How Can I Fund My Litigation?
The prospect of litigation can be daunting, whether you are an individual or a company. Furthermore, considering how the litigation will be funded is likely to cause additional concern.
Solicitor’s and barrister’s fees can quickly increase as a case develops particularly once Court proceedings are commenced. From a fairly modest case to a larger, more complex, one, the issue of costs and funding is something that litigants need to be aware of from the start.
The usual rule in Court litigation is that the losing party will be ordered to pay the winning party’s legal costs. However, even if successful and an order for costs is made in the winning party’s favour, the winning party will usually have their total costs reduced by the Court by around 30%. Furthermore, it is important to consider, if you were to lose your claim, how you would fund the winner’s costs and your own legal fees.
It is, therefore, very important to get advice on likely costs and funding options before starting litigation.
In this article I will be discussing the various litigation funding options that are available.
This is the most common form of arrangement between a solicitor and client. The solicitor will provide a costs estimate to the client at the start and will raise invoices as the case progresses. The solicitor will also usually obtain payments on account (i.e. payments upfront) from the client for additional expenses known as “disbursements”, which include Court and barrister’s fees.
Legal Expenses Insurance (also known as “Before the Event” Insurance)
Most home insurance companies will provide legal expenses cover to their policyholders. The areas usually covered are property litigation, personal injury, employment law and contract law. The policy is activated by the client making a claim to their insurer, who then refers the case to their claims department or nominated solicitors to conduct a risk assessment. Each insurer has different conditions attached to making a claim but, in the majority of cases, the insurer will only provide cover if the prospects of successfully bringing or defending the case are 51% or above. The insurer will also stipulate a limit of how much cost can be incurred by the solicitor in the case.
Some insurance companies may be hesitant to instruct solicitors that are unknown to them and may insist on the policyholder using their nominated (known as “panel”) solicitors instead. Insurance companies also sometimes refuse to provide cover for straightforward cases and will only offer cover if the case is sufficiently complex or if Court proceedings have already been commenced.
Before the Event insurance should not be confused with After the Event insurance, which is taken out by a solicitor on a client’s behalf to cover the possibility of the client being liable for the other party’s costs if a costs order is made against them.
Conditional Fee Agreements (also known as “no win, no fee” agreements)
These are commonly used in Clinical Negligence and Personal Injury cases. With Conditional Fee Agreements, the solicitor will take on the risk of not being paid if the client loses the case. Put simply, if the client wins their case, then the solicitor will be paid their costs and disbursements. If the client loses, then the solicitor will not be paid; however, the solicitor can require the client to pay their disbursements.
Conditional Fee Agreements are fairly complicated and it is important to understand the consequences of entering into them at the start of the case. Also, because the solicitor takes on the risk of bringing or defending the claim, the Conditional Fee Agreement will impose various responsibilities on the client. These include the duty to co-operate with the solicitor, not to conduct the case unreasonably and to give prompt instructions.
Public Funding (also known as “Legal Aid”)
This is a funding option provided by the Legal Aid Agency, which is part of the Ministry of Justice. The state, essentially, pays the solicitor’s costs and disbursements. Unfortunately, since 1 April 2013 the scope of legal aid in civil cases and has been hugely reduced to a very small number of cases and it has now reached the point where there is nearly no legal aid available for civil cases.
In Clinical Negligence cases, legal aid is only available for cases where children have suffered a severe disability due to a neurological injury sustained during their mother’s pregnancy, their birth or the first eight weeks of their life. In housing cases, legal aid is available for some residential possession cases, homelessness cases and unlawful evictions. Therefore, it is unlikely that an individual will be entitled to legal aid unless they fall into one of these very specific categories.
These are similar to Conditional Fee Agreements, except the client will agree to pay the solicitor if they obtain “a specified financial benefit”, which would usually be a payment of compensation by the losing party. The agreement will state that a percentage of the compensation received will be paid to the solicitor upon settlement or conclusion of the case. If, however, the client is unsuccessful in their case, then the solicitor will not be paid.
As with Conditional Fee Agreements, it is important to carefully consider the terms of the Agreement before entering into it.
If you require any advice in relation to litigation funding, or in relation to any other areas of Civil Litigation and Dispute Resolution, please contact Joe Sandercock who will be pleased to advise you.