Even if you are reasonably sure of success, funding can be an obstacle to pursuing a claim. Luckily, there are three alternatives to stumping up the cash yourself
Potential litigants are understandably wary of legal costs. Since the decline in the availability of civil legal aid, the courts have relaxed the historical restrictions on alternative methods of funding litigation. There are now a variety of methods for would-be litigants who want to share the costs and risks of litigation with others. The general principle is that you only pay if you win. Here are three such methods of reducing your risk and making legal representation more affordable.
Conditional fee arrangements
Unlike the US, solicitors cannot offer to take a cut of your winnings in return for representing you at no cost. However, arrangements are permitted where the solicitor receives no fee (or a discounted fee) if you lose, and an uplifted fee if you win, provided the uplift is reasonable (depending on the complexity of the case) and is no more than 100% of the normal fee. The arrangement must be disclosed to the other side and to the court. It cannot relate to criminal or family proceedings, must be made in writing, and you must attend at the solicitor’s office to have it explained to you before you sign up to it.
After the event insurance
After the event insurance (ATE) is obtained after the dispute has arisen. In exchange for paying a premium (usually between a quarter and a third of the insured sum), you take out an insurance policy which, if you lose, will cover the other side’s legal costs and disbursements, such as counsel and experts’ fees, and your own disbursements.
Before it provides cover, the insurer will obtain a solicitor’s opinion that the case has a good prospect of succeeding. Because of this requirement, ATE is usually only available to claimants, and if one party has it, it will be difficult for the other side to follow suit.
An advantage of ATE is that it assures you that both a solicitor and an insurer have faith in your case.
For a higher premium, the policy could also cover your own legal fees. However, insurers will be loath to bear your entire cost risk, preferring to share that with either you or your solicitors. ATE insurance can be used in conjunction with a conditional fee agreement (CFA).
When looking for ATE insurance, you must disclose any refusals you have received to insurers you subsequently approach. You may approach a number of insurers at the same time, or use a broker to do this for you, which will also provide reassurance that the premium was competitive.
An advantage of ATE is it assures you that both a solicitor and an insurer have faith in your case
As with CFAs, you must disclose the existence of the policy to the court and the other side. Recent case law suggests the contents of the policy may also have to be disclosed. The amount of the premium may be regarded as privileged information, so may not need to be revealed until the conclusion of the litigation, although the legal position on this is unclear.
If you win, the premium is recoverable from your opponent, so long as it is reasonable. If you lose, the insurer will usually waive the premium.
Historically, legal principles aimed at preventing others from profiting from litigation have disallowed third parties from funding claims. These principles no longer outlaw this kind of funding, although they still prevent abuse of the litigation process.
Professional funders (other than solicitors and insurers) such as banks, hedge funds and private equity houses may be willing to finance litigation to which they are not a party, in return for a slice of the winnings. The problem is that, in a recession, third-party funding may be harder to come by. Nevertheless, it should still be possible to obtain money for cases where the likely recovery substantially outweighs the costs.
The funder bears the costs and, if the claim is successful, recovers all of them, together with the agreed proportion of the proceeds of the litigation (anecdotally, between a quarter and a half). If the claim is unsuccessful, the funders will be liable for the other side’s legal costs.
You can approach a broker to find third-party funding for you. Unlike with CFAs and ATE, you do not need to disclose their existence, although some funders insist that you do, as it encourages settlement negotiations.
In conclusion, there are ways of funding litigation that lessen risk and may allow you to pursue claims that (even if you view your case as good) would otherwise be too risky.
This article was printed under the headline: ’Win first, pay later’
Bob Maynard is a partner in Berwin Leighton Paisner