When advising you on the merits of a claim, Pitmans will provide a costs budget and discuss funding options with you. This will enable you to consider affordability and undertake a costs/risks analysis. Whilst not all options are suitable for every matter or litigant, and not all will necessarily be available for all cases, the following is an outline of the usual methods of funding.
Pay as You Go
First, there is the tried and tested “pay as you go” arrangement. You agree fees and a budget with your solicitor and pay those fees together with disbursements such as counsel and experts’ fees as the matter progresses. If you are successful, you would normally expect to recover a substantial proportion of these costs from your opponent, subject to solvency.
Conditional Fee Agreements
In recent years, Conditional Fee Agreements (“CFA”s) have proved popular. These are sometimes referred to as “no win, no fee” arrangements. In their pure form, a litigant will not pay any solicitors’ fees (but will often fund disbursements) unless they are successful in their claim. What the measure of “Success” in any given case will be, is defined in the Conditional Fee Agreement. Success will trigger an uplift of up to 100% on billable costs. If the case is not successful (as defined) no fees are payable. A variant of this type of arrangement is that reduced fees are paid whether or not the case is successful, with a more modest uplift kicking in on success. However, CFAs have now become far less attractive to litigants because since April 2013, it is no longer possible to recover the uplift element of fees from one’s unsuccessful opponent. Thus, the uplift element can reduce the net sums recovered by a significant amount.
Damages Based Agreements
This year has also seen a new development in the shape of the introduction of “Damages based Agreements” (“DBA”s), a form of contingency agreement now permitted for commercial cases. The lawyer is paid if the client obtains “a specified financial benefit” (usually damages paid by the losing side in the case). If the case is unsuccessful, the lawyer is generally not entitled to be paid. The amount of the payment (including disbursements and VAT) will be determined as a percentage of the compensation received, subject to a cap in commercial cases of 50% of sums recovered (and 25% in personal injury cases). DBAs are a new departure and we do not yet know how popular they will prove, nor precisely how they will work in practice. For example, it is not currently clear whether they can be used to fund defence costs.
Third Party Funding
Third party funding usually involves a commercial funder agreeing to pay some or all of the claimant’s legal fees and expenses in return for a fee which is payable out of the proceeds recovered from the resolution of the claim (whether by judgment or settlement). If the claim is unsuccessful, the funder loses its investment and is not entitled to receive any payment. Third party funders concentrate on larger claims and would not normally consider funding claims of a value less than £1million.
Litigants may have pre-existing insurance policies which would offer cover for litigation costs. Cover may be limited, and insurers often seek to restrict choice of law firm (at least at the pre-proceedings stage) to members of their panel, but insurance can be a very helpful resource.
These are the main means of funding litigation currently available. There are other less common sources of funds such as trade union funding or public funding (legal aid) which should not be overlooked in appropriate cases.
Not only do litigants need to plan carefully how they are going to fund the cost of a claim, but they must consider the risks and downsides of litigating, including importantly their exposure to paying opponent’s costs. There are many strategies available to avoid or manage and minimise these risks (including alternative dispute resolution, after the event insurance and risk-shifting settlement offers) we will discuss with you at the outset and as your case progresses.