Funding litigation – there are plenty of options

9 January 2019

In the UK, developments in how litigation is financed means that there are now more funding options for prospective litigants than there have ever been, and the size of a claim is not necessarily a bar to obtaining third party finance. Our Quick Guide provides an outline of those funding options.

Conditional fee agreement (CFA)
  • A CFA allocates the risk of litigation between a client and solicitor. The CFA usually provides that either all or a certain proportion of the solicitors’ fees are only payable by the client if the claim is successful (with the criteria for ‘success’ determined and agreed between the solicitor and the client at the outset), with an additional ‘success fee’ payable reflecting the risk taken by the solicitor that they may not be paid their full fees.  CFA’s shift risk onto the solicitor.
Damages Based Agreement (DBA)
  • A DBA, like a CFA, allocates risk between the client and solicitor. Under the provisions of a DBA, however, the client agrees to pay the solicitor a proportion of the damages/sums of money awarded/resulting from the claim rather than the solicitor’s charges being calculated by reference to an hourly rate. Accordingly, the solicitor is sharing all of the client’s risk, both as regards not being paid anything until successful conclusion of the matter as well as the ability to enforce any damages against the losing defendant.
After The Event (ATE) Insurance
  • This is a policy taken out by a party to a dispute (after the dispute has begun) so as to insure the party against the risks of paying the other party’s legal costs if it loses. Depending on the particular nature of the policy, various litigation costs, such as disbursements, may also be covered. Own legal costs cover can also be obtained.
Third-party funding
  • The use of a third party (i.e. someone who does not have a connection with the litigation; typically hedge funds, private equity and other institutional investors) as a source of funding for the litigation process has grown in popularity over recent years.
  • Certain investment platforms also provide opportunities to bring smaller cases (i.e. those which require costs funding of between £100,000 and £1m), whereby accredited investors may find opportunities to invest a specified minimum amount, either in funding a single claim or in funding a portfolio of claims.
  • Third-party funding avoids the need for a client to pay upfront for the costs of the litigation, with a funder recouping their investment and an agreed multiple only at the conclusion of a case (unless otherwise agreed). Funders will, however, usually require that:
    • the opponent, or the entity which is ultimately liable to pay the costs of a negative outcome, has assets to pay such costs, or is insured against such an outcome;
    • there is a good prospect (>60%) of success; and
    • the costs of running the claim are proportionate to the potential award, i.e. the return on capital invested.

If you have any queries about any of these options and which of them may be most suitable for your circumstances, please contact Steven Mash, Litigation Partner at Fladgate LLP.

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