Whether our client is a business or an individual we not only understand the importance of sticking to an agreed legal budget, we proactively work to reduce the legal spend. Mishcon Protect offers a variety of alternative funding arrangements designed to reduce the financial risks our clients face when bringing a claim.
Alternative funding arrangements are not just tools for the financially challenged. The advantages extend far beyond the obvious cash flow benefit. They are useful mechanisms for businesses and individuals who wish to remove the risk of litigation either for their own peace of mind or for the benefit of their shareholders.
Mishcon Protect utilises a variety of funders and insurers to offer the following arrangements across a wide range of disputes, including commercial litigation, trust disputes and property matters: -
Fundamental changes to the way in which litigation is paid for introduced in April 2013, have heralded a new dawn of alternative fee arrangements. For more information on the new laws please click here.
For further information on any aspect of Mishcon Protect, please contact Rowena Herdman-Smith.
Conventionally, the majority of litigation is paid for in one of, or through a combination of, four ways: -
- The traditional hourly rate basis
- Under a conditional fee agreement (CFA)
- With the help of a third party funder
- Through legal expenses insurance
The Hourly Rate
The traditional hourly rate basis requires no explanation save to say that both clients and law firms are increasingly moving towards alternate billing structures.
Conditional Fee Agreements (CFA)
A CFA enables a solicitor to forgo some or all of his fees in the event of a loss and, in return, to charge the client his fees and a success fee of up to 100% of his fees in the event of a win.
Click here to read about how the Legal Aid, Sentencing and Punishment of Offenders Act affect Conditional Fee Agreements.
Third Party Funding
Third party funding occurs when an investor, usually a hedge fund, agrees to pay the costs and disbursements of bringing a claim in return for a share of the damages. If the claim is unsuccessful, the funder loses their investment. If the claim is successful the funder will expect to receive either a percentage of the damages or a multiple of the amount of money they have invested in the claim.
In the past, the UK third party funding market has been difficult to negotiate. Only a few funders had adequate capital to invest in cases and the process of convincing the funder to invest was arduous and often resulted in failure. However, the market has been developing at a fast pace over the last few years and recent support from the Ministry of Justice has led to a surge of funders establishing themselves with money to invest in sizeable disputes. The current market is estimated to hold about £500m of investor money ready to be invested in good claims with new entrants appearing on an almost monthly basis. As the funders gain experience in the different case types they become more amenable to offering terms.
Legal Expenses Insurance
There are two types of legal expenses insurance: before the event and after the event.
Before the event (BTE) insurance is a pre-existing policy which pays the client's solicitors' fees and disbursements incurred in bringing or defending legal proceedings. The policy will also cover the opponent's costs in the event the insured is ordered to pay them. BTE insurance can be bought as a stand alone product and is often sold or given away alongside other products such as home contents insurance and credit card agreements. For more information on our Protect Pre-nup BTE insurance policy, please click here.
After the event (ATE) insurance is obtained after the event in time that brought about the client's entitlement to bring, or his need to defend, a claim. The policy will usually cover the opponent's costs and the client's own disbursements in the event the client's case is unsuccessful. It may also be possible to obtain cover for some or all of the client's own solicitors' fees.
Usually, the ATE insurance premium is deferred until the conclusion of the claim and contingent upon success. In the event of a loss, the policy pays out and no premium is due.
Click here to read about how the Legal Aid, Sentencing and Punishment of Offenders Act affect ATE insurance.
The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), which came into force on 1st April 2013, changed the landscape of litigation within the UK. In addition to various changes to the legal aid system, the Act brought changes in the following areas:
CFAs and ATE Insurance
Under LASPO, the client is no longer be able to recover a CFA success fee or an ATE insurance premium from the losing opponent. Both amounts instead have to be paid for by the client.
The Act does not have a retrospective effect and so clients with CFAs or ATE insurance commencing prior to the implementation of the Act will be able to seek to recover their success fee and a reasonable premium from the losing opponent in the event that their case is successful.
Before 1st April 2013, contingency fees were largely unlawful in contentious matters outside Employment Tribunal claims and even there are heavily regulated. LASPO makes it lawful for UK lawyers to enter into contingency fee agreements (called "Damages Based Agreements") for most types of dispute resolution.
In simple terms the UK is now in a similar position to that of the USA. Clients are now in the UK able to offer their lawyers a percentage of their recoveries in return for their lawyers waiving their fee for pursuing a claim in the event their claim is unsuccessful.
The introduction of contingency fee arrangements enables UK lawyers to compete with third party funders, which increases the options and reduces the costs for parties wishing to bring claims that they had previously been unable to pursue owing to a lack of financial resources. Questions remain over the practicalities of offering contingency fee agreements but it is hoped these will be answered over the coming months.
Pre-nuptial agreements are increasingly being seen as a prudent way to manage the financial fall out following the dissolution of marriage.
However, as the law stands in the UK and in contrast to many other European states, pre-nuptial agreements can only be considered binding with court approval; any challenge to a pre-nuptial agreement has to be decided by a Judge. Uncertainty in this area will no doubt continue to raise concerns for individuals who wish to preserve generational and personal wealth. To address this uncertainty, Mishcon de Reya, in partnership with Lansdown Insurance Brokers, have created Protect Pre-Nup.
Protect Pre-Nup is the first insurance policy in the UK designed to sit alongside a prenuptial agreement. In the event of a challenge to the validity or terms of the pre-nuptial agreement, the policy will cover the cost of the legal fees incurred in defending the agreement.
If you would like any further information or want to discuss an area or matter of interest to you, please speak to Miles Geffin.