The cost of litigation can be substantial. Even if your case is successful, you will still be liable to meet a proportion of your own legal costs, and if your case is unsuccessful you will normally be required to pay a proportion of the other side’s costs as well as your own.

There are a number of funding options available to you to assist in meeting these costs:

Risk sharing - arrangements on sharing the risk of funding litigation can be made with either insurance companies or your lawyer or a combination of the two.

Funding from third parties such as a trade union or employer - if you think that this is relevant and appropriate, discuss your needs with that funder.

Community Legal Service funding - this replaces legal aid and is available in very limited circumstances to individuals. The firm does not accept instructions to act in such cases.

The purpose of this advice note is to explain the various risk sharing options available.

Before the event’ legal expense insurance cover (‘BTE’)

This insurance cover is usually ancillary to another form of insurance cover, for example, motor insurance, warranty indemnity insurance and business interruption cover. The purpose of the BTE cover is to meet any legal costs incurred by the policyholder in respect of future legal disputes.

If you have BTE which you think suits your needs in the event of a legal dispute, then a copy should be given to your lawyer as soon as possible so that claim can be made on the policy if necessary.

After the event’ legal expense insurance cover (‘ATE’)

ATE offers a safeguard against part or all of the risk of having to pay the other party’s legal costs and your own legal costs.

ATE can be purchased at any time after a dispute has arisen or before proceedings have been issued.

The level of premium payable depends on the type and level of cover sought, the assessment of the risk and the insurance provider. The premium is usually between 15% and 40% of the sum insured depending on the merits of the claim. Some policies allow for the premium to be paid at the end of the dispute and then only if you have won, although such premiums are significantly greater.

The insurance premium may be recoverable in whole or in part from the losing party if you succeed in your claim. In commercial claims any reasonable premium will normally be recoverable in full.

There will be no pay out by the insurers if you win your case or enter into a settlement with the other party which is not approved by the insurers.

Risk Sharing With Lawyers

Lawyers can enter risk sharing arrangements with their clients on the following basis:

A contingency fee agreement – this allows a lawyer to charge you a percentage of what is recovered, e.g. financial compensation or the value of a piece of land. No fee will be payable if there is no recovery. This type of agreement can only be made with you prior to the issue of proceedings and it will be void if proceedings are issued. Your lawyer should discuss with you how you would like to fund the proceedings from thereon.

A conditional fee agreement (‘CFA’) – This allows a lawyer to charge a reduced fee or sometimes nothing if the claim is unsuccessful and a ‘success fee’ on top of normal fees the claim is successful. The success fee is usually recoverable, although not always in full, from the losing party.

Alternatively a CFA can be made which allows an hourly rate or fixed fee to be paid if the case is won, but a reduced hourly ate or reduced fixed fee if the case is lost.

CFA's can be entered into at any stage of the dispute including before the issue of proceedings.

When signing up to a CFA you may want to consider also purchasing ATE to cover the other side’s costs. This enables you to protect your liability to pay not only your own legal costs but also the other party’s.

If you are interested in any of these funding options please speak to us.