The Litigation Funding Problem
Litigants are typically required to pay solicitor’s costs and disbursements (such as barrister’s fees, court fees and expert witness fees) as a claim progresses, diverting significant resources away from the day-to-day management of a business, or an individual’s personal resources.
The rules regarding inter parties costs recovery in civil proceedings in England and Wales are complex, but the general rule is that “costs follow the event”. In other words, the loser pays the winner’s legal costs. This means that, in addition to having to pay their own costs of the litigation, litigants face the risk of having to pay a proportion of the other side’s costs (also known as adverse costs)) if their case is unsuccessful.
The Solution
|
|
Win |
Lose |
|---|---|---|
|
Legal Costs |
£300,000 |
£300,000 |
|
Adverse Costs |
- |
£300,000 |
|
Subtotal (a) |
£300,000 |
£600,000 |
|
|
|
|
|
Damages |
£1,000,000 |
- |
|
Legal Costs Recovered |
£200,000 |
- |
|
Subtotal (b) |
£1,200,000 |
- |
|
|
|
|
|
Net Position (i.e. (b) less (a)) |
£900,000 |
-£600,000 |
This is the ‘standard model’, where the claimant is responsible for their own fees (as the claim progresses) and for the risk of having to pay the other side’s costs if unsuccessful. The standard model offers maximum reward but also maximum risk.
|
|
Win |
Lose |
|---|---|---|
|
Legal Costs (including success fee) |
£360,000 |
£300,0001 |
|
Adverse Costs |
- |
£300,0002 |
|
ATE Premium |
£100,000 |
|
|
Subtotal (a) |
£460,000 |
£0 |
|
|
|
|
|
Damages |
£1,000,000 |
- |
|
Legal Costs Recovered |
£200,000 |
- |
|
Subtotal (b) |
£1,200,000 |
- |
|
|
|
|
|
Net Position (i.e. (b) less (a)) |
£740,000 |
£0 |
This shows how FeeSolve can be used to mitigate risk. This example is based on the litigant taking out an Insurance Policy (ATE) (to cover own disbursements and adverse costs) with Fieldfisher acting on a Conditional Fee Agreement (CFA). These concepts are explained later in this Briefing Note.
Athough the overall net position is lower in the event of a win, the downside risk is mitigated. Further, the litigant is not required to pay their own fees as the claim progresses, improving cash flow.
1 Fieldfisher act on a Conditional Fee Agreement and disbursements are covered by ATE Insurance
2 Covered by ATE Insuranc
Applies in respect of:
|
Own Costs |
Own Disbursements |
Adverse Costs |
|---|---|---|
|
Yes |
Counsel costs only |
No |
A Damages Based Agreement (DBA) is a type of contingency fee arrangement, where the fee charged by a solicitor or barrister is calculated not by reference to the amount of time spent on the case, but as a percentage of the damages recovered by the claimant in successful proceedings.
DBAs were introduced in 2013 through the Damages Based Agreements Regulations 2013.
Law firms have been slow to adopt DBAs and as such DBAs are not widely available in the legal market.
Fieldfisher, as a market leader, is pleased to offer DBAs to clients.
If the value of your claim, the likely costs involved and the prospects of success are suitable for a DBA, we will be happy to consider this with you as a litigation funding option.
Applies in respect of:
|
Own Costs |
Own Disbursements |
Adverse Costs |
|---|---|---|
|
Yes |
Yes |
No |
Third party funding is an arrangement where a professional funder or investor invests in a case and agrees to fund the costs of litigation ,with a view to receiving a return on its investment if the case is successful.
If the claim is unsuccessful, the funder receives nothing and loses their investment.
Litigation Loans are loans provided by specialist financers.
Money is advanced as required (usually subject to a limit) to assist with funding own costs and disbursements.
The financer will, in most cases, charge interest based on the amount of time money has been advanced for.
Litigation loans can either be recourse (meaning you pay back whether you win or lose) or nonrecourse (meaning you don’t).