Introduction
The UK Courts are widely recognised as some of the most sophisticated, efficient and well respected in the world. Together with agreements to allow recognition of judgments across the globe, the UK is a very attractive forum for disputes. For this reason many contracts are governed by English law and provide that any disputes must be resolved in the UK court or arbitration system. Even without a contract, there is often a way to engineer an angle to allow a claim to be brought in the UK.
However, litigation can be an expensive process if not managed carefully. Real care and engagement is therefore needed when considering how to fund and progress any litigation. Routes to try to shortcut the claim or resolution process could include applying for summary judgment or strike out of a claim or defence, as well as early encouragement of alternative dispute resolution methods such as mediation (formal or informal). But even though the winning party can often recover some of its legal costs from the losing party, it is important to plan the funding at the start and agree on the most appropriate funding option. This note sets out at a high level the options for conducting litigation and the wider options of risk sharing the costs with solicitors, barristers and funders. This ensures that a litigant goes into the process with eyes wide open but also explores ways to ensure everyone is engaged in what can be an involved and long process.
Options to Fund Litigation
Fee Paying
Even where the litigant agrees to pay all of the costs of their legal team (often hourly rates), there are a range of options that can be explored for the benefit of the litigant. There is no doubt that it is very hard to model costs in litigation to provide accurate forecasts, but the court system has built this budgeting exercise into the litigation timetable and so it is now a vital and important part of the process.
Even within the term Fee Paying, there are a range of options:
| Hourly Rates | Charging time incurred by the hour |
| Blended Rates | Agreeing one rate that applies to all of the legal team irrespective of experience. |
| Fixed Fees | Agreeing a fixed amount for the litigation (which is unusual) or, more usually, certain stages of the litigation. This gives the litigant certainty and an ability to model cash flow. |
| Risk Sharing | There are also a range of options to explore which share the risk of the litigation between the lawyers and the litigant. |
| Discounted Rates | Discounts can be applied at any stage of litigation or applied if the costs reach a certain level (to incentivise adhering to budgets etc). |
Risk Sharing/Contingency Type Arrangements
Conditional Fee Agreements (“No Win No Fee”)
A conditional fee agreement (CFA) (often called a “no win no fee”) is an agreement with a legal team which provides for their fees and expenses (or part of them), to be payable only in specified outcomes. Generally, if the litigant loses the case, it will not be liable to pay for the legal fees that are subject to the CFA (because payment is conditional on a “win”). If the litigant wins the case, it will be liable to pay all fees and expenses, including the conditional fees, together with a “success fee”, that is outlined in the CFA (and this is the quid pro quo for the legal team taking the risk of not getting paid at all).
A success fee is an additional amount payable for the legal services, over and above the amount that would normally be payable if there was no CFA. It is expressed as a percentage uplift (up to a maximum of 100%) – and this can also be staged throughout the litigation (e.g. lower if there is early settlement).
This success fee cannot be recovered from the losing side and it must generally be paid by the client (i.e. it comes out of the litigant’s winnings). The rest of the costs (or some of them) can, in theory, be recovered from the losing party.
Partial Conditional Fee Agreements
A variant of a CFA is a Partial CFA where the legal team receive a percentage of the fees on a fee paying basis but the remainder is “on risk” and the legal team will only be entitled to be paid the balance, plus a success fee uplift, if the litigant is successful. This reduces costs for the litigant and shares the risk of the case with the legal team.
Damages-Based Agreements
A damages-based agreement (DBA) is a type of contingency fee agreement where the litigant will only make a payment to the legal team if the litigant obtains (usually) damages paid by the losing side. The fee will be expressed as a percentage of the compensation received from the losing party. If the case is unsuccessful, the legal team will not usually be paid.
Legal Expenses Insurance
After the event (ATE) insurance is a form of legal expenses insurance policy taken out after a legal dispute has arisen. ATE insurance usually covers liability in the event of losing the case, in respect of the litigant’s own disbursements and the opponent’s costs and disbursements (because usually the losing party has to pay at least some of the winning party’s costs). ATE is therefore often acquired with another form of funding to cover the litigant’s own legal costs, such as a CFA or third party funding. This way, a litigant may not have to pay legal fees as they have an agreed CFA, but also takes out insurance to cover the possibility of losing the claim and being liable to pay the other party’s costs. This materially reduces risk.
A litigant may also have before the event (BTE) insurance – which is often included as part of a household or business insurance policy. BTE insurance usually covers legal fees and disbursements up to a specified limit. However, each such policy should be checked carefully to ensure that it provides adequate cover for the relevant dispute.
There are also variants where insurance can be taken out to cover the litigant’s own legal fees (which won’t need to be paid by the litigant if the claim is not successful, and the policy provides cover). Again, this materially reduces risk and exposure.
Third party and Litigation Funding
Third party funding is usually either a known third party agreeing to fund a claim or defence (e.g. friend / family, supporter, associated company, another victim etc) or involves a commercial litigation funder (or exceptionally a crowd funding platform) agreeing to pay some or all of the litigant’s legal fees and expenses in return for a fee – which is payable out of the “winnings” recovered from the claim (whether the “win” is a court judgment or a settlement). If the claim is unsuccessful, the funder does not receive any payment.
Conclusion
There are a range of options to reduce costs and risk for the litigant in what is a very specialist area. These options can give certainty and assist with issues such as cash flow forecasting. The existence of a risk sharing model can also be strategically useful as it shows belief in the underlying case, as all parties are so confident in the case, that they are prepared to take a risk. This might aid leverage and, ultimately, a speedy resolution.
Wedlake Bell would be happy to talk you through these options and introduce expert third parties such as ATE insurers and litigation funders.