SQE 1 - 4
In matters unrelated to litigation, such as consultancy on mergers or property transactions, the predominant method of financing is private or self-funding.
This approach entails clients personally bearing the expenses associated with the legal services they receive.
A crucial aspect to clarify when a client seeks legal assistance is the fee structure. This financial arrangement is a key component of the contract, or retainer, established between the client and the solicitor.
For clarity and legal certainty, it is advisable for the retainer to be documented in writing, encompassing all pertinent terms, and signed by the client. Clients have the option to directly fund their legal representation. In scenarios of private funding, solicitors often request an initial deposit 'on account' of anticipated costs. This advance assists in covering any necessary outlays that support the client's legal needs.
Typically, the solicitor will subsequently issue bills for their services and any disbursements on a monthly basis.
An alternative payment arrangement is a fixed fee, established in agreement with the client at the beginning.
This approach is especially prevalent in domestic property transactions and is increasingly being adopted in other areas of practice. The fixed fee might be inclusive or exclusive of VAT and can also encompass disbursements, such as fees for property searches.
In litigation cases, where costs can be substantial and potentially take an extended period to recoup, particularly if the case goes to trial, a primary concern for both solicitors and clients is the financial arrangement for covering these costs.
These expenses encompass not only the fees for the solicitor's professional advice but also include various outlays such as court fees and, when relevant, the fees for barristers.
The Standards and Regulations set by the Solicitors Regulation Authority (SRA) mandate that solicitors maintain transparency regarding litigation costs. Initially, the solicitor is obliged to provide the client with an estimation of likely expenses. This duty extends to ongoing updates about the costs as the case progresses, with a record of all pertinent discussions.
Furthermore, the solicitor is responsible for elucidating and advising on various available funding options for the litigation, as outlined below.
In litigation cases, the option of private, or self-funding, exists, although it is less frequent compared to non-litigious matters. This mode of funding is often viable for larger corporations or affluent individual clients who possess the financial capacity to cover litigation expenses upfront.
A conditional fee arrangement, often referred to as a 'no win, no fee' agreement, allows a solicitor to levy their standard fee plus an additional success fee from the client if the case is won. The success fee represents an uplift on the usual rates. In the event of an unsuccessful claim, the client is not obligated to pay their solicitor's fee. However, they remain liable for the opposing party’s costs and disbursements, as well as their own incurred disbursements, such as court fees. If the claim is victorious and the opponent is ordered to cover the client's costs, the opponent would be responsible for the standard fees, while the client would bear the cost of the success fee.
Consider an individual seeking legal assistance after a workplace injury, unable to afford upfront legal fees. The solicitor proposes a conditional fee arrangement: if the claim is successful, the solicitor’s standard fee of £200/hr would be supplemented by a £100/hr success fee. In a victorious outcome where the court mandates the opponent to pay the claimant’s costs, the solicitor would receive £200/hr from the opponent, with the claimant covering the £100/hr success fee from the claim’s proceeds. In a loss, the claimant wouldn’t pay the solicitor's fees but would need to cover the opponent’s costs and disbursements, along with their own disbursements.
Restrictions. The success fee charged to the client in a conditional fee agreement cannot surpass 100% of the standard fees (meaning the solicitor cannot charge more than double their usual rate if the claim succeeds).
Additionally, conditional fee agreements are not applicable in family law cases.
Damages-based agreements, also known as ‘contingency' agreements, hinge on the successful outcome of a claim and the subsequent recovery of damages. Under this arrangement, if no damages are recovered, the solicitor's fees are not payable. In the event of a successful claim, the solicitor can recover their standard time-based fees from the losing party. In personal injury cases, the legal fees chargeable under a damages-based agreement are capped at 25% of the recovered damages, excluding any future losses. For non-personal injury cases, this fee limit is set at 50%.
It is essential for a damages-based agreement to clearly define what constitutes 'success' in the context of the case. The agreement should also outline the implications of adverse costs being awarded (i.e., costs payable to the opponent), and detail the conditions under which either party can terminate the agreement.
External legal funding, commonly referred to as ‘litigation funding’, involves a third party assuming responsibility for various legal expenses, such as attorney fees, court charges, and premiums for 'after the event' insurance, while excluding costs attributed to the opposing party. Funders typically anticipate a profit from their investment, often expecting a return of 15% to 45% above the funded amount. The standard agreement in such arrangements stipulates that any monetary awards received by the funded party will be used to reimburse the funder. Additionally, in instances where the funded party does not prevail, the funder agrees to absorb the costs they committed to finance.
Pre-Event Insurance. It is advisable for a solicitor to ascertain if a client possesses pre-event insurance to cover legal expenses. This type of insurance is commonly included in road traffic cases, as many auto insurance plans incorporate pre-event insurance in their coverage. This insurance may also be a component of home insurance policies and is often labelled as ‘legal expenses insurance’. In such cases, the insurance company bears the solicitor’s legal costs.
Post-Event Insurance. Post-event insurance is arranged following an incident or event that leads to a legal claim. This insurance covers various disbursements needed to advance the claim, like expert assessments, court expenses, medical records, and similar costs. Most post-event insurance plans also provide coverage against the risk of having to pay the opposing party’s costs in case the claimant’s case is unsuccessful.
Requirement to Use Specific Solicitors. It’s important to note that these insurance policies frequently stipulate the use of a particular solicitor, which might not be the one initially approached by the client. Despite this, solicitors have a professional obligation to act in the client's best interest and explore this option, even if it results in them not representing the client.
Clients who are members of a union may have access to legal expense coverage as part of their union membership benefits. This can provide an alternative source of funding for their legal costs.
When representing a client with limited financial means, a solicitor should assess the possibility of funding litigation through Legal Aid, also known as public funding. Eligibility for Legal Aid, however, is restricted to firms that have contracts with the Legal Aid Agency, so not all solicitors may be able to accept a publicly funded case. Even when eligible, clients might still need to contribute towards their legal costs.
Eligibility Criteria. Financial and Meritorial Access to public funding is contingent upon the client meeting both a financial eligibility criterion and a merits test. The assessment of financial eligibility considers various personal factors, including income, savings, family situation, and living expenses. The merits test requires that the claim demonstrates reasonable prospects of success.
Applicability in Specific Areas. Legal Aid is restricted to certain types of disputes, including housing, family law, or debt issues. It is generally not applicable to contract or tort claims, except in exceptional cases such as birth injury claims.
Possibility of Revocation. The provision of Legal Aid may be revoked if there is a significant change in the case's merits or if issues arise regarding the client's conduct, potentially leading to the termination of the funding certificate.
Protection from Opposing Costs. A party funded through Legal Aid is protected from being compelled to pay the costs of the opposing party in the legal dispute.
1126
Legal Services 1
Legal Services 2
Legal Services 3
Legal Services 4
Legal Services 5
Legal Services 6
Legal Services 7
Legal Services 8
Legal Services 9