It is well known that litigation is not cheap. Often, a large ‘war chest’ is required to pursue claims to trial if the other side are unwilling to settle on reasonable terms. Claims are even more expensive to issue at court, with a £10,000 court fee required for claims worth £200,000 or more.
While generally the majority of claims are pursued by parties paying for legal representation privately (with the hope of recouping some of the money from the other side if successful), there are different funding options available. These options are likely to become more prevalent in respect of the uncertainty created by the coronavirus pandemic.
By way of brief historical overview, traditionally the courts did not like litigation which was funded by third parties and this was prevented by the common law doctrines of champerty and maintenance. It was thought the interference by third parties may abuse the court process, with Lord Denning stating in Re Trepca Mines Ltd (No2)  Ch 1999 that “the champertous maintainer might be tempted, for his own personal gain, to inflame damages, to suppress evidence, or even to suborn witnesses”.
However, in recent times, this approach has been relaxed through the erosion of legal aid and Parliament’s concern about the lack of justice for people who cannot afford legal representation.
The four funding options which are mostly used as an alternative to the traditional fee-paying retainer between solicitor and client are CFAs, DBAs, insurance and third-party funders.
Conditional Fee Agreements (CFAs)
This is an agreement where legal services are provided to a person which are only payable if the client wins the case. While each CFA will be tailored to the circumstances of the case, generally if the client loses it will not have to pay the solicitors’ costs, whereas if the client wins the case it would have to pay the normal fees payable plus a ‘success fee’. By way of an example, with a CFA with a 100% success fee, if the client won it would have to pay double the normal costs. Generally, the success fee is not recoverable from the other side.
It is often the case when a CFA is used that the person also obtains legal expenses insurance to provide coverage if they lose the case and are ordered to pay the other side’s costs as well as coverage for their own disbursements. This is known as After The Event Insurance.
Damage Based Agreements (DBAs)
This is an agreement where legal services are provided to a person where no fees are payable for the services if the client loses, but the solicitor will take a percentage of damages if the client wins. By way of example, if the DBA had a success fee of 25%, the solicitor would be entitled to be remunerated by way of 25% of the damages the client received.
It is often the case when a DBA is used that the person also obtains After The Event Insurance as referred to above.
Before The Event Insurance
This insurance is often taken out by people to accompany their household insurance policy. It may provide coverage for legal costs for certain types of disputes. It is important to check the terms of the policy carefully.
Third Party Funding
This is where a commercial entity pays a person’s legal costs in return for a fee which is payable from the resolution of the claim. If the claim is unsuccessful, the third-party funder will generally not need to be reimbursed.
It is important to consider funding arrangements properly at the outset of claims as they can have an important role in shaping the progress of litigation.
Paul Davis is a Partner and Head of Dispute Resolution at BHW. He advises on all aspects of litigation and can be contacted on 0116 281 6231 or email [email protected].