UK: Can A "No Win, No Fee" Agreement Make Risk-Free Litigation A Reality?

Last Updated: 21 March 2012
Article by Michael Axe

To mark the launch of Rawlison Butler's QUANTUM – No Win, No Fee Litigation Funding package, Michael Axe looks at how alternative funding arrangements can be used by claimants and defendants involved in litigation to manage their legal costs and other risks.

So-called "no win, no fee" agreements have become increasingly popular in recent years as a way for parties involved in legal disputes to manage the risks involved in litigation, particularly in relation to their own legal costs and the costs of their opponent. In some circumstances, such an arrangement can potentially mean that you can pursue litigation on a "risk-free" basis, meaning that it will cost you nothing if you ultimately lost the case.

Alternative Funding Arrangements

The phrase "no win, no fee agreement" has come to be used as a blanket term for a number of different alternative funding arrangements. Most of these will involve you taking out After The Event (ATE) insurance and your solicitor entering into a Conditional Fee Agreement (CFA) with you, but this is not always the case.

Other types of alternative funding arrangements can include, for example, going to a professional litigation funder, who will normally be an independent third party who will pay some or all of your litigation costs in return for a share of any damages if you win.

Conditional Fee Agreements

There are a number of different forms a CFA can take, but the one thing they will all have in common is that your solicitor will agree to share at least some of the litigation risk with you. This could mean, for example, that your solicitor agrees to be paid nothing at all during the litigation or if you lose, or it can mean that your solicitor agrees to charge only reduced rates for the duration of the court proceedings. In either event, your solicitor is taking the risk either of only receiving discounted fees – or no fees at all – if you lose your case.

Whatever the form of CFA entered into, it will enable you to reduce – or even completely extinguish – your liability for your own legal costs. In return for sharing the litigation risk with you, a CFA allows your solicitor to recover from your opponent an uplift on your legal fees (known as a Success Fee) if you win the case.

The key benefits of CFAs

Some of the key benefits of entering into a CFA include:

  • Not having to pay any of your legal fees during the course of the litigation or if you lose the case (if you have a "full" CFA);
  • Being able to pursue litigation without having to pay your solicitors normal/full rates during the course of the litigation or if you lose the case (if you have a "discounted" CFA);
  • Increasing the pressure on your opponent to settle the case sooner rather than later, in order to limit its liability to pay your legal costs and Success Fee;
  • Undermining your opponent's confidence in the strength of its case, given that CFAs are normally only entered into in cases where an independent barrister has confirmed that your prospects of success are good.

After The Event Insurance

It is important to remember that a CFA only protects you in relation to your own legal costs, but you could still be liable to pay your opponent's legal costs if you lost the case. This is where ATE insurance comes in.

An ATE insurance policy will pay your opponent's legal costs in the event that you lose the case. It can also potentially cover your own expenses, such as expert costs or barrister's fees. It is sometimes even possible to get a "deferred and conditional" insurance premium, meaning that you do not need to pay the insurance premium up front, or at all in the event that you lose the case (and in the event that you win the case, you will be entitled to recover the premium from your opponent)

An ATE policy and a CFA are therefore normally taken out together, so that you can manage your risks in relation to both your own legal costs and your opponent's legal costs at the same time. If you have a CFA but no insurance cover for your opponent's costs, you are arguably in no man's land, with costs protection on only one side of the equation.

ATE Insurance versus BTE Insurance

ATE insurance is designed to be taken out once a dispute has arisen, to insure you against the risk of having to pay your opponent's legal costs. In contrast, Before The Event (BTE) insurance refers to a legal expenses insurance policy that is taken out pre-emptively before any dispute is known about or arises.

Unlike ATE insurance, BTE insurance is primarily designed to cover your own legal costs. Under most BTE policies, your insurer will be liable to pay the reasonable fees charged by whichever solicitor you choose to instruct. It is therefore important to check whether you have any applicable BTE insurance before entering into an ATE policy or CFA.

For more details regarding insurers' obligations under BTE policies, please read our earlier article Freedom of Choice - Can your Insurer restrict your choice of Solicitor?

Explore your Options

CFAs are potentially suitable in most litigation cases, so it is important that you consider all of your options carefully when deciding how to fund your case. That said, CFAs are normally (but not always) taken out in conjunction with an ATE policy, and ATE insurers will normally only cover cases where an independent barrister has confirmed that your prospects of success are good. It is also vital to consider at the outset whether your opponent is likely to be able to satisfy any judgment or costs award that the Court makes against it.

Following Lord Justice Jackson's 2010 review of the law and procedures regarding litigation costs, it is likely that the rules regarding CFAs and ATE insurance will be overhauled within the next couple of years. Whilst it is likely that CFAs in their current form may cease to exist at that time, it is expected that they will be replaced with other alternative funding arrangements, such as contingency fee arrangements known as Damages Based Agreements (DBAs). Whatever the future holds for CFAs and alternative funding arrangements, you should make sure that you have explored all of the funding options available to you if you are considering becoming involved in litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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