Are you aware of the new funding options available to you?

If you want to bring a claim, but cannot pay the cost of the litigation...this article might be of interest to you.

The UK is moving towards a US style approach to fund litigation as a result of the Legal Aid Sentencing and Punishment of Offenders Act (“LASPOA”). The LASPOA has introduced important developments which are due to come into force in April 2013. The changes will affect the way in which parties fund their litigation. Key amendments include: introducing contingency fees, also known as Damaged Based Agreements (“DBAs”) (not to be confused with the existing conditional fee agreements), developing Third Party Funding and abolishing the recoverability of success fees and after the event (“ATE”) premiums from the losing party.

What are DBAs?

A DBA is a contract between you and your solicitor. The solicitor will agree to work on your case under a “no win, no fee” agreement in return for a percentage of the damages awarded to you, if your case is successful. The percentage is negotiable between you and your solicitor. However, it is yet to be confirmed if there will be a cap on the percentage a solicitor can recover for commercial cases (it is currently 35% in employment cases).

DBAs will be in the form of a complex legal document which should not be entered into lightly – each agreement will turn on the facts of the litigation and therefore you may want to seek legal advice before entering into one. A solicitor may consider entering into a “mixed DBA”, where some steps of the litigation are paid by a fixed fee agreement, and in return, the solicitor will take a lower percentage of the damages if you are successful.

Is my case suitable for a DBA?

At present, only non-contentious matters and employment tribunal cases can be funded by way of a contingency agreement . However, once the LASPOA comes into force, all contentious matters can be funded in this way. Before a solicitor agrees to enter into a DBA, they will review your case and assess the risks. If they believe your case is high risk e.g. the chances of success are less than 60%, they may request a higher percentage of damages or decide that your case is unsuitable for this type of funding.

Law firms may be exposed to costs for a long time before they see any recoverability and as a result, they may be reluctant to enter into them. In the US, contingency fees are often used in personal injury, clinical negligence and debt recovery cases and it may be that a similar pattern is seen in the UK.

Developing law

It is still unclear how DBAs will fit into our legal system and therefore, a working party has been set up to prepare a report and establish some of the fundamental issues, these are:

  • Will law firms be liable if their client accepts liability for adverse costs but cannot or will not pay them?
  • Should there be a model form of DBA?
  • How you would terminate a DBA?
  • How are DBAs going to be regulated?
  • Should there be a cap on the percentage of damages payable to solicitors and counsel under a DBA.  

What is Third Party Funding?

Third Party Funding is a developing market which is regulated by the SRA Code of Conduct. It is an arrangement whereby a commercial funder or investor (with no connection to the legal proceedings) finance all or part of your legal costs in return for a share of a monetary award, in the event of success. If the case fails, the funder loses its investment and could be liable for an adverse cost order, leaving them open to a costs order that could exceed their own funding!

Third Party Funders may fund both your legal fees and disbursements, they will also bear the risk of your opponent's costs by offering an indemnity or paying for an insurance policy.  

The burden placed on a Third Party Funder is more onerous than that of a solicitor; they are required to maintain adequate financial resources to cover their funding liabilities for a minimum period of three years and they could find themselves on the wrong side of a costs order.

Is my case suitable for a Third Party Funder?

A commercial funder is likely to invest in a case if there is a high chance of success and, a large pot of money at the end, i.e. the case has been valued at over £1 million.

If you choose to fund your case in this way (and you are successful), you may end up paying a large portion of your damages to the Third Party Funder and/or solicitor (if you have also entered into a DBA) and therefore you should consider all the options of funding available to you.