Litigation Funding
10/08/2022
11 min read
When you decide whether to bring or fight a claim, cost is often one of the biggest hurdles client’s face. Not only do you need to consider your own costs, you also need to consider the fact that you may end up having to pay the other side’s costs as well.
What do you need litigation funding for?
In a property dispute you'll need to budget for the following:
- Your solicitor's legal fees
- Counsel fees
- Court fees
- Law cost draftsman
- Disbursements such as ID checks
- (if awarded) the otherside's solicitor's and counsel's fees.
- The damages awarded by the court or agreed as part of the settlement.
The cost for defending or bring a litigation claim can be very costly so you need to make sure you have adequate litigation funding.
Different types of Litigation Funding
You should check to see if you are eligible for:
- 1
Legal Aid. Legal aid is Government funding to help pay for legal advice if you are eligible for it. Click here to Check your eligibility
- 2
Before The Event Insurance. You may have legal expenses cover under your home or bank account insurance. Speak to your provider and see what they offer.
- 3
Conditional Fee Agreement (CFA).
- 4
Damages-based Agreement (DBA).
- 5
After The Event Insurance. If you have signed a conditional fee agreement or damages based agreement with a solicitor then they can apply for after the event insurance to protect against the other side's legal costs if they are awarded by the judge.
- 6
Third Party Loan. You can obtain a loan from a company or friend/family to pay for your legal fees. You may even remortgage your property.
- 8
DIY. You can represent yourself.
- 9
DIY with Unbundled legal services. You can represent yourself with the support of a solicitor offering Unbundled Legal Services.
Conditional Fee Agreements
In a CFA you (the client) pay different amounts for the legal services that were provided depending on the outcome of the case. They can transfer the entire risk for your legal costs to your solicitor or just part of the risk. They can essentially be structured in any which way. However, unlike DBA’s, CFA’s do not ensure that the solicitor receives a contingent fee.
- Classic CFA: The most classic form of a CFA is where the solicitor receives no fee if you lose your cases, and if you win the solicitor will get their fees, plus an increased percentage, which is most often referred to as a no-win no-fee agreement.
- Discounted CFA: Where the solicitor receives a certain percentage if you lose, say anywhere from 50-75% and then full fees if you win.
- CFA Lite : A no-win no-fee or discounted, but there is no additional fee and any success fee is capped at costs awarded or is agreed with the other side.
Who can use a CFA?
CFA’s were originally introduced in personal injury claims in order to provide access to justice to those who would have been eligible for legal aid. Today, CFA’s are available to all litigants, regardless of their circumstances.
They are available for the provision of ‘litigation services’ which is court litigation, arbitration, or any proceeds used for resolving disputes whether commenced or contemplated. Typically, they are used by claimants, however they can also be used by defendants.
Do you need to disclose a CFA?
Yes. Any party entering into a CFA that has a success fee that is recoverable from the other side needs to disclose the existence of the CFA to both the court and any other party to the case. However, the terms of the CFA do not need to be disclosed until the costs assessment.
How does a CFA actually work?
Commercial clients are more likely to use a discounted CFA than other types. Typically, it works like this:
- The intention to use a CFA does not negate the need for an engagement letter between the solicitor and yourself (the client). It still needs to outline the rate at which the solicitor will bill at their normal rate, the scope of work, resources and reporting will also need to be outlined.
- The CFA will then set out the definitions of the discounted rate that you and the solicitor have agreed to. This will set out the normal fees payable by you, no matter the outcome, and the way the success fee will be payable if you win the case.
- Throughout the duration of the matter, the solicitor or firm, will continue to bill you for work that is carried out at the agreed discounted rate (that was determined and set out in the CFA). This rate will be calculated at a percentage of the solicitor’s normal rates and make up the non-conditional fees. These bills will also include any disbursements, for example, court fees, counsel’s and expert fees, expenses, and other such fees of this type and they will generally be payable in the usual way.
- Any balance that is beyond the agreed discounted rate are the conditional fees. These conditional fees will only become payable if and when the you win the case. The definition of what constitutes a win will be defined in the CFA and it needs to be carefully considered. If you are a claimant, generally speaking, winning will mean the other side was ordered to or has agreed to pay damages. If you are a defendant, winning can mean that they settled below a certain amount or they have successfully defended their case at trial.
- If you win the case (based on what was defined in the CFA), you may also have to pay the solicitor’s success fee if it’s been included within the CFA. This generally is calculated as a percentage uplift on the solicitor’s normal rate. The uplift will be set out in the CFA and cannot exceed 100%. The level of the fee is normally calculated by the risk to the solicitor if they lose in litigation, in which case the firm will not be paid their conditional fees. Typically, this is calculated by the merits of the case, as such the stronger the merits, the lower the success fee will be.
- If the you succeed at trial, the normal costs rules apply. In normal litigation, the client can normally expect to recover their costs from the other side but not the success fee that is included in the CFA (unless the CFA is a pre-commencement funding arrangement).
- If the you lose the case, you will not have to pay the conditional fees or any success fee. However, you would typically be expected to pay the other side’s costs.
Advantages and disadvantages of a CFA
The main advantage of the CFA is that is it reduces costs in an unsuccessful case. Quite often the additional costs of the success fee can deter the use of these types of agreements. Generally, solicitors will only be prepared to use a CFA where they feel there is a good prospect of success.
Damages-based Agreements (DBAs)
DBA’s can be used in all civil litigation matters where CFA’s are permitted. The only time they are not accepted is for criminal or family proceedings. There are, however, specific rules when using a DBA in the context of employment or personal injury matters.
DBA's can be used by claimants or counter claimants, but not defendants.
DBA's can be used by claimants or counter claimants, but not defendants.
A DBA is an agreement where the solicitor will be able to take a share of the damages if the client is successful in their case. If the client is unsuccessful, the solicitor will not be paid.
A DBA is a contingency-fee agreement. It is similar to a CFA in that what the solicitor is paid is based on the outcome of the case. However, unlike a CFA, the solicitor’s fee is not calculated based on the work carried out, it is calculated based on the compensation that is recovered by you (the client). If the you win, the solicitor will receive a percentage of your damages, and if the you lose, the solicitor receives nothing. This is why they are often referred to as “no-win no-fee”.
- In commercial cases, the maximum cap that solicitors are allowed to apply is 50% of the damages.
- In employment cases, the maximum cap that the solicitors are allowed to apply is 35% of the damages.
- In personal injury & clinical negligence claims, the maximum cap that the solicitors are allowed to apply is 25% of the damages.
The DBA Regulations set out how DBA’s work in practice.
What is a losing defendant required to pay?
If a you have entered into a DBA this should not affect the costs recovered from any unsuccessful defendant, subject to an exception. Your recoverable costs are assessed in the normal way, in regards to rates and number of hours spent on a matter. However, if you are funded by a DBA, you may not recover more of their costs than the total amount that is payable under the DBA.
Do you need to disclose a DBA?
You do not need to disclose that a DBA is in place to the other side. However, if may be useful for tactical reasons as it signals the solicitor has belief in the merits of the case and may persuade the other side to settle the case.
One-off ATE Insurance
After The Event insurance protects you against the legal fees if they are awarded against you. ATE insurance provides cover for the legal costs that are incurred when either bringing a claim or defending a claim in litigation or arbitration. It is typically purchased after the legal dispute has occurred and is available for all areas of litigation except for family and criminal law.
ATE is normally tailored to your specific needs. It tends to cover your liability for the costs of your own solicitors and the other sides solicitors in the event that you lose a case. The ATE premium is not recoverable from the other side in the event that you win the case.
Do you need to disclose ATE Insurance?
If you are entering into an ATE insurance policy where the premium is recoverable (however, this is typically not the case), you must notify the Court and all the other parties involved of its existence and the level of the cover that is being provided. If the premium is not recoverable (this is the typical case), there is no obligation to disclose the existence of ATE insurance.
When can ATE insurance be used?
Not all cases are appropriate for ATE and it is not reliant on any outcome involving damages.
- It is available for both claimants and defendants
- Normally used for multi-track cases
- Unlikely to be provided where the case involves novel issues.
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Third party funding
Third party funding is where someone who is not party of the dispute provides funds to you, in exchange for an agreed return. This funding normally covers your legal fees and any expenses that may be incurred. The funder can also agree to pay the other side’s costs if you are ordered to do so by the court, and the funder can also provide security for costs. Third party funding is open to all forms of dispute resolution.
Third party funding traditionally has not been allowed in litigation; however, it now is permitted. Third party funding generally gives the funder a share of recoveries from the litigation. The funding agreement cannot give the funder an unreasonable return or the right to control the litigation.
- Primarily appropriate for cases where they involve a claim for damages. As such, funding is generally only available to claimants or defendants with a counterclaim.
- Unless the third party funder specialises in funding smaller claims, they generally only fund one-off cases where the likely damages are assessed at £10 million or more.
- Funders require a good prospect of success.
- Funders will need to know if the other side is able to meet the claim, costs, and interest in the case.
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Frequently Asked Questions
Litigation funding companies have large funds which they are able to use, to bank roll litigation for parties who do not have the funds themselves. They take a portion of the winnings of the case. Essentially, they are gambling on the results of the case. If they believe your claim is strong enough they will risk losing their money if you lose, on the hope that they will recover their money, and more, if you win.
Their role in the Judiciary system is to make justice more accessible to all.
Are you struggling with litigation funding?
The process for settling dispute can be long and costly. Get in contact with us to see how we can help.
We can assist with:
- Pre-action negotiations
- Application to court
- Preliminary hearing
- Mediation
- Court appearance
We have on hand counsel to support your claim and offer guidance along the way.
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