Ostensibly, the rule of law exists to provide a semblance of justice to society. Frequently the decision to bring or defend a claim, is governed by cost rather than justice.
Khizar Arif, a partner, pointed out "There is no avoiding the fact that litigation is expensive. From court fees to expert's fees to counsel and solicitor's costs, the amount of money a legal claim demands can be surprising, especially to an individual who rarely, if ever, has been in the position of considering legal action. Costs can range from up to £5,000 for small cases to considerably more money for large cases. Additionally, in England & Wales, if you lose in court you may have to pay the legal costs of your opponent as well as your own legal costs.
In most cases, the client has to fund the claim personally, either in a lump sum or payment in instalments as agreed with the lawyer, often, if this cost is too much for clients to bear, lawyers will come up with creative solutions to enable their clients to fund their claim.
Conditional Fee Agreement ("CFA")
A conditional fee arrangement, as the name implies, is an arrangement between a lawyer and their client, where the lawyer only charges the client legal fees if the claim is successful. More commonly known as "no win, no fee", this arrangement allows clients to more easily bring court proceedings and reduce the risk they must bear during said proceedings.
Damages Based Agreements ("DBA")
Similar to a CFA, a DBA only applies if the client wins his case. As a result, many people confuse the two together. Where the two differ is that the amount paid to the lawyer in a CFA is determinant on the lawyer's fees, either in time costs or as an agreed flat fee, and in a DBA the client in the event of a win, will pay the lawyer a pre-determined percentage of the damages awarded by the court or settlement sum received.
In the UK, third-party funding is available to clients who cannot fund the entirety of their case alone. Third-party funding refers to the practice of parties outside of the litigation, i.e. third parties that agree to fund all or part of the litigation for a portion of the damages. Third-party funding can be thought of as a DBA but with third-party investors instead of the lawyer bearing the risk. Third-party funders must not have an existing interest in the case and cannot exert any control over the process of the litigation. The benefit of third-party funders is the reduction of the financial risk undertaken by a litigant for a portion of the compensation they receive if they win.
Clients can, of course, negotiate with their lawyers to find the fee arrangement that best suits their case. However, lawyers and third-party investors will naturally assess the prospects of success of a case before agreeing to a CFA, DBA or a third-party funding agreement. The application of such arrangements can often be very flexible, funding might accept hybrid approaches, in which the fees are partly privately funded and partly CFA or DBA-based. A number of rules limit the fees payable to lawyers under these arrangements. For example, in personal injury cases, the Damages-Based Agreements Regulations 2013 restrict lawyers from charging more than 25% of a client's damages in a DBA. Most types of claims are subject to a 50% cap. It is important to note that CFAs, DBAs and third-party funding only protect a client from his own legal expenses. If he loses in court he may have to pay his opponent's legal costs.
Legal Expenses Insurance
There are two kinds of legal expenses insurance products. Before the event ("BTE") and after the event ("ATE"), the "event" in question being the incident that caused the need to bring proceedings. BTE insurance is very familiar and may be included in your home insurance or car insurance policy. It covers legal expenses you might incur in the future arising from an accident or robbery in your home or in the event of having a car accident.
Under ATE insurance, the insurance covers the costs payable by you to your opponent in case your claim is unsuccessful.
ATE insurance can be bought before you start proceedings or at any stage during proceedings. Keep in mind, however, the premiums charged will increase dramatically the further along the case has proceeded when you decide to buy ATE insurance. The premium payment is usually deferred to the conclusion of the case, and you only have to pay it if you are successful in your claim as ATE insurance policies are self-insured. It is important to note that ATE insurance only covers the legal expenses of the other side – you may still be liable for any legal expenses you incur personally.
It is normal, and usually advisable, for clients to obtain ATE insurance in addition to a CFA, DBA and/or third-party funding. With this, a client is theoretically protected from the brunt of the legal costs they would have been liable in an unsuccessful claim. This allows some clients to bring proceedings with little to no risk.
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.