We work with a broad range of legal professionals specialising in litigation who can offer options to work alongside, or as alternatives to, litigation funding such as Conditional Fee Agreements (CFAs) or Damages-based agreements (DBAs) where a client's exposure to its own legal costs is limited.
We set out below how they generally work.
Conditional Fee Agreements (CFAs)
The classic CFA is an arrangement where the lawyer receives no fees if the client loses the case. If the client wins its case, the lawyer receives his fees together with an increased percentage (up to 100% for commercial litigation, which is referred to as the success fee) of the fees. This is commonly known as "no win no fee CFA". The stronger the merits of the claim, the lower the success fee.
There are some common variations to the classic CFA model including:
"discounted CFA" where the lawyer receives a lower percentage of his fee (say 70%) if the client loses the case but fees at the full rate and the success fee it it wins. The discounted CFA is often used with City law firms;
"CFA Lite" where the lawyer operates on a no-win no-fee or discounted CFA basis, but the additional fee and any success fee payable on success is capped at costs awarded or agreed with the other side.
Who Can Use A CFA?
Any party to litigation or arbitration can use a CFA. That includes both claimants and defendants.
Example Of CFA In Practice
Let's look at an example to illustrate how this would work. A law firm usually charges £500 per hour on a normal hourly rate basis. It is agreed that the discounted hourly rate for the client's claim is £280. They also agree a success fee of 45%.
Assuming 500 hours work in total is billed, the total discounted bill would be £140,000 (500 x 280). Any additional amounts would depend on how the matter is resolved. For example, if the client loses the case, no further sums would be payable by the client for its own lawyers costs. However, the client may still be liable for part or all of its opponent's legal costs, depending on whether it has ATE insurance in place or not.
If the client wins its case (at trial or settlement), the client would be liable to pay the additional "conditional fees" (500 x £220 = £110,000) and the "success fee" (£500 x 500 x 45% = £112,500).
If the client won the case, it would expect to recover a significant proportion of the base legal costs (£140,000 + £110,000), but not the success fee from the other side.
Advantages And Disadvantages Of A CFA
CFAs can help to reduce a client's legal costs in an unsuccessful case. Lawyers will only act under a CFA where there is a good prospect of success. The client must usually accept the success fee which it would have to pay to its lawyers from the damages it receives from the other party.
CFAs continue to be used in high value commercial litigation as a way to share risk between client and its solicitor.
Damages-based Agreements (DBAs)
DBAs can be used in all claims except for criminal or family proceedings.
A DBA is a contingency-fee agreement where the lawyer gets paid depending on the outcome of the case. However, unlike a traditional CFA, the solicitor's fee is not based on the work carried out, but is worked out by reference to the amount of damages (ie compensation) recovered by the client at trial or settlement.
If the client is successful, a percentage of the client's damages will be paid to the lawyer. If the client loses, the lawyer does not receive anything. In commercial claims, 50% is the maximum amount that can be recovered by the lawyer from the compensation received by the client under a DBA.
Claimants are not able to recover more from the other side than the total amount payable under the DBA. The client is still liable for expenses and adverse costs (unless ATE insurance is in place).
Example Of A DBA In Practice
A 30% DBA is agreed between client and solicitor.
Client wins at trial and receives £20 million in compensation. The client is able to recover from the other side, £800,000 in legal costs and £300,000 in legal expenses, bringing the total amount recoverable to £21,100,000.
The client must pay a DBA fee of £6 million to their solicitor (£300,000 will be used to pay expenses). The client is left with £15,100,000
It is not possible to have hybrid or partial DBAs where the solicitor agrees a discounted fee structure together with a DBA. However, litigation funders may off-set the risk taken by a lawyer under a DBA by agreeing to fund some of their fees in exchange for a share in the lawyer's reward.
Often DBAs will only be appropriate where the lawyer considers the claim to have a strong prospect of success (70% or more).
The ability to recover damages from the defendant will also be a factor taken into account by the lawyer before agreeing to a DBA, as the DBA is only payable once damages are received by the client.
How Can We Help?
We can help source the right legal professionals that offer both CFAs and DBA legal funding options.
The legal professionals we work with also are experts in other dispute resolution areas, including arbitration and mediation. Please send us a message below if you would like help sourcing legal support for your business.