In the United Kingdom, developments in how litigation is financed mean that there are now more funding options for prospective litigants than there have ever been.
Whereas legal aid is now heavily restricted and self-funding is often not an option for cash-strapped litigants, the rise of a global litigation finance industry and crowdfunding options mean that even smaller claims may successfully obtain third-party finance. Outlined below are your 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 (chargeable on an hourly rate) are only payable by the client if the claim is successful. So-called “No win, no fee” arrangements have been popularised as a type of CFA where the risk is shifted almost entirely onto the solicitor, because the claimant is not required to pay any fees unless certain success criteria are met.
- Those success criteria are agreed between the solicitor and the client and set out in the CFA. The use of CFAs is regulated in the UK.
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 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.
- The use of a third party (i.e. someone who does not have a connection with the litigation) as a source of funding for the litigation process has grown in popularity over recent years, with hedge funds, private equity and other institutional investors now firmly established in the industry.
- Certain investment platforms also provide opportunities to bring smaller cases (i.e. those which require between £100,000 and £1m to run), 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.
- The crucial point to note with third party finance is that, generally speaking, funders will only consider providing finance for those cases where:
- 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.
For legal updates and news, please visit the Fladgate Dispute Resolution Hub.