Funding and Costs

Question 1

Briefly, what is the process for solicitors fees/costs?

Answer 1

The solicitor should provide the client with as much information as possible initially. They should discuss potential steps in the litigation and potential costs, and agree a ceiling figure or review dates. Often, there will be an immediate initial payment required on the account, and interim bills delivered as the case progresses.

Question 2

What happens to costs if a client loses the case?

Answer 2

Normally, the client will have to pay his own solicitor’s costs and the opponent’s costs. CPR 1998 provides as a general rule that the unsuccessful party will be ordered to pay the costs of the successful party.

Question 3

What is a conditional fee agreement (CFA)?

Answer 3

An agreement where the solicitor receives no payment, or less than normal payment if the case is lost, but receives normal or higher than normal payment if the case is won

Question 4

How is a CFA enforceable?

Answer 4

A CFA is enforceable if it meets the requirements of ss58 and 58A of the Courts and Legal Services Act 1990

Question 5

What are the requirements of ss58 and 58A of the Courts and Legal Services Act 1990?

Answer 5

A) A CFA can be entered into in relation to any civil litigation matter, except family proceedings

B) It must be in writing

C) It must state the percentage by which the amount of the fee that would be payable if it were not a CFA is to be increased

Question 6

What does ‘it must state the percentage by which the amount of the fee that would be payable if it were not a CFA is to be increased’ mean?

Answer 6

This relates to the success fee. If there is a CFA, this will normally include a percentage increase on the normal hourly charge (if a CFA was not in place), which means that if the client wins, they pay a slightly higher charge

Question 7

What should a solicitor consider when advising a client about a CFA?

Answer 7

The solicitor should explain the circumstances in which the client may be liable for their own legal costs. The solicitor should also discuss whether he client has BEI, as if there is BEI, a CFA is not necessary.

Question 8

When drafting a CFA, what is key to define?

Answer 8

It is key to define the phrase ‘win’. Does the client win if they win all aspects of their claim, or does it still count as a win if they win some aspects but not others?

Question 9

Where can you find draft or model CFAs?

Answer 9

The Law Society

Question 10

If the client wins the case, and has a CFA, who pays the agreed success fee?

Answer 10

If the client wins, and the opponent is instructed to pay the clients legal costs, the opponent will not have to pay the success fee. This is still payable by the client. This should be clear when drafting the CFA.

Question 11

What is a damages-based agreement (DBA)?

Answer 11

A DBA means that if the client recovers damages, the solicitor’s fee is an agreed percentage of those damages. If the client recovers £100,000 and the DBA is set at 10% then the client will pay £10,000.

Question 12

How is a DBA enforceable?

Answer 12

If it meets the requirements of s58AA(4) CLSA 1990

Question 13

What are the requirements of s58AA(4) CLSA 1990 in relation to DBAs?

Answer 13

A) It must be in writing

B) It must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner

C) It must comply with such other requirements as to its terms and conditions as are prescribed

D) It must be made only after the person providing services under the agreement has provided prescribed information

Question 14

In relation to DBAs, what does point B ‘it must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner’ mean?

Answer 14

The DBA must not, including VAT, exceed an amount equalling more than 50% of the sums recovered by the client

Question 15

In relation to DBAs, what does point C ‘it must comply with such other requirements as to its terms and conditions as are prescribed’ mean?

Answer 15

The DBA must specify terms and conditions including the claim or parts of the claim which the DBA relates to, the circumstances which it is payable and the reason for setting the payment amount at the level agreed

Question 16

In relation to DBAs, what does point D ‘it must be made only after the person providing services under the agreement has provided prescribed information’ mean?

Answer 16

This only refers to employment matters and is not relevant for the scope of the course

Question 17

What should a solicitor consider when advising a client about a DBA?

Answer 17

The solicitor should explain the circumstances in which the client may be liable for their own legal costs. The solicitor should also discuss whether he client has BEI, as if there is BEI, a DBA is not necessary.

Question 18

What should a solicitor consider in regards to insurance?

Answer 18

A solicitor should check to see if the client has an existing legal expenses insurance policy, often known as BEI, that may fund the litigation.

Question 19

If the client does not have BEI, what else should be considered?

Answer 19

The client should consider purchasing AEI whether or not they are funding the litigation through a CFA or DBA.

Question 20

Why should a client consider purchasing AEI even if they are not funding the litigation through a CFA or DBA?

Answer 20

If the case is lost, the loser will generally have to pay the winner’s costs. AEI removes the uncertainty of not knowing the amount which would be paid.

Question 21

What happens if a solicitor does not discuss AEI with a client?

Answer 21

This could be considered negligent and a breach of professional conduct if it is not discussed, given the advantages of AEI.

Question 22

What is third-party funding?

Answer 22

Third-party funding is where a client is a member of a trade union or professional organisation which has the means to be responsible for the payment of his solicitors costs.

Question 23

What sort of claims is third-party/private funding applicable to?

Answer 23

Large commercial claims

Question 24

What is public funding?

Answer 24

Public funding is known as legal aid. The solicitor should always consider if this is available. It is usually available for cases which could be financed by a CFA.

Question 25

Who administers public funding?

Answer 25

The Legal Aid Agency (LAA).

Question 26

What is a specified claim?

Answer 26

A specified claim in the nature of a debt. The amount will be known already e.g. from an invoice, or should be capable of being determined by mathematics e.g. a contractual formula.

Question 27

What is an unspecified claim?

Answer 27

An unspecified claim is any which the court has to conduct an investigation to decide on the amount of money payable, even if the claimant puts some figures forward for the amount claimed.

Question 28

What happens if a claim is a mixture of specified and unspecified?

Answer 28

Here, the entire claim is treated as unspecified.

Question 29

Can a claimant demand interest on a claim?

Answer 29

A prospective claimant can demand interest on claim only if entitled to it under any contractual provisions. Where the remedy is either damages or debt repayment, the court may award interest on the sum outstanding.

Question 30

In contract and debt claims, what are the three alternative claims to interest?

Answer 30

A) The contract itself may specify a rate of interest payable on any outstanding sum.

B) Claiming interest under the Late Payment of Commercial Debts (Interest) Act 1998

C) Awarding interest under s35A of SCA 1981 for High Court cases or under s69 of CCA 1984 for County Court Cases

Question 31

If a contract specifies a rate of interest payable on an outstanding sum, will the court give effect to this?

Answer 31

Yes, if there is a specified rate of interest, the court will usually apply the rate

Question 32

What is the current rate of interest payable under the SCA 1981 or CCA 1984?

Answer 32

Currently, the rate for both statutes is 8% PA in non-commercial cases and 1% PA over base rate in commercial cases

Question 33

Under the Late Payment of Commercial Debts (Interest) Act 1998 how can interest be calculated?

Answer 33

If both parties are contracting in the course of a business, then this is at 8% over base rate on the debt when it became due for payment. This must be liquidated debt claim not a claim for damages.

Question 34

From what date is interest payable?

Answer 34

Interest can be awarded from when the cause of action first arose, however in practice the award is normally from when the loss is sustained

Question 35

What is a commerical case?

Answer 35

Where all the parties are businesses and the claim is based on the transaction of trade and commerce, such as a business document or contract, the export or import of goods, banking and financial services and the purchase and sale of commodities.

Question 36

What is a non-commerical case?

Answer 36

Where one party acts as a consumer