U4 - Funding of legal services

Question 1

What must solicitors balance?

Answer 1

Serving the law firm’s business needs and having an affordable option for the client to achieve their needs.

Question 2

Where are all the terms about charges and restriction held?

Answer 2

In the retainer (the contract between solicitor and client)

Question 3

Who regulates costs?

Answer 3

SRA

Question 4

When thinking about costs and charging clients, what SRA principles should solicitors be aware of and respect?

Answer 4

A solicitor must act in the best interests of the client (SRA Principle 7) and act with integrity (SRA Principle 5).

Question 5

Can solicitors overcharge the client?

Answer 5

No.
Excessive charges may breach Paragraph 1.2 of the SRA Code of Conduct for Solicitors, RELs and RFLs which provides that a solicitor must not abuse their position by taking unfair advantage of the client.

However, it is normal that the firm will make a retainer that is advantageous to them etc.

Question 6

How should client be taken care of regarding costs? With reference to paragraphs etc.

Answer 6

Paragraph 8.7 of the SRA Code of Conduct for Solicitors, RELs and RFLs provides that a
solicitor must provide clients with the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of a matter and any costs incurred.

Paragraph 3.4 of the SRA Code of Conduct for Solicitors, RELs and RFLs requires a solicitor
to consider and take into account the client’s attributes, needs and circumstances.

Make client aware of funding options.

Question 7

What happens if client feels like they have been overcharged and they make a claim. And then the costs officer agrees that an overcharging has occured and reduces costs by 50%?

Answer 7

Reduction of costs by 50% = they must inform the Solicitors Regulation Authority. Aka…get the law firm reported!!

Question 8

What are solicitor’s costs?

Answer 8

Costs + disembursements

Question 9

What is private funding?

Answer 9

When client pays for the costs themselves.
The solicitor’s fees are calculated according to the time spent on the case at a given hourly
charging rate (disbursements and expenses are charged separately).

Cost is open-ended and can rack up a bill.

Question 10

What are fixed costs?

Answer 10

When client pays for the costs themselves but the cost is fixed, or for a fixed fee
plus VAT and disbursements.

Fee cannot be changed at a later date unless client agrees.

It is vital that the solicitor obtains all the relevant information in order to set a fixed fee at a reasonable but remunerative level

Question 11

What are the 2 types of arrangements that law firms can enter into with their clients as per the Solicitor’s Act?

Answer 11

These are termed contentious and non-
contentious business agreements.

Question 12

How do Non-contentious business agreements work?

Answer 12

This is for cases that don’t require case proceedings in court etc. So, not contentious stuff.

Under this agreement the solicitor may be
remunerated by a gross sum, an hourly rate, commission, a percentage, a salary or otherwise.

Question 13

What is needed for a Non-contentious business agreement to be enforceable?

Answer 13

To be enforceable, the agreement must comply with s 57 Solicitors Act 1974. For example, the
agreement must:
(a) be in writing;
(b) be signed by the client;
(c) contain all the terms of the agreement (including whether disbursements and VAT are
included in the agreed remuneration)

Question 14

How do contentious business agreements work?

Answer 14

Contentious business is defined as ‘business done, whether as a solicitor or an advocate, in
or for the purposes of proceedings begun before a court or an arbitrator, not being business which falls within the definition of non-contentious business or common form probate business’

The agreement may provide for the solicitor to be remunerated by reference to a gross sum,
an hourly rate, a salary or otherwise.

Question 15

What is needed for a Contentious business agreement to be enforceable?

Answer 15

(a) the agreement must state it is a contentious business agreement;
(b) the agreement must be in writing;
(c) the agreement must be signed by the client; and
(d) the agreement must contain all the terms.

Question 16

Do the contentious or the non-contentious business agreements allow for clients to apply to court for the assessment of costs if they are unhappy?

Answer 16

NO.

But for contentious cases, where the solicitor is billed per hour of work - this can be assessed by courts.

But if the costs are particularly unfair or unreasonable, the courts will set the agreement aside and assess the costs.

Question 17

What must solicitors remind their client when it is a civil litigation?

Answer 17

That the costs between client-solicitor is different to costs between client-client’s opposition in the case.

Client has a duty to pay their solicitor - whether or not their case is a success. Whether or not client has won and the opposing party is bankrupt.

Question 18

The option of variable fees, what are the two types of agreements solicitors can make with their client?

Answer 18

Conditional Fee Agreements - CFAs

or

Damages-based agreements - DBAs

Question 19

How does a CFA work?

Answer 19

This is an extreme one: if client wins, solicitor can be paid more than if the arrangement was a normal one (an enhanced fee - called an ‘uplift’). If client loses, solicitor risks having to pay out of their own pocket. UNLESS, the client will take insurance called the after-the-event insurance (ATE).

In this agreement, it is no win, no fee (but firms can state that they want disembursments to be paid by client (aka for witnesses and reports etc).

However, a CFA needs to comply with some requirements to be valid:
(a) may be entered into in relation to any civil litigation matter, except family proceedings;
(b) must be in writing; and
(c) 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 20

Is there a cap for how much the enhanced fee will be in a CFA?

Answer 20

The success fee cannot exceed 100% of the solicitor’s normal charges. In personal injury cases there is an additional cap of 25% of the general damages recovered.

Question 21

In regards to the CFA, what is the risk assessment that a firm should conduct before it starts a CFA?

Answer 21

A solicitor should always conduct a risk
assessment before entering into a CFA taking account of such factors as:
(a) the chances of the client succeeding on liability;
(b) the likely amount of the damages;
(c) the length of time it will take for the case to reach trial;
(d) the number of hours the solicitor is likely to have to spend on the case

Question 22

In CFAs what is it important to do?

Answer 22

Inform client of success fee and how the percentage has been arrived to

Question 23

What is a Damages-based agreement?

Answer 23

A damages-based agreement (DBA) is an agreement in which the solicitor agrees to receive payment for their services only if the client is successful in their claim; and the amount of the solicitor’s fee is linked to the level of compensation/damages obtained.

Solicitor will inform client of an agreed percentage earnings the solicitor will take from the winnings - this is called a contingency fee - aka it is only taken where an event (winning damages) have occured.

Also this option is only open to claimants and counter-claiming defendants.

May be recommendable that the client will take insurance called the after-the-event insurance (ATE) - since they may still need to pay solicitor for disembursments + their opponents costs if case fails.

Question 24

Who is the Damages-based agreement open to for use?

Answer 24

Also this option is only open to claimants and counter-claiming defendants.

Question 25

Is there a cap for fees given to solicitors in a DBA?

Answer 25

Only a certain percentage can be used.

A DBA is subject to a cap on the level of the solicitor’s fee. The DBA must not provide for
a payment above an amount which, including VAT, is equal to 50% of the sums ultimately
recovered by the client. The cap is inclusive of counsel’s fees, but not other disbursements for
which the client will remain liable. The cap does not apply to appeal proceedings.

Question 26

What is the fees cap like for personal injury claims and employment claims in DBAs?

Answer 26

A lower cap is set in personal injury cases, namely 25% of general damages received for pain, suffering, and loss of amenity and damages for pecuniary loss (other than future pecuniary loss). Same as CFA.
The cap for employment cases is 35%

Question 27

What needs to be done for a DBA to be enforceable?

Answer 27

The agreement must be in writing and specify the proceedings to which the agreement relates, the circumstances in which the fee is payable and the reason for setting
the fee at the level agreed.

If the DBA is adjudged unenforceable, the client will not have to pay the solicitor anything.

Question 28

Are DBAs a viable option?

Answer 28

The nature of a DBA is such that
it is only a viable option where the solicitor is confident not only that the client will succeed,
but also that the opponent will pay both the damages and costs from which the solicitor’s fees will be taken.

It is too high risk. Clients can terminate the retainer before they win big and nothing can be done about this - even if the firm had a term saying any early terminations = money must be paid to firm.

Question 29

What is the difference between CFAs and DBAs?

Answer 29

• The enhanced rate is calculated by reference to an uplift in the solicitor’s usual hourly
  charging rate in CFAs, but is linked to the damages received in DBAs.
• The success fee is limited to 100% of the usual hourly rate in CFAs; but the contingency fee cannot exceed 50% of the damages in DBAs.
• In both arrangements, the client is not required to pay their solicitor’s fee if the case does not succeed, or pays a lesser amount depending upon the agreement.
• Neither CFAs nor DBAs cover the client’s own disbursements, or the opponent’s costs,
  which must be dealt with separately.
• Both must be in writing.
• The availability and terms of these funding arrangements will reflect the infinite variety of
  cases and the inherent difficulties of predicting the outcome of litigation.

Question 30

There are 2 types of insurances clients can get, what are they?

Answer 30

Before-the- event insurance (BTE) or the After-the- event insurance (ATE).

Question 31

What does the Before-the- event insurance (BTE) cover? It is taken out before a dispute arises…

Answer 31

Solicitor’s costs exclusively.

An insurance policy is unlikely to cover legal expenses in every type of case, and so the
precise terms of the individual policy must be examined.

Insurers will only take on a client and give insurance where they are convinced that there is more than 50% chance of success… otherwise they will lose lots of money.

Question 32

What does the After-the- event insurance (ATE) cover?

Answer 32

ATE covers the legal expenses incurred in making or defending a case

It is available for most types of civil litigation with the exception of family law.

Whilst it is possible to obtain ATE to cover the client’s own legal fees, ATE usually covers liability for disbursements and the opponent’s costs.

The client will have to find an insurer willing to take on the risk. ATE will only be offered where
the insurer is confident in the success of the case (for most insurers this means a 60% chance of success).

More difficult and more expensive to obtain than BTE.

Question 33

Warning about solicitors informing and advising about insurances!!

Answer 33

A solicitor who recommends or arranges ATE for a client will be carrying out insurance
distribution activities.

Question 34

What is 3rd party funding?

Answer 34

When someone or a company unrelated to the case funds clients case.

The court affirmed ‘the commercial funder who is financing part of the costs of the litigation
in a manner which facilitates access to justice and which is not otherwise objectionable’.

Usually used in commercial cases.

Not usually available to claimants - because 3rd party will want a slice of the money recovered after case judgement.

A commercial funder will only take on a case where there is a good chance of success. Most
funders interpret this as meaning that the chance of success must be at least 60%. Claimant must also not be left with less than 50% of the amount recovered after deduction of the funder’s fee.

Question 35

What is covered by 3rd party funding?

Answer 35

Third party funding is aimed at covering the client’s own costs and disbursements.

However, exactly what is covered will depend on the terms of the funding agreement. It is common, for example, for the funder to only cover part of the solicitor’s fees with the remainder being covered by the client or via a CFA.

Also fee that will be received by funding will depend on the terms of the agreement.

Question 36

If a 3rd party’s client loses their case, what happens? Will they be held liable?

Answer 36

Generally, yes (third party costs order a will be ordered by court).

Additionally, courts will look at the the level of control weilded by the 3rd party over the case and client.

Question 37

What must solicitor be wary of when their client wants to use a 3rd party funder?

Answer 37

Solicitor needs to keep client confidentiality when funder asks for info.

Solicitor needs to minimise the influence which the funder has over the conduct of the case which will reduce the risk of a conflict of interest arising

Question 38

Age under 18 and the CC, whats the outcome for the interest of justice test?

Answer 38

If in the CC, 18 yr old meets the interest of justice test automatically.

Question 39

To offer legal aid (for those that can’t afford legal fees) what must a law firm have?

Answer 39

Must have a contract with the Legal Aid Agency
which covers the type of work relevant to the client’s case, eg criminal defence work.

Question 40

Can a firm decline to act for a client who wants legal aid (even though they ahve a contract with the legal aid agency and so can offer it)?

Answer 40

Yes

Question 41

What are the 2 types of litigation that is offered legal aid?

Answer 41

Civil and Criminal litigation

Question 42

There are 2 types of civil litigation legal aid work, what are they and whats the difference?

Answer 42

Both show different eligibilities: controlled vs licensed work.

Civil legal aid falls into two categories: controlled work and licensed work.
Broadly, with controlled work it is for the solicitor to determine the client’s eligibility, whereas licensed work is authorised by the Legal Aid Agency on a case by case basis

Question 43

What are the 3 types of civil litigation help?

Answer 43

Legal Help - basic advice - controlled work

Help at Court - This type of funding covers advice and assistance, including advocacy - controlled work

Legal representative - having a lawyer basically - this is licensed work. Need to pass the means and merits test if a civil case. OR a means and interests of justice test if a criminal case. This work can be obtained on an emergency basis, such as homelessness or domestic violence.

Question 44

What kinds of cases are legal aid available for?

Answer 44

Cases where legal aid remains available include those where the client faces homelessness,
family cases where the client is the victim of domestic abuse, cases in which the client has
been subject to discrimination, immigration cases and care proceedings.

Question 45

Can legal aid be available for cases that fall outside the accepted areas?

Answer 45

Yes but only in ‘exceptional circumstances’.

Question 46

What are the 2 tests that need to be passed in order to get legal representation ?

Answer 46

Merits test
How to pass this? Although the details vary, the tests all involve an assessment of the client’s prospects of success and the application of a cost–benefit criteria. Prospects need to be more than 50%.

Means test
How to pass this? Client’s income and capital must not exceed a certain amount - limit is £8,000 (£3,000 for immigration cases). Client who has government money support = passes for income test but you need to still assess their capital. Monthly income must not exceed £2,657.
Client could be asked to contribute to the costs, instead of getting it all for free.

Question 47

When a client is successful in their case that is made via legal aid for civil litigation, what happens to the winnings?

Answer 47

Statutory change - sometimes this money can be taken back to pay the solicitor’s fees.

Question 48

How does criminal litigation legal aid manifest?

Answer 48

In the police station - can have a duty solicitor.

Also, for funding in court.

Question 49

What are the 2 tests used to see if someone is eligible for legal aid in criminal litigation?

Answer 49

The interests of justice test and the means test.

Question 50

How to pass interests of justice test (1/2 of the criminal litigation tests)

Answer 50

How to pass interests of justice test:
A number of factors are taken into account in deciding whether a client can satisfy the
interests of justice test (s 17 Legal Aid, Sentencing and Punishment of Offenders Act 2012):

(a) whether the individual would, if any matter arising in the proceedings is decided
against them, be likely to lose their liberty or livelihood or suffer serious damage to their
reputation; REPUTATION (aka losing job)
(b) whether the determination of any matter arising in the proceedings may involve
consideration of a substantial question of law;
(c) whether the individual may be unable to understand the proceedings or to state their
own case;
(d) whether the proceedings may involve the tracing, interviewing or expert cross-examination
of witnesses on behalf of the individual; and
(e) whether it is in the interests of another person that the individual be represented (note
that the other ‘person’ referred to here will most commonly be a prosecution witness in a
sensitive case where it would not be appropriate for the defendant to cross-examine them in person).

Find out how under 18s are treated.

Question 51

How to pass the means test (2/2 of the criminal litigation tests)?

Answer 51

Find out how under 18s are treated.

When someone’s adjusted income = less than £12,475 - automatically ELIGIBLE in CC and magistrates

When someone’s adjusted income = between £12,475 and £22,325 - full means test needed at both magistrates and CC

When someone’s adjusted income = £22,325+
This means they are no longer eligible for funding at magistrates level but can be funded at the CC if full means test is passed.

Question 52

If client has a certain amount of money, the CC can ask them to contribute to the legal aid. What is this certain amount of money?

Answer 52

If a client has a disposable
income of more than £3,398 and less than £37,500

Question 53

What happens on the successful application for a legal representation? For criminal litigation

Answer 53

The result of a successful application for criminal legal aid is that a representation order will be issued and sent to the solicitor. This is in effect confirmation that the solicitor may start
incurring legal costs on the client’s behalf which will be covered under the legal aid scheme.