Litigation funding is a broad term which covers the various ways in which a party can obtain assistance in funding the costs of litigation.
Examples include:
- third party or commercial litigation funding agreements
- retainer based funding agreements with solicitors (CFAs or DBAs)
- insurance policies such as before the event or after the event insurance (BTE and ATE insurance)
- disbursement funding loans
Third Party Litigation Funders
There are funding agreements in the form of contracts with a third party professional litigation funder, who provides finance for the litigation. This is commonly referred to as third party funding (“TPF”). In TPF, there will be a transaction in which a third party provides the financial resources to enable litigation to proceed. The litigant will obtain all or part of the financing to cover its legal costs and disbursements from a commercial or private third-party funder, who has no direct interest in the proceedings. Clauses in the contract will set out the terms on which the funding is to be provided or advanced and on which it is to be repaid or recovered.
Funding Agreements with Solicitors
There are various forms of retainer-based litigation funding agreement, which you can enter into with your solicitors to including Conditional Fee Agreements (“CFAs”) and Damage Based Agreements (“DBAs”). The retainer with a solicitor will govern the amount the solicitor can charge a client under the retainer, based on the outcome of the case.
Condition Fee Agreements
A Conditional Fee Agreement (“CFA”) provides a means of funding litigation. A CFA is a funding agreement between a client and solicitor which provides that the solicitors' costs will only be payable if the client is successful. There are a number of different types of CFAs. This firm may be prepared to act under a hybrid CFA where our legal costs are paid at a reduced hourly rate, with the shortfall recovered from the Defendant, if your claim is successful.
Success Fee under a Conditional Fee Agreement
A success fee is a form of fee that may be payable where a successful claim was funded by the use of a CFA. When acting under a CFA the solicitor’s costs will only be payable if the client is successful. A solicitor therefore takes a risk that they will not be paid for the work undertaken in the matter. To compensate the solicitor for this element of risk, a CFA can provide for the payment of a 'success fee' if the client is successful.
Damages Based Agreements (DBAs)
The Damages-Based Agreements were introduced into general civil litigation, having previously been limited to employment matters. This firm does not enter into any such agreements.
Cost Insurance
The are two main types of costs insurance: before the event (“BTE insurance”) and after the event insurance (“ATE insurance”).
If this firm acts under a CFA in relation to their legal costs, they would take out on your behalf, an ATE insurance policy which will pay all of your disbursements and pay the Defendant’s legal costs and disbursements in the event you were to lose your claim.
Litigation Funding Process – What the ATE Funder requires?
There is a standard approach which the ATE funder would adopt, when assessing a case and deciding whether to fund it. It is important to understand this and the issues which a funder may consider during the process.
The funder will usually require a:
- Formal Written Opinion from specialist Counsel who must advise that your prospects of success are 60% or over.
- Evidence that the Defendant has sufficient assets to satisfy a claim for damages, ATE premium and success fee, if you were successful.
- Details of the Defendant’s costs as the ATE policy will pay the Defendant’s legal costs and disbursements, in the event that you lose your claim.
- Litigation funders will have their own lawyers to review the documentation received, so they can have their own opinion on prospects of success or may instruct external Counsel to provide an Opinion on behalf the insurer.
How can we help?
Our dispute resolution team has extensive experience advising clients on litigation funding. For more information info@tgbaynes.com or 020 8301 7777.