The law and provisions surrounding certain methods of funding can be complicated, and there are technicalities that often prove to be a banana skin for lawyers, causing adverse and occasionally disastrous effects. We discuss how a costs draftsman can help to ensure that funding arrangements are fully in check and lawyers will be properly remunerated for their work.
The Transformation in Litigation Funding in Recent Years
The litigation funding landscape has transformed a lot in recent times. In the corporate sector, lawyers and funders have sought to provide more innovative means of funding litigation, and a wide range of sophisticated funding arrangements are now available to businesses. In the civil sector, reforms such as the Legal Aid, Sentencing and Punishment of Offenders Act 2012 have impacted the use of legal aid and conditional fee agreements. We will talk about what effect this has had on the take up on these funding methods below.
Third Party Funding
Third party funding aims to offer businesses a means of pursuing litigation while preserving liquidity and minimising risk, thereby increasing the opportunities to pursue certain claims. The put the demand for third party funding into perspective, the total assets of UK litigation funders has risen from £0.4bn in 2015 to circa £2bn currently. If this continues, third party funding has the capacity to significantly alter the litigation landscape.
For third party funding to be effective there needs to be sufficient damages available, but the costs of pursuing the matter should also be proportionate to the size of the claim as the funder covers the legal costs in return for a share of the damages recovered.
This is also important where the case is lost and the funder is liable for the opponent’s costs, particularly following the Court of Appeal decision in Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246 in which it was made it clear that the Arkin cap (which serves to limit the liability of the funder to the level of funds that it contributed) is not a binding rule.
So why would a law costs draftsman be of use in matters funded under third party funding? Utilising their costs budgeting expertise, a costs draftsman is well placed to help provide predictability by estimating the costs of the work to be undertaken. Thereafter, they can advise on the proportionality of those costs against the sums in issue. This valuable input from a costs draftsman can help to establish whether the profile of a case meets the eligibility criteria for third party funding.
Damages Based Agreements
There is likely to be an upturn in lawyers offering DBAs to clients going forward in light of the Court of Appeal ruling last month in Zuberi v Lexlaw Limited [2021] EWCA Civ 16 that a DBA that permits payment of legal fees on early termination is enforceable.
So how can a costs draftsman help to ensure that a DBA turns out to be profitable? When evaluating whether a legal matter is suitable for a DBA, it is important to assess a number of factors, including the overall cost of taking the claim to trial and the likely recoverable costs inter-parties. The need to budget carefully has never been greater. Again, utilising their expertise in costs budgeting, a costs draftsman can assist lawyers and funders by providing an accurate estimate of costs for the work to be completed though to various stages of the matter, as well as the likely recoverable costs between the parties. This will help to establish with confidence whether a DBA is suitable, as well as the appropriate level for the contingency fee.
Private Retainers
A common problem in matters funded under private retainers is the failure to provide the client with sufficient information at the outset. Where a lawyer intends to deliver interim statute bills, it should be made clear in the retainer. This hasn’t been done in a number of cases recently, including Iwuanyawu v Ratcliffes Solicitors [2020] EWHC B25 (Costs).
A law costs draftsman can review the retainer documentation and help to ensure that all relevant information has been provided to the client that will allow the lawyer the render interim statute bills and enforce the same, if necessary.
It is also important that the costs estimates given to the client are both accurate and updated as the matter proceeds as these will be taken into consideration as a yardstick in determining the reasonable amount of costs to be allowed on assessment. A costs draftsman with experience in costs management can ensure such estimates of costs are as accurate as possible.
Conditional Fee Agreements
All too often CFAs are held to be unenforceable. In Global Energy Horizons Corporation v The Winros Partnership [2020] EWHC B27 (Costs) three CFAs were unenforceable for having the potential to lead to a claim for a success fee exceeding 100%. In Worley v Persimmon Homes (West Yorkshire) the CFA was unenforceable for failing to state the success fee in percentage terms. Simply put, a poorly drafted CFA is a recipe for disaster.
To help prevent such problems, a costs draftsman can help to consider the most suitable type of CFA for the case and ensure that it contains all the necessary provisions to make it enforceable.
What else can a law costs draftsman do to avoid any nasty surprises? A costs draftsman with the relevant knowledge can also advise on the steps required to be taken to assign a CFA, something that should still be treated with care (see Roman v AXA Insurance [2018]).
In addition, the removal of the recoverability of success fees means that clients will now end up parting with some of their damages to pay for the legal costs, and so the client ought to be kept informed of the costs. As with privately funded matters, a costs draftsman with experience in costs management can ensure such estimates of costs are as accurate as possible.
Legal Expenses Insurance
Legal expenses insurance includes both Before the Event (‘BTE’) insurance and After the Event (‘ATE’) insurance. We will focus only on ATE insurance and the recent developments in the same.
Section 46 LASPO abolished the recoverability of ATE premiums; however, certain premiums or elements of premiums remain recoverable, and a costs draftsman can ensure that these are included within any bill of costs and recovered from the paying party.
ATE premiums have also recently been the subject of proportionality disputes. Our law costs draftsman team in London can advise on the law surrounding the reasonableness and proportionality of ATE premiums, although why the premium has been set at the level it has is often a question best left to the underwriter with the relevant expertise.
Legal Aid
LASPO greatly reduced the coverage of civil legal aid by removing certain types of case from the scope; however, since 2016 there has been a slight uptick in spending.
When a civil case funded under legal aid becomes complex and the costs are likely to exceed £25,000 it may need to be managed under a high cost case plan.
Our costs draftsman team in London can assist by calculating the costs incurred to date, assessing the future overall and staged costs accurately, obtaining up-to-date fees and disbursements and preparing the plan, ensuring that the lawyer receives the right level of costs for their work. The time spent by the law costs draftsman preparing the plan can also be included within the stage costs.
Disbursement Funding
Disbursement funding is a type of funding used by lawyers and the legal industry to fund the cost of disbursements on behalf of their clients. Many lawyers use loans for disbursement payments as a source of extra cashflow. In return for the finance, the funder charges interest on the loan at a rate in the range of 10 – 15%. Is this interest recoverable inter-partes?
The question as to whether disbursement funding interest is recoverable is complicated. It has been accepted that there is discretion to award interest on costs before the date of the judgment, including in such a way that takes into account the interest paid on a disbursement funding loan, but that it may not be a sensible exercise. Our costs draftsman team in London can advise on the merits of recovering interest on disbursement funding, make submissions on its recoverability and ensure that pragmatic advice is given to the client.
Conclusion
Funding is a huge part of legal costs, and a costs draftsman will nearly always be able to provide valuable input on funding issues to ensure that lawyers are properly remunerated. As the methods of funding litigation evolve, new issues surface. Our costs draftsman team keep up to date with the latest developments in funding and constantly help our clients to get the most out of their funding arrangements.
If you require a costs draftsman in London to assist you with any funding issues, contact us today for a free consultation at info@athenelegal.co.uk
