Funding Options Flashcards
(26 cards)
What is the retainer and how should it address costs?
Contractual relationship between solicitor and client
- Must agree fees and charges at the start or set a date for when they will be reviewed
- Parties can negotiate the fees/charges as they wish
What professional conduct obligations do solicitors have in relation to costs?
Solicitor must provide clients with the best possible information about how the matter will be priced at time of engagement and when appropriate as the matter progresses
- Includes telling them about professional fees + disbursements
Solicitors must act in the best interests of clients and act with integrity, so excessive charging could breach SRA Principles
Client might challenge a bill, maybe by asking court to assess courts
No obligation for solicitors to offer alternative funding options or to offer to act under them
- They should inform clients of these and perhaps direct them to take separate advice if they think an option is appropriate
- Solicitors must consider the client’s attributes, needs and circumstances when selecting and agreeing the appropriate funding option for the client’s case
How does private funding work?
- Fees calculated by a given hourly charging rate, with disbursements calculated separately
- Client will know which fee earners are working on the matter and their charge out rates
- Cost is open-ended and dependent on how much work is needed
- Client is personally responsible for all costs, irrespective of outcome of case
How do fixed fees work?
Client personally responsible for costs, but they know the fee to be charged at the outset
- Common for conveyancing transactions
Fixed fee must be set at a reasonable, but remunerative level
- Fee cannot be altered later, unless the client agrees, even if it has become unremunerative
What is the difference between contentious and non-contentious business?
Solicitors can enter 2 particular types of arrangements with their clients which impact on remuneration – contentious and non-contentious business agreements
- Contentious business = work done in relation to proceedings, once they have been issued
- Non-contentious business = Any business done, which is not contentious (Conveyancing, commercial drafting etc)
How do non-contentious business agreements work?
In a non-contentious business agreement, the solicitor may be remunerated by a gross sum, hourly rate, commission, a percentage, a salary or otherwise
To be enforceable, it must:
- Be in writing
- Be signed by the client
- Contain all the terms of the agreement (including whether disbursements and VAT are included in the agreed remuneration)
If enforceable, bill cannot be assessed by the court, but may be set aside or reduce remuneration if the court feels the amount charged is unfair or unreasonable
How do contentious business agreements work?
In a contentious business agreement, the solicitor could be remunerated by reference to a gross sum, hourly rate, a salary or otherwise
To be enforceable, it must:
- State it is a contentious business agreement
- Be in writing
- Be signed by the client
- Contain all the terms
If enforceable, client cannot have the court do an assessment of costs (except where the solicitor is remunerated by hourly rate), but the court can set aside the agreement or reduce remuneration if it is unfair or unreasonable
A solicitor cannot sue for an unpaid bill when it takes the form of a contentious business agreement, without seeking the court’s permission
- If agreement fair and reasonable, court will enforce it
- If not, it will be set aside and costs assessed as if it was never made
There are various funding options for civil litigation specifically.
As a starting point, what is the difference between the solicitor’s costs and costs between the parties?
Distinction between solicitor and client costs (fees agreed to pay solicitor) and costs awarded between parties at the end of the case
- Distinction must be explained to client at outset of case
General rule = unsuccessful party pays other side’s costs
Even if they win, client will need to pay the solicitor’s fees and client may have to bear a loss if the costs recovered are less than costs paid
Solicitors are permitted, in certain circumstances, to charge a fee which varies according to the outcome of the matter.
What are the 2 main agreements that do this?
Conditional fee agreements
Damages based agreements
How do conditional fee agreements work?
This is an agreement where a solicitor receives a different fee, depending on the outcome of the claim
- The solicitor gets no fee or less than normal if the claimant fails or the defendant fails to successfully defend the claim (depending on who S represents)
- The solicitor gets normal or higher than normal if the claim succeeds or is successfully defended (again, depending on who S represents)
The higher fee payable on success must be expressed as a percentage increase of the usual charging rate
- Normally based on hourly rate, so £200 an hour + 10% success fee = £20 extra per hour
What are the requirements for a valid conditional fee agreement?
Must meet requirements to be valid, because if invalid, solicitor cannot recover any fees under it:
- May be entered into in relation to any civil litigation matter, except family proceedings
- Must be in writing; and
- Must state the percentage increase on success (success fee)
Success fee cannot exceed 100% of normal charges
Additional 25% cap on general damages recovered for PI cases
If the client’s fees are paid for by the opponent, does this include the success fee?
If the opponent must pay the CFA client’s fees, the costs payable don’t include the success fee – only payable by client themselves
If the client loses their case when they have a CFA, they will pay no fee or a lesser fee to their solicitor. What else will they have to pay?
Disbursements usually left out of the agreement, so client must pay them, even if they lose and they will have to pay opponent’s costs if they lose
- Client might get after-the-event insurance to support these costs in the event they lose
What type of client/individual cannot use a CFA?
Cannot enter a CFA with an expert witness, as the must be impartial and should not be capable of being influenced by the outcome of the case
Solicitors must undertake a risk assessment before entering a CFA with a client. What must they consider as part of the risk assessment?
- Chances of client succeeding
- Likely amount of damages
- Length of time for case to reach trial
- Number of hours solicitor is likely to work
The risk assessment will inform the success fee, and the client should be given clear advice on how this success fee was reached
How does a damages based agreement work?
This is an agreement where the solicitor receives payment, only if the client is successful in their claim and is linked to the amount of damages the client gets
- The fee is an agreed percentage of the compensation the client gets (called a contingency fee)
- Therefore, if the client loses, the solicitor gets no fee
A non-counterclaiming defendant cannot enter a DBA, as they won’t win compensation for a fee to be extracted from
How does the opponent paying costs affect the fee the client’s solicitor receives?
If the client wins, the amount they pay will be net of the costs payable by the opponent
- If client agrees to give S 20% of their damages (£100,000) and the opponent has to pay £15k in costs
- The costs payable by the opponent are first deducted from the £20,000 to S
- This leaves £5k for client to pay out of their damages
If the client loses their case when they have a DBA, they will pay no fee. What will they have to pay however?
Client responsible for disbursements and opponent’s costs if they lose
- They might want to get ATE insurance too
What is the maximum percentage a contingency fee can be set at?
Maximum contingency fee, including VAT, is 50% of the damages
Lower cap for PI cases (25%) and employment cases (35%)
Caps don’t apply to appeal proceedings
What are the requirements for a valid damages based agreement?
To be enforceable:
- Must be in writing
- Specify the proceedings to which the agreement relates
- Specify the circumstances in which the fee is payable
- Specify the reason for setting the fee at the level agreed
If unenforceable, client doesn’t have to pay solicitor anything
What is the solicitor’s position in relation to their costs if the client terminates the retainer early when a DBA is in place?
Firms can provide that they are paid at a normal rate if the retainer is terminated before the case concludes
Give a summary comparison between conditional fee agreements and damages based agreements
- The enhanced rate is calculated by reference to an uplift in the solicitor’s usual hourly charging rate in CFAs but is linked to the damages received in DBAs.
- The success fee is limited to 100% of the usual hourly rate in CFAs; but the contingency fee cannot exceed 50% of the damages in DBAs
- In both arrangements, the client is not required to pay their solicitor’s fee if the case fails or the client pays a lesser amount depending upon the agreement
- Neither CFAs nor DBAs cover the client’s own disbursements, or the opponent’s costs, which must be dealt with separately
- Both must be in writing
The client might be able to get legal expenses insurance to help with costs.
What is before-the-event insurance?
This insurance policy covers payment of legal expenses and can be obtained specifically for this purpose
- Commonly purchased as part of household or motor insurance policies
Solicitors should check whether the client already has this insurance in place at the outset of a matter and needs to check the precise terms to ensure the specific case is covered
- Solicitor should also check if the other party’s costs are covered + client might be able to get ATE to cover this
- Insurer also needs to accept the claim and may request that a specific firm of solicitors is used
What is the after-the-event insurance?
- Covers the legal expenses incurred in making or defending a case and is available for most types of civil litigation, except for family law
- Taken out after dispute has arisen
- Usually covers liability for disbursements and opponent’s costs
- Will only be offered if the insurer is confident in the success of the case (60% chance of success)
- Recommending or arranging ATE is an insurance distribution activity, so they will need to consider the FSMA restrictions
