1 FUNDING LITIGATION THE NEW MENU by JEREMY MORGAN QC
2 Solicitors duty to advise Common law duty of care SRA Code of Conduct Legal Ombudsman
3 SRA Code of Conduct Principle 4 You must act in the best interests of each client O(1.6) You only enter into fee agreements with your clients that are legal, and which you consider are suitable for the client s needs and take account of the client s best interests. O(1.12) Clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them. IB(1.16) Discussing how the client will pay, including whether public funding may be available, whether the client has insurance that might cover the fees and whether the fees may be paid by someone else such as a trade union.
4 Ombudsman Under s.137 LSA 2007 LeO has power to direct that a solicitor s fees be limited to a stated amount, that compensation be paid and that the whole or part of fees be waived,remitted or repaid. The 30k limit on compensation n/a to fee reductions. An Ombudsman s view of good costs service (2012) tinyurl.com/d614w2s funding arrangements should be fully discussed before the service begins. We will look for evidence that the lawyer has discussed funding options such as insurance, unions and legal aid (even if in the latter case, the lawyer in question isn t registered to provide the service and by doing so they may potentially lose business). We will also want to know if any potential affordability issues have been identified and what options the lawyer has discussed to give the customer greater control of their costs.
5 The Funding Menu CFAs Contingency Fees Third party funding Insurance Ben Williams Not considering options under which client pays the same whatever the result.
6 CFAs the present possibilities No win no fee with success fee No win no fee without success fee No win low fee with success fee No win low fee without success fee Can be Collective CFA governing all cases of a particular description Success fees recoverable from the losing opponent
7 CFAs post LASPO Cl. 48 Prevents recovery of success fee from opponent as part of a costs order Does not apply to CFAs made before commencement day (expected April 2013) Does not apply to CCFAs made before commencement day if services provided under the CCFA before that day LC may order for certain types of proceeding that success fee is limited to a max % of prescribed types of damages [only present proposal is in PI cases to limit SF to 25% of damages other than those for future care and loss (from which nothing to be taken)]. HL amendments disapply these changes to industrial disease cases (cls.44 and 45)
8 Contingency fees at present Non-contentious business agreements (s.57 Solicitors Act 1974) Includes potentially litigious matters provided no court or arbitration proceedings actually initiated (s.87(1) SA) once they are the whole matter becomes contentious Re Simpkin Marshall  Ch 229 Damages-based agreements in employment tribunal cases (s.58aa Courts & Legal Services Act 1990) Overrides s.57 Solicitors Act in cases it covers Must be in writing and comply with regs. Regs (SI 2010/1206) contain complex formality requirements, complex prior information requirements, limit fee to 35% (including VAT) of recoveries and limit parties rights to terminate the agreement. Penalty for non-compliance is that agreement is unenforceable Any contingency agreement other than the above or a CFA is unenforceable.
9 Contingency fees the new law Cl 47 LASPO Extends DBAs to all cases Regs will enable max fee to be prescribed in some cases but not others [Consultation says in PI cases this will be as for CFAs, but not clear whether any limit in other cases]. Regs may prescribe formality and/or information requirements Will only apply to agreements made from time when first regs come into force Rules of Court to provide for recovery of costs inter partes in such cases [Consultation says will be on traditional basis of hourly rates + disbursements] Jackson recommended that higher fee should be allowed if solicitor is indemnifying client against inter partes costs (see Ben Williams talk) or bearing disbursements. Unnecessary if no maximum prescribed generally.
10 Contingency fees the future scene Firms doing contingency fees will need to have the cash to cover the lack of cash flow and the disbursement expenditure during the case as well as adverse costs if the agreement covers those. A major and increasing factor will be the effect of ABS, bringing much greater financial resources to solicitors firms. Could lead to US-style approach to certain types of litigation. Will help overcome problems of funding global litigation eg where clients attracted to US-style contingency fees but best forum is E&W where such fees have hitherto been banned.
11 Third Party Funding Is the provision of financial support for litigation by a third party in exchange (usually) for a proportion of the recovery. Not governed by existing statute or LASPO as limits on TPF are entirely creature of common law of champerty. If an agreement is champertous it is unenforceable as an illegal agreement at common law. No case in E&W in which a TPF agreement has been struck down for champerty since the relaxation, in the 1990s, of the strict ban on such agreements but the issues thought to be relevant to the invalidity of an agreement are: Excessive share of recovery Funder seeking to control the litigation (eg with right to override views of litigant) Funder appointing the lawyers or instructing them direct
12 Third Party Funding Jackson supports in principle recommends no full regulation pro tem but that there should be a voluntary code now and FSA regulation should be considered if the market expands Recommends reversal of rule in Arkin v Borchard  EWCA Civ 655 that liability of funder for adverse costs should be commensurate with its funding funders should be potentially liable for the full amount. Association of Litigation Funders of E&W Code of Conduct 2011 Membership not obligatory in order to be able to fund Code covers transparency of agreements obligation to ensure that litigants get independent advice on agreement Obligation not to cause litigant s lawyers to act in breach of professional duties Obligation not to influence the lawyers to cede control or conduct to the funder Obligation to maintain capital adequacy (including at least 3 years aggregate funding liabilities) Restrictions on termination of agreement by Funder.
13 Third Party Funding the present scene TPF sees a claim as simply another asset class in which an investment can be made involves risk and profit if successful. If the owner of the asset is unable to exploit it ie threaten to or actually litigate the asset is devalued or worthless. In E&W a limited number of institutional funders for the most part interested in high value commercial claims minimum values ranging from 150k to 25m (Jackson prelim report meeting Jan 2009) In addition banks, hedge funds, insurance companies and wealthy individuals have become interested in the market. Common arrangement for TPF in England & Wales is for funder to lay off some risk by no win low fee CFA and ATE. The Lawyer panel discussion (www.thelawyer.com/ article) in the legal and financial departments of corporate Britain there is not currently a high level of awareness and/or understanding of the third-party funding options available and their relevance to mainstream commercial litigation.
14 Third Party Funding the future scene Post-LASPO a TPF using CFA and/or ATE will not be able to recover the additional liabilities, so ability to lay off cost of risk-avoidance will be more limited. This should not inhibit the market - cf Australia. More generally, the restrictions on the recovery of ATE premiums and/or on referral fees will make TPF a more attractive source of profit for those who presently derive income from those sources. This could lead to a move into the TPF market of less desirable funders and thus to either a reduction in trust in the market or regulation consider the effect of a Funder failing to pay either own side costs or adverse costs given the lack of any present regulation of capital adequacy. Competition from solicitors offering DBAs might be a factor, though I doubt it will be a major inhibitor. Overall I see the availability and use of TPF growing, not only in relation to disputes in E&W but also in international disputes, particularly arbitration, though the validity of TPF needs to be considered on a jurisdiction by jurisdiction basis eg champerty remains a crime and tort in Hong Kong.
15 Funding after April 2013 The funding arrangements I have described are not mutually exclusive. It is not clear whether a firm which enters into a DBA will thereby make itself liable for adverse costs even if the DBA does not cover these. The TPF analogy (Arkin) would suggest it might, but the CFA history (Hodgson v Imperial Tobacco  1 WLR 1056) is strong authority the other way. Big gap in the market following LASPO will be the funding of lower value claims. Will newcomers to the TPF market pick these up, or ABS acting under DBAs?
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