Types of Litigation Funding

If you think you may need to resort to litigation, you could be wary about the potential cost, a factor which may put you off proceeding.

Whilst some progress has been made with the introduction of the Civil Procedure Rules, if you decide to resort to litigation you face the possibility of not only have to pay for your own legal costs but also the other side’s fees if you lose the case.

The good news is that there are a number of different ways in which to fund the litigation process; we run through the main types here.

Hourly rates

This is the most traditional way a solicitor will charge for their service and means that the end cost will be a true reflection of the work which was involved on the case.

Funding a case at a law courts can be an expensive business

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Whilst this can be beneficial if there isn’t too much work involved, it can be risky as the client has no guarantee about how much the end bill will be.

For this reason, many clients now prefer alternative means of charging as it provides them with a greater degree of reliability over the end cost.

Conditional Fee Agreement

If you like the idea of an hourly charge but are concerned about costs mounting too high on a losing case, a Conditional Fee Agreement (CFA) might be a better option.

A CFA works by the solicitor reducing their hourly rate whilst the case is on-going; the actual degree of discount will depend on how likely the case is to be successful.

If the case is ultimately won, the full hourly fee together with a win bonus will become payable. If however the case is lost, only the discounted hourly rate will be due.

If you opt for a CFA a contract will be set out and agreed in writing before work begins so there can be no misunderstanding over potential costs.

Before the event insurance

Moving away from hourly rate charging, it is possible to take out insurance to cover the possible cost of litigation.

This type of cover normally kicks in if your chances of winning are deemed to be at least 51% and are often included with other types of insurance such as motor or home. The insurer may initially ask that you use their own solicitors (or a firm they recommend) but you can opt to use your own choice if you prefer. The only thing you have to bear in mind is that if your solicitor is more expensive than the insurer’s choice, you will have to pay the difference in the cost.

After the event insurance

Whilst it is essential that you find a way to fund your own litigation costs, you also need to bear in mind that if you lose you could be ordered to pay the other side’s fees.

To protect against the risk of having to shell out a significant sum, you might want to consider a type of cover known as after the event insurance.

This type of cover means that if you lose your insurance will cover the fees for the other side but if you win, you can claim back the cost of the premium (unless the government introduces legislation to change this).

Contingent arrangement

This type of funding is not permissible in all types of cases but for claims which do not directly involve legal proceedings it can be considered as a possibility.

A contingent arrangement works by the solicitor receiving payment of their fee from the compensation awarded by the court. This is often calculated as a percentage of the sum awarded.

Good Solicitors will offer funding options such as a contingent arrangement

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Because this type of arrangement is unlawful for many types of cases it is not as frequently used as a basis for funding litigation costs as some of the other options.

Third party funding

A very new innovation which has recently entered the market is the concept of third party funding. If you wish to pursue litigation but lack the means to pay for it, you receive financial support from a third party. In return, they receive an agreed percentage of any awards, typically between 25-40%.

This type of approach is still in its infancy and isn’t really viable unless the chances of success are significant and the potential award is at least likely to be a six figure sum.

Conclusion

For those situations where litigation is required, fears over funding do not need to stop you taking the action you believe is right. A good solicitor will work with you to find the right approach and the most suitable type of litigation funding to make sure you don’t end up with a successful result but a bill you can’t pay.

Image Credits: Ell Brown and Matthew Wilkinson