Funding commercial litigation
Funding litigation can be expensive and a commercial risk. If you win you should normally recover a proportion of your legal costs from your opponent, but if you lose you will normally be required to pay a percentage of your opponent's costs as well as your own.
As well as helping you manage the risk of litigation through case analysis, project management and budgeting, there are a number of different options to fund litigation. Each option must be considered in light of the facts of the dispute.
In addition to a standard retainer (whereby you pay for your legal fees and disbursements following the submission by us of an invoice on a regular basis), the following funding options can be considered:
Before the event insurance 'BTE'
- you may have legal expenses cover. This may, for instance, be available to you under your household insurance policy or motoring policy, or ancillary to warranty indemnity insurance or business interruption cover. The purpose of BTE cover is to meet the legal costs incurred by the insured in future legal disputes.
- if you think you have any such policy, please let us see details of it. Cover may be limited or subject to restrictions.
After the event insurance 'ATE'
- ATE is issued after the dispute arises and it is designed to protect against your liability to pay your opponent's legal costs along with a proportion of your own disbursements in the event that you are unsuccessful in your claim.
- the premium is payable by the insured and is likely to be in the region of 25% to 60% of the amount of cover sought. The general rule is that payment of the premium is deferred until the end of the case and is only payable if you win. The premium may not have to be paid if the case is lost even though the insurer provides an indemnity for the insured risks. In some cases the premium will be staged so that the amount due to the insurer increases as various stages in the litigation are reached.
- since 1 April 2013 the premium is no longer recoverable from the losing party. The premium will be payable by you. It is not a recoverable cost of litigation.
- most ATE insurers only offer insurance to Claimants. ATE insurance will only be available for those cases where the insurer considers the prospects of success are good and generally 60% or more.
- an insured party has a continuing duty to disclose all material facts to the insurer, not just on the proposal form but also as the action proceeds. It will also be necessary for us to report to the insurer on a regular basis and have regard to their interests in the case.
Risk sharing with the lawyer – Conditional Fee Agreement 'CFA'
- under a CFA we can charge a reduced fee or occasionally no fee if the case is unsuccessful and a 'success fee' on top of the normal fees if the case is successful. The success fee will be expressed as a percentage of the difference between the reduced fee and our standard fees.
- by way of example we may, under a CFA, agree to discount our standard fees by 40% with a success fee of 100% of the deferred fees if we win. During the dispute you pay our fees at the standard rate discounted by 40%. You also pay all disbursements in full. If success is not achieved that is all you pay us. If success is achieved you pay us, in addition to the discounted fees and disbursements the remaining 40% plus a success fee of 100% of our deferred fees. The total amount due on success is therefore 140% of our standard rates (i.e. 60% discounted fee plus 40% deferred fee plus 40% success fee)
- the success fee is calculated as a percentage of the deferred fees. In order to set the level of the success fee, we quantify the prospects of success in percentage terms. The success fee cannot exceed 100% of the deferred fees.
- a party on a CFA who is successful in their litigation and obtains an order for costs against their opponent may claim from their opponent the discounted fees and the deferred fees (together known as "base costs"). The success fee (the additional 40% in the example given above) cannot be recovered from a losing opponent. Further, even if you win you are unlikely to recover more than ⅔ of the base costs from your opponent.
- we would need to carry out a risk assessment of your case to decide whether we are able to offer you a CFA and if so, upon what terms. An assessment fee will be payable, the size of which will depend upon the nature and complexity of the matter.
- you may wish to take out ATE insurance in conjunction with a CFA to insure against the risk of liability for your opponent's costs and possibly some of your disbursements in the event that you lose your claim.
Funding from third parties
- 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.
- if you are a member of a trade union you may be entitled to assistance from your union in funding certain types of litigation, and in some instances, you may have an employer prepared to grant you funding. If you think you could obtain such funding, please raise this with us.
- Public Funding (legal aid). Legal aid is only available for individuals and on a very limited basis. We cannot accept commercial litigation cases on a legal aid basis but other firms may be able to. Further information as to your eligibility is available at The Legal Services Commission website.
Damages based agreements
- a damages based agreement ("DBA") is an agreement where your lawyer takes a slice of your damages in place of their usual fees. This is capped at 50% of the damages in commercial cases (compared with 25% of certain damages in Personal Injury cases).
- if you are successful in the litigation and the Court orders your opponent to pay a proportion of your costs, then the figure payable by you under the DBA reduces in line with the amount of costs recovered from your opponent. Your opponent will not have to pay more in costs than the percentage payable by you under the DBA.
- in circumstances where we agree a DBA with you under which we take a percentage of sums recovered if you are successful in your claim we must pay your barrister and VAT out of that percentage.
- if we enter into a DBA with you, we would receive no fees at all during the dispute. If you lose you would not have to pay us. Even if you win but are unable to recover the damages awarded, for example because the defendant has no assets, then again you would not have to pay us.
- this method of funding is not routinely offered by Blake Morgan.
This publication is not a substitute for detailed advice on specific transactions and problems and should not be taken as providing legal advice on any of the topics discussed.