Litigation Funding During the Covid-19 Crisis

Litigation Funding Advice

The cost of litigation and how to fund those costs is always a matter to be considered carefully and circumspectly. This is no different for the duration of the current Covid-19 crisis. Indeed, this concern is perhaps more pronounced within the current climate.

Each party is responsible for their own litigation costs as the claim progresses. When the case comes to an end, costs are dealt either through a settlement agreement or, if the claim proceeds to trial, the judge will decide which party should pay the costs. Normally, the losing party is ordered to pay the reasonable costs incurred by the winning party.

This article will examine the possible ways in which on-going litigation costs can be funded and how to secure insurance cover to protect against the risk of a claim being unsuccessful and the losing party being ordered to pay the winning party's costs.

1. Private fee paying

Historically, this is the way that most cases have been funded.  In this case, the client pays their solicitor’s charges whether they win the case or not.  Charges are usually calculated on either an hourly rate basis or on a fixed fee basis for different parts of the case and the client is usually billed on a monthly basis. Charges are payable, win or lose.

2. Conditional Fee Agreements (also known as “No Win, No Fee” Agreements)

Conditional Fee Agreements (CFA’s) are an increasingly popular area of litigation funding.

In this scenario, you do not pay your solicitors fees unless your solicitor wins the case, in which case your solicitor would reasonably expect to recover their legal fees from your opponent. You often pay a success fee out of any funds received.

There are limitations, however.  Your solicitor must be satisfied that you have a reasonable chance of success and CFAs are generally only suitable for money claims.  A CFA is generally not a suitable option if you are a Defendant in a case, or if the claim is being made for a non-monetary remedy.

3. Damages Based Agreements (also known as DBAs)

DBAs have only existed since 2013 when a change in the law allowed solicitors to act for a client and take a percentage of any damages awarded to that client as their fee.

In this scenario, the solicitors charges are limited to the amount recovered for the client.  Any costs recovered from the Defendant will reduce the amount payable out of the damages.

As with CFAs (above), your solicitor must be satisfied that you have a reasonable chance of success and DBAs are generally only suitable for money claims.  A DBA is generally not a suitable option if you are a Defendant in a case, or if the claim is being made for a non-monetary remedy.

4. ATE & LBE Legal Expenses Insurance

Many people do not know that they have Legal Expenses Insurance which can often be attached to either your motor insurance policy or your home building & contents insurance policy.  Further, businesses often have legal expenses cover and directors & officers cover as part of policies of insurance they take out.

This is known as “Before the Event” legal expenses insurance cover.

We always advise clients to check their policies of insurance in order to ascertain whether or not they have appropriate legal expenses insurance cover and advise them on how best to deal with this.

It is also possible to obtain what is known as “After the Event” legal expenses insurance cover.  This kind of cover is arranged after the dispute has taken place.  In this situation, the insurers will carry out a detailed analysis of the case, and if they are satisfied, then they will sell you a policy of insurance that will cover both your own solicitor’s costs and the costs of your opponent if you lose the case.  The cost of the premium for After the Event cover can be very high, often up to 25% of the amount of cover required (for example a £25,000 premium for £100,000 of cover).

It is important to note that After the Event insurance is also used as a defensive measure to protect you from having to pay your opponent’s legal costs if you lose.  We will advise you about the availability of After the Event insurance as a protective measure.

5. Third Party Funding

There are litigation funding companies that “invest” in cases.  They usually demand a percentage of any damages received by you, however, in return they will fund your solicitors fees and other related costs (such as court fees and expert witness fees) up to a given financial limit.  The percentage of damages required by the funder is subject to negotiation in each individual case, based on a ratio of the amount invested.

At Hallmark Solicitors, we regularly work with different third party funders, as well as brokers to obtain ATE policies for clients. We are well placed to advise in more detail on funding options and costs protection available to potential litigants.

If you are considering litigation, please contact a member of our Litigation and Dispute Resolution Team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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