Solicitors have an obligation to consider their clients’ funding options from the outset, particularly in litigation, and throughout the course of the matter.
With a rapidly growing legal funding market, many bespoke funding options are now readily available. As a result, the obligation to inform clients about the various funding options has become even more important. Not only is poor advice about funding a breach of the SRA Code of Professional Conduct, but it is also grounds for a claim for professional negligence.
Poor funding advice is also the biggest cause of complaint against solicitors. Clear accessible information must be provided to clients to allow them to make informed decisions, understand its implications and decide the most appropriate option to fund their matter.
In December 2018, the SRA Transparency Rules came into effect and requires firms authorised by the SRA to publicise their prices and services in particular practice areas on their websites. This has gone some way to de-mystifying funding legal action, but in this article, we set out some more information about the options available.
Private Retainers
This is an agreement between a solicitor and their client under which a client pays the solicitor privately for the services provided. Solicitors will charge either by time spent on the matter (using hourly rates) or agree a fixed fee.
Hourly Rates
Paying a solicitor’s hourly rates is one of the most common methods of funding. This is where solicitors charge clients for the time that they spend on their case. Time is recorded in 6-minute units (meaning there are 10 units in an hour), and the client is charged on a time spent basis. This method often causes concern for clients about overall costs as they don’t know how long their solicitor is going to take on any given matter. It also gives rise to a perception of poor value for money. If a solicitor is charging an hourly rate, clients should be provided with the ‘best possible information’ on the likely overall cost of the case. Any changes arising during the matter must be notified to the client in writing where possible, however this can still give rise to nasty surprises if the solicitor has taken longer than the client expected.
Fixed Fees
Fixed fees can be for part of the matter (e.g., the initial letter), for the whole of the matter, or for a particular area of practice (e.g., Debt Recovery). This type of funding is often more attractive to clients as it provides greater certainty and the ability to budget. Solicitors should set out what work is and is not covered by the fixed fee so that everyone knows where they stand.
At Cognitive Law we will always try to give a Pricing Proposal based on a fixed fee, so that there are no nasty surprises.
Conditional Fee Agreements (CFAs)
A CFA is defined as an agreement which provides for a client’s fees to be payable only in specified circumstances, usually meaning the client only pays if their case is successful. CFAs can be used even if the client can afford to pay costs on a private basis provided, they have been advised of the advantages and disadvantages of the alternative methods contained in this article.
Under a CFA a solicitor may also be entitled to a ‘success fee’ which is an agreed percentage of their normal fees payable by the client, so it is crucial that the client is made aware of this before entering a CFA. There is also the option for a solicitor to offer discounted CFAs, which means that if the client is unsuccessful, they will only be required to pay a discounted hourly rate, rather than the usual rate.
Damages based agreements (DBAs)
A DBA is a contingency funding option where the client will only be liable to pay their solicitor if they recover damages in their case. The amount the client is expected to pay will be calculated as a percentage of the damages recovered. This method of funding is rarely used in practice. Payments are capped under the DBA Regulations depending on the claim (e.g., 50% of the sum recovered by the client is payable in civil claims). Solicitors should ensure that the other party to the claim is in a financial position to pay damages, to ensure that the damages will be paid.
Legal Aid
Legal Aid, or as it is sometimes called “Public Funding”, is only available in limited types of matters and will depend on various factors such as the area of law and the client’s own personal and financial circumstances. For example, civil legal aid is only available in very limited situations such as for orders under section 25 of the Children Act 1989. Not all firms will offer Legal Aid, as they must hold a contract with the Legal Aid Board to do so. But even if they can’t offer Legal Aid themselves, they are obliged to tell clients if they think that funding option is likely to be applicable, even if it means referring them to another firm.
Trade Union Funding
Some trade unions will offer schemes which allow members to get advice and representation funded by the union through member’s contributions. That does mean though that the client would need to be a member of the union at the time the case arose. Trade unions will often engage multiple firms as their ‘panel’ of solicitors. The panel will assess the prospect of success of the client’s case and if they consider them reasonable, the union may cover part or all the client’s legal fees. To comply with the SRA Code of Conduct, solicitors should ask clients if they are members of a trade union to cover their legal costs. If the client is, the solicitors should advise a union member client to contact a firm that is on the union’s panel to benefit from the funding available.
Third Party / Crowd Funding
This is where a client’s legal costs are paid by someone other than themselves. This method of funding was mentioned in the Jackson Review as providing additional means of funding litigation and promoting access to justice.
Crowd funding is more common in cases that involve the public interest. In some circumstances, funders may receive some of their contributions back for example if costs are recovered from an opponent, but will never profit from the funding,
Legal Expenses Insurance
This is also known as family legal protection and is a type of insurance you can purchase alongside your home insurance. This may protect against the costs of being sued or making a claim against someone, depending on the policy wording. Policies often provide cover for personal injury, employment disputes, and medical negligence, to name a few; although insurers will only take on claims on your behalf if they are convinced it has a reasonable chance of success.
After The Event (ATE) Insurance
ATE insurance is a litigation insurance product that can be bought after the event, which provides protection against the financial exposure of having to pay an opponent’s legal costs if the insured client is unsuccessful in their legal proceedings.
There are usually options to meet either the opponent’s costs only, or the opponent’s costs and an element of the claimant client’s own costs, subject to the level and terms of indemnity of the policy. Some policies can also costs incurred before a policy is taken out. The amount of cover available typically ranges from £250,000 to £25 million. Obviously, there is a cost to taking out an ATE insurance policy, and that is decided by the insurer. Also, ATE insurance is usually only available to claimant clients, however some insurers can provide cover for defendants. It can be purchased before proceedings have been issued or at any time after they have been issued although purchasing ATE insurance later in proceedings may result in higher premiums and increases the difficulty in finding cover.
The purpose of this article is to provide a brief overview of information clients should be given and the main funding options available. For any further information on this, please do not hesitate to contact Cognitive Law on 0333 400 4499.