Can you afford to pursue or defend a legal case?

The cost of funding litigation is often one of the major factors that parties involved in a dispute need to consider when deciding whether to pursue or defend a claim. The cost of litigation is two-fold: Your own costs; and the costs of your opponent (if you are unsuccessful).  

The latter option is often overlooked.  Although you need to remain buoyant about the prospects of success, it is important to adopt a clinical assessment of the prospects of your case, factoring in the inherent unpredictability of litigation generally speaking.

This article takes a brief look at the different litigation funding options and the different considerations to keep in mind when deciding which option to adopt for your case.

What funding options are out there to cover your own costs?

The main funding options that law firms in England and Wales have developed and are able to offer to provide assistance to clients are:

• Conditional Fee Arrangements: An agreement whereby the law firm’s fees and expenses are payable only in specified circumstances, usually a successful outcome in the case, often with a success fee on top of the firm’s usual fees.
• Discounted Conditional Fee Arrangements: An agreement whereby the law firm will be paid a discounted level of fees whatever the outcome of the proceedings, but will forgo the balance of its fees if the case is unsuccessful, and will recover its fees at a higher rate, with or without a success fee on top, if the case is successful
• Damages-based Arrangements: A form of ‘no-win-no-fee’ agreement which provides that the client will make a payment to the law firm only in specified circumstances – the amount of the payment will be determined as a percentage of the amount received by the client.
• Legal Expenses Insurance: A form of legal expenses insurance policy that provides cover for the legal costs incurred in the pursuit or defence of litigation or arbitration. This can be a policy that has been acquired before the dispute in question arises or it can be purchased afterwards (although in the latter case, it is usual for cover to be limited only to an opponent’s costs if the claim is not successful).
• Third Party Funding: A third party with no prior connection to the parties agrees to finance all or part of the legal costs in return for a fee payable from the proceeds recovered in the litigation.

Which funding option is appropriate for my case?

The different features of the funding options means that they are not all suitable to every case.  We set out below some points to consider when deciding which option to adopt.

Conditional Fee Arrangements (“CFA”)

As the law firm would be agreeing to only be paid if the claim is successful, this option is only likely to be available if the law firm considers the case to have strong prospects of success and recovery from the opponent. The success fee on top of the law firm’s usual fees is not recoverable from the other side (unlike the law firm’s usual fees), meaning it will be deducted from what you recover from your opponent. The definition of a ‘win’ needs to be carefully considered at the outset to ensure the threshold is appropriately set. The amount of the success fee should appropriately reflect the risk assumed by the law firm acting on a conditional fee basis. This arrangement will not protect you from being ordered to pay the costs of your opponent. However, it reduces the costs that you will have to pay to pursue the litigation if you are unsuccessful.

Damages Based Arrangements (“DBA”)

The key feature is that the amount to be paid to the law firm is directly linked to the sum recovered (unlike under a CFA where it is linked to the amount of time that the law firm spends while acting on the matter). The fee can be capped at no more than 50% of the sums ultimately recovered. The law firm will require good prospects of success (and recovery) in order to agree to a DBA. The amount of the solicitor’s fee that exceeds the usual level of fees for the work done is not recoverable from the opponent but the usual level of fees will be recoverable

Insurance – Before the Event (“BTE”)

A BTE policy is one that has been purchased before any dispute or claim is known about. They can be acquired as a stand alone policy but are also often included within (or can be added to) policies covering other risks, e.g. car and home insurance policies The premiums are usually relatively inexpensive compared with the level of cover provided. The cover is usually limited to a specific sum of money and the limit varies from policy to policy. The criteria for whether a particular claim will be covered also varies between different insurers. Assuming cover is available and depending on the financial limits specified, the insurer will often meet the client’s own costs, the amount of any damages or settlement monies that the client may be liable for and the opponent’s costs.

Insurance – After The Event (“ATE”)

An ATE policy is one that can be purchased after the claim/dispute has arisen and even after the litigation process has begun (although they become more difficult to acquire the later it is left). Under an ATE policy the insurer will usually bear only the risk of paying the opponent’s legal costs and your own disbursements (i.e. expenses incurred on your behalf by your solicitor, e.g. court fees, expert’s fees, barrister’s fees) if the claim is unsuccessful. The premiums vary from provider to provider, which can take the following forms: One-off premium – payable at the time the policy is taken out Staged premium – elements of the premium are payable as the case progresses Deferred premium – payable at the end of the case Contingent premium – only payable if the case is successful A combination of the above – deferred, staged contingent premiums are common The ATE premiums are calculated to reflect the prospects of success, which can mean riskier claims attract a higher premium. Premiums for ATE are usually significantly higher than BTE compared with the level of cover provided. ATE premiums are not recoverable from the other side – therefore, it is important to ensure that the amount you expect to recover (if successful) will be enough to cover the cost of the premium and leave a surplus to make the claim worth pursuing.

Third Party Funding

Funders are unlikely to fund cases that do not involve a claim for damages. Funders will require good prospects of success and want some level of assurance that the opponent will have the means to pay at the end of the case. The amount the funder will charge for making funds available will reflect the prospects of success/level of risk being taken. This can often be a substantial proportion of what is recovered. Although prohibited from taking control or influencing litigation, there is a risk of losing autonomy as the funders may reserve the right to approve a settlement. Funders will require in depth detail regarding the claim before they will consider whether to provide funding, which can involve significant time and costs being spent to present the information to the prospective funder.

How can we help?

Selecting the appropriate suite of funding options can be a critical factor in unlocking a prospective litigant’s ability to pursue or defend a claim.

Prosperity Law LLP adopts a commercial approach to litigation funding and, in appropriate circumstances, may be prepared to act on a conditional or contingent basis. We also have extensive experience in assisting clients to secure ATE policies and litigation funding.

For more information on how we can help you, please contact Andrew Farrell, Head of Litigation, at andrewfarrell@prosperitylaw.com or 0161 667 3686.