of fixed or capped fees to ensure that your fees do not increase.

Your Litigation Funding Options

You have a variety of options to fund your litigation case. Some of these options depend on the type of case and your likelihood of success.

 

Legal Expenses Insurance

The first thing to check for is if your legal fees are already covered by your insurance. Many common insurance policies include legal expenses such as:

  • Building and Content Insurance
  • Car Insurance
  • Travel insurance
  • Directors’ and Officers’ Liability Insurance

You may also have legal insurance for your business through one of your memberships. For example, both:

  • The Federation of Small Businesses and
  • The Business First Network

provide some legal insurance cover as part of your membership.

You can also obtain legal insurance for your business from a range of suppliers. Not all policies are equal and Else can give you independent advice on what policy would suit your business best.

We will review your cover to see if you have the relevant legal expenses insurance before exploring other options.

After the Event Insurance

It is preferable to have insurance in place before you need it but you can still get cover after the event, i.e. after the legal dispute arises.

After the event (ATE) insurance covers the legal costs incurred in pursuing or defending your case. Both claimants and defendants may apply for ATE insurance, however it is usually obtained by people or companies pursuing a claim.

You can choose different levels of ATE cover tailored to meet your specific needs in the event of you losing your case. ATE insurance usually covers:

  • Your liability to pay your opponent’s legal fees
  • Your disbursements including your solicitors’ costs and Court and Counsel fees

It can be purchased for all areas of litigation with the exceptions of matrimonial and criminal law.

ATE insurance removes the risk of paying costs if you lose your case and it can provide an incentive for the other side to settle. However, not all cases are appropriate for ATE insurance and it may not be available at a sensible price.

Insurers will not cover cases that are unlikely to succeed. Your case usually needs to have a 60% or higher chance of success to be suitable for ATE insurance and you will need to pay an independent assessor (usually a barrister) to determine your likelihood of success.

While ATE insurance can be arranged at any stage in the case, it is better to put it in place early on as it will become more expensive to secure later in the process.

ATE insurance is usually used in conjunction with Conditional Fee Agreements and Damages Based Agreements. Else Solicitors can advise you if ATE insurance is suitable for your case and what your policy should cover.

 

Conditional Fee Agreements

This is commonly known as a “no win, no fee” agreement. However, you may also enter an arrangement where you pay reduced legal fees if you lose your case. The key points are:

  • Conditional fee agreements are available for both claimants and defendants.
  • You will be charged a “success fee” if you win. This is an additional amount payable for the legal service you have received on top of the fees you have incurred. The success fee reflects the risk to your solicitor that if you don’t win, they either won’t be paid or will receive a lower amount, depending on your agreement.
  • A success fee is usually expressed in terms of a percentage uplift of the fees payable. So, for example if you win your case and your legal fees were £50,000 and there was a 50% success fee then you would pay an additional £25,000 to your solicitor (i.e. £75,000). The maximum chargeable uplift is 100%.
  • You will have to pay disbursements throughout the case (e.g. Court fees, expert fees etc.). These are usually recoverable from the losing party if you win. You can also take out After the Event Insurance to cover these costs in the event that you lose your case.
  • The “success fee” (from 1st April 2013) cannot be recovered from the losing party, except in some limited cases such as insolvency or defamation cases.
  • A CFA success fee cannot be a percentage of the level of damages awarded or agreed by the client (this is covered under damages based agreements).

 

Damages Based Agreements

A “damages based agreement” (DBA) is where you agree to pay your solicitor a percentage of the amount you are awarded, which makes this funding option only suitable for claimants or defendants with a counterclaim.

The key points of a DBA are:

  • A DBA success fee can be for up to 50% of the amount awarded, except for employment and personal injury claims.
  • Your DBA success fee covers your solicitors’ fees, counsel fees and VAT.
  • You will not have to pay any legal fees (except expenses such as expert fees) until you have received your award.
  • If you win your case but are unable to recover the damages awarded (e.g. your opponent has gone into administration), then you will not have to pay your legal fees.
  • The amount you pay your solicitor could be more than you would pay under another option if you have a sizeable claim.
  • You can only recover legal costs from your opponent on a normal hourly basis and it cannot be for more than your DBA percentage fee. For example, you have been awarded £500,000 on a 20% DBA success fee so you pay your solicitor £100,000. However, if your case has been settled early then you may have only incurred £50,000 of costs on an hourly basis and this is the maximum you can recover from your opponent.
  • If you lose, you will not have to pay your own legal fees.
  • You may want to take out After the Event Insurance to cover your opponent’s legal costs and your own disbursements (e.g. expert fees, Court fees etc.) in case you lose.

 

Third Party Litigation Funding

Third party litigation funding is where a commercial funder with no connection to your case offers to pay some or all your legal costs in return for a share of any money awarded to you. This funding is available to both claimants and defendants with a counterclaim and can cover arbitration as well as court proceedings.

The key points for third party litigation funding are:

    • Third party funding comes at a significant cost and is not suitable for all cases.
    • The funder will typically want 30-40% of your award, if you are successful, and this money is not recoverable from your opponent.
  • Your claim must have a strong chance of success, usually over 60%.
  • Your claim must be substantial, usually more than £250,000.

 

  • Third party funding is most suitable when you do not have sufficient resources to bring the claim and where you unable to fund significant disbursements such as fees for Counsel and experts.

Third party funding may seem expensive. However, it allows you to pursue substantial claims with little or no financial exposure on your part. These claims may have been dormant for some time and a partial recovery is preferable to no recovery.

Third party funding arrangements differ significantly between providers and largely depend on the circumstances of your case. It is important that you secure the best terms available and Else can help you to find the most suitable and cost effective third party provider and funding package for your needs.

Third party funding can be used alone or in conjunction with funding under a conditional fee agreement and/or after the event insurance.

Fixed Fees and Caps on Litigation Costs

Fixed fees are becoming increasingly common in litigation but are not always available. They are suitable for all types of claims and for both claimants and defendants.

They are most common in civil litigation cases worth between £10,000 and £25,000 which are dealt with by the County Court under what is known as “fast track”. These claims are too large for the Small Claims Court and are not big enough to attract some of the other funding options, e.g. third party funding.

Some solicitors may also place a cap on their fees, so you can rest assured that you will not pay more than this amount.

We will discuss these options with you when we initially meet to discuss your case.

Deferred Payment Plan

This is a useful option that is usually used when an estate is being settled or an asset is being sold. In this case, your solicitor will delay payment until you have received your inheritance, sold the asset or otherwise released money owed to you.

There is also sometimes the option to pay your legal fees in monthly instalments to spread the cost.

A deferred payment plan can be used in conjunction with fixed or capped fees.

 

How to Choose Your Best Funding Option

Your funding solution needs to be tailored to your needs. Else Solicitors will review:

  • Your needs and objectives
  • Your existing cover
  • Your financial circumstances
  • The merits of your case

and guide you through your available funding options.

It might be in your best interests to combine different methods of funding e.g. private funding and a Conditional Fee Agreement, or after the event insurance and third party litigation funding.

 

Why Else?

Else is a modern, dynamic and forward thinking solicitors who have the expertise you expect from a large, traditional law firm. We are very experienced in helping companies and individuals find the right funding options for them. We can give you independent advice on third party funding and both before and after the event insurance.

Else Solicitors has an enviable reputation for always going the extra mile and offering a personal, jargon free service. You and your business is not only in trusted legal hands but will also benefit from our extensive business knowledge, experience and contacts.

If you need to find a way to fund a case, whether as the claimant or the defendant, then we invite you to contact Andy Rudkin, Head of Dispute Resolution at Else Solicitors on 01283 526239 or andy.rudkin@elselaw.co.uk.

Experience the Else difference today.