Guide to litigation funding options and insurance

Traditional hourly rates do not always provide clients with the certainty and transparency they require to effectively manage their financial exposure in commercial litigation cases, court proceedings and arbitrations.

There are a range of available options for funding litigation.

Litigation funding options

1.     Privately funding an action

This is the normal basis upon which solicitors are instructed to handle a claim. Legal fees will be charged in accordance with the time spent in connection with the matter, at a set hourly rate. VAT will also be charged if appropriate.

2.     Fixed fee segments

A fixed fee is pre-agreed for each element of the litigation process, irrespective of eventual actual cost.

3.     Before the event insurance

This is a type of legal expenses insurance.  Often cover is provided as part of contents, building or car insurance.  You should contact your insurance provider to see what cover you have.

4.     After the event insurance (ATE insurance)

This can be taken out in conjunction with a conditional fee agreement to insure against the possibility of a claimant being ordered to pay a defendant’s costs if he or she loses. In some limited circumstances it may also cover a claimant’s own legal costs of bringing the claim.

5.     Conditional fee agreements

Under a conditional fee agreement we agree with you that we will not charge you if we do not obtain damages for you, but if we do recover damages for you, in recognition of the risk that we have taken on your behalf, a success fee is added to the normal legal fees. It will usually be necessary for you to take out insurance to cover the opposing parties legal costs if the action is unsuccessful.

6.     Partial conditional fee agreements

A lower hourly rate is invoiced monthly during the course of the matter.  Where the case is settled in your favour, an agreed percentage is paid either from the damages if you recover any, or from a success fee to be paid by the other party.

7.     Damages based

Under a damages based agreement (DBA) we agree that we will not charge you if we do not recover damages for you, but if we do recover damages for you, in recognition of the risk that we have taken on your behalf, the amount that you pay to us will be determined by reference to a percentage of the amount recovered by you from the claim.  The costs recovered from the losing side would be set off against the DBA fee, reducing the amount payable by you to any shortfall between the costs recovered and the DBA fee.

8.     Third party litigation funding

There are specialist companies which invest in litigation in return for a substantial share (usually up to 50%) of the damages. The cases in which they invest are of a certain size, where the prospects of success are high and where the opponent’s ability to pay is good. The third party funders will require an element of control of the case. The funding will generally cover all or part of your costs, any ATE premium and any costs you are required to pay your opponent.

Please note: funding in relation to Personal Injury claims varies to that for commercial, business disputes.