Court case funding: what are the options?
Editor’s Note: Throughout our lives we finance variety of things. Most of us are able to decide how to finance a large purchase and we know that there are different ways to do that using mortgages, loans and savings. But do you know how to finance a court case? I didn’t think so. Thought I wish my readers never need to fund a court case I still believe it is important to know the possibilities. This is why I decided to publish this guest post written by Aurora Johnson: enjoy and learn.
Litigation can be an incredibly costly process. Some may find that they have an extremely solid case and a high chance of winning, but they simply cannot afford to take it to court. However, that doesn’t have to be the end of the road.
There are funding processes available in the UK that can help people to get funding for court case. The options can include:
- Conditional Fee Arrangements (the traditional ‘no win no fee’ format)
- Damages Based Agreements (DBAs – a new funding option)
- Third-party funding (also known as litigation funding)
Let’s break these funding options down and look at them individually to get a better understanding:
Conditional Fee Arrangements (CFAs)
The age-old ‘no win, no fee’ agreement between a solicitor and a claimant has existed for some time now. They are most commonly used in personal injury claims, but they have increased in popularity with commercial court cases in recent years.
‘No win, no fee’ agreements must include three elements:
- A basic fee that is payable to the lawyer after a successful case.
- A success fee, again only payable on winning a case. A success fee can cost up to 100% of the basic fee.
- ATE (After the Event) insurance. This is used to compensate for the risk taken on by the solicitor and can be used to pay for the court case should it fail.
If the case is successful, the solicitor recoups the basic fee and success fee from the other side. If it is unsuccessful the ATE insurance comes into play. There are some drawbacks with CFAs though – if the defendant doesn’t have enough money available to pay for the successful court case, the claimant may be left with the bill.
Damages Based Agreements (DBAs)
This funding option is set to come into effect in April 2013. With a DBA, a claimant signs a contract with the solicitor to agree on how the law firm will be paid. This sets out the percentage of the damages which the solicitor will receive following a successful case, which should help to align the solicitor’s interests with their client’s.
Third Party Funding
Third party funding is a viable option for big businesses entering into commercial lawsuits. The client can contact a litigation funding company to request financial assistance and, if approved, the company will provide enough funding for the entire case.
The funding company will not have any control over how the case is fought. Their only interest in the case will be in their investment and ROI (Return on Investment), which they will receive should the case win. This money comes out of the damages.
However, being accepted for litigation funding can be incredibly difficult. This is because third party funding companies are very selective as to which cases they take on, and understandably so. They must take on a huge amount of risk in order to fund cases.
In order to be approved, a case must:
- Have a 60%+ prospect of winning.
- Include high damages (often more than £1m) that will provide the company with a good ROI.
- Have a defendant with enough financial resources to pay the damages.
Over 85% of applications for litigation funding are rejected in the UK, so it is vital that cases meet the requirements of the third party funder.
If you require funding for a case you should always consult a solicitor before making any decisions. They are duty-bound to provide you with information concerning all of your options, so they can help you to make the right choice.
This article was provided by Aurora Johnson on behalf of Vannin Capital, a commercial litigation funding specialist.