Litigation can be funded through various arrangements, each offering clients a way to manage legal costs with differing risk and payment structures.
Conditional fee agreements
CFAs are common in the UK. Under a CFA, the client’s payment to their solicitor depends on the case’s outcome. If the client loses, they usually pay nothing under the CFA but may still owe the winning party’s costs unless they have after-the-event, or ATE, insurance. If successful, the client pays fees and expenses, often recoverable from the opposing party. CFAs often include a success fee, which is an additional percentage payable to the solicitor upon winning. Recent reforms prevent the recovery of this fee from the losing side.
Damages-based agreements
DBAs are a subtype of CFA whereby a solicitor’s fee is a pre-agreed share of the damages awarded, known as a contingency fee. If the client loses, the solicitor is unpaid; however, clients remain responsible for the other side’s costs, potentially covered by ATE insurance. Contingency fees are capped, usually at 50% of damages, and typically available only to claimants.
Third-party litigation funding
The litigation funding market has expanded rapidly in the past decade, with companies such as //www.novo-modo.co.uk/litigation-funding enabling claimants to access litigation remedies. A separate funder covers part or all of the legal costs in exchange for a share of any recovery. Funders require strong prospects of success and often insist on ATE insurance to mitigate adverse costs risks. This option helps parties pursue claims without bearing upfront costs.
Each method balances risk and cost recovery, offering tailored solutions for different litigation needs.