CPAA Insight: How to fund litigation and the changes in the offing

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Paying the Piper

(This article was first published in the CPAA Magazine Practising Accountant, May 2012)

Laytons lawyer Richard Harrison looks at how to fund litigation and the changes in the offing

When your clients are concerned to enforce or protect their rights in court, the factor that often overwhelms and trumps the actual rights and wrongs of the case is the exorbitant cost of the process. 

Lawyers charge by the hour. Litigation is time consuming and the expense can be breathtaking when explained beforehand and devastating when it comes (as it shouldn’t) unexpectedly.

Solicitors are bound by their code of conduct to advise clients of the funding options available and to give the best possible information, including realistic estimates.  Regrettably, it seems that many clients are still shocked at the costs incurred and risks faced.

Because it is not just the sums you have to pay your own lawyers that cause the problems: - the English litigation system is based on ‘costs shifting’ -  the overriding principle is that the loser pays. 

However, each step in the process is capable of having its own winner and the judges are encouraged to impose discipline and incentivise settlement by making issue based costs orders. 

So the overwhelming impression that derives from watching solicitors conduct litigation is the sheer amount of correspondence written to persuade the other side that they face increased costs risk for behaving unreasonably.

So what are the options? If they have the money and the budgeting is right, the standard option is ‘pay as you go’. If you win you get about 60-70 percent of your costs back from the other side (if they can pay). If you lose you have to pay your own costs and about 60-70% of the other sides.

With the right sort of case, you can take out an insurance premium against having to pay the other sides costs. The premium is expensive but “self insuring” since the insurance company recovers it from the other side if you are successful.  

If you lose they pay the other side their costs and swallow the premium - well that is the theory.  With the right sort of case, solicitors and barristers may be prepared to work on a ‘conditional fee’ basis under which their costs can be uplifted by up to 100% if you are successful - then recovered from the other side. They may even indicate that they will not to seek to recover the 30-40% shortfall from you.

In some cases, insurers might offer to cover your solicitors own costs. There are also financiers called ‘third party funders’ who may offer funding for cases in exchange for a share in the proceeds. 

At present, solicitors are unable to do this but this seems set to change with the rather confusingly named Legal Aid, Sentencing and Punishment of Offenders Bill 2012 currently passing thought parliament. 

To lawyers reading it, it sometimes seems as if they are the relevant offenders. The imminent Act will have some controversial effects on legal aid but it will also makes various provisions in respect of civil litigation funding and costs, taking forward the recommendations of the recent review by Lord Justice Jackson.

What it will do is abolish the ability to recover both insurance premiums and the conditional fee uplift. This will mean that these costs will now have to be paid out of sums recovered or a litigant’s own means.

This will makes it less likely that a solicitors or barrister will be able to offer clients a conditional fee agreement and make protection against having to pay an opponent’s costs less certain. The Bill will pave the way for lawyers to work on contingency fees (which will be heavily regulated) but the cases on which they are offered will be high value and rigorously selected. 

There is considerable interest being shown in third party funding and contingency fee reforms and for certain higher value cases they will present interesting and exciting opportunities.

Richard Harrison is a litigation partner at Laytons Solicitors LLP, London.  The firm also has offices in Guildford and Manchester.

Call 0207 842 8000 or by email [email protected].