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CONTRO£™ - What you need to know
CONTRO£™ applies to both claimants and defendants. Conditional Fee Agreements and After the Event Insurance are in principle available to both. Currently Third Party Funding is limited to claimants, or defendants with counterclaims, but the market is developing fast. Funders are already looking at the possibility of funding defences in return for one off payments.
Conditional Fee Agreement (CFA) Essentials
What is a CFA?
What are the advantages of a CFA?
An example of how we charge you under a CFA
How is the success calculated?
How much of the fees charged under a successful CFA can a party to a dispute recover from the opposing party?
Is it necessary to notify the opponent that a CFA has been entered into?
How does one define success?
Will barristers work on a CFA?
After The Event Insurance (ATE) Essentials
What is After the Event Insurance (ATE)?
What does it cost?
What are the tactical advantages of ATE?
What type of cases are suitable for ATE?
Who is the insurer?
At what point should a party to a dispute consider ATE insurance?
How does the insurer define "win" or "lose"?
In what circumstances does the premium have to be paid?
Is the premium recoverable?
Is it necessary to notify the opponent that an ATE policy has been taken out?
Third Party Funding (TPF) Essentials
What is a TPF?
Is it legal?
What are the advantages of Third Party Funding?
What cases are suitable for TPF?
Who are the funders?
What will the funder fund?
What does the funder expect in return?
Is the funder's fee recoverable from the other party if you win the case?
A funder is interested in the case. What happens next?
How long will the whole process take?
Conditional Fee Agreements
What is a CFA?
A CFA is an agreement between you and us under which you agree to pay fees at less than standard rates if the case is not successful, and at standard rates plus a "success fee" (expressed as a percentage uplift on standard rates) if you are successful.
A CFA is the only lawful form of contingency fee arrangement allowed in England and Wales for contentious work. There is no restriction on the type of contingency fee that may be charged for non-contentious work.
What are the advantages of a CFA?
There are three main advantages:
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Improved cash flow. You will be offered a discount of up to 50% on standard hourly rates throughout the life of the litigation.
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Improved certainty on costs. You will be better placed to make a provision on your balance sheet regarding Addleshaw Goddard's legal costs, knowing that if the case is lost, you will only have to pay our fees at a reduced rate plus expenses.
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We have a stake in the litigation, meaning that we are incentivised to achieve "success" (as defined in the CFA) for you.
An example of how we charge you under a CFA
Let us say that we agree a "no win, low fee" CFA with you under which we agree to discount our standard fees by 50% and there is a 50% success fee if we win.
Throughout the life of the dispute, you pay our fees at the discounted rate of 50% of our standard rates plus disbursements. If the case is lost, that is all you have to pay us.
If you win the case, you will have to pay to us the discounted fees (i.e. 50% of our standard rates) and disbursements, plus the difference between those fees and our standard fees (i.e the remaining 50% of our standard rates that were conditional upon the outcome), plus a success fee of 50% of our standard rates. The total amount due to AG is therefore 150% of our standard rates (i.e. 50% discounted fee+50% conditional fee+50% success fee).
How is the success fee calculated?
The success fee is calculated as a percentage of standard hourly rates. In order to set the level of success fee, we quantify the prospects of success in percentage terms. Once we have assessed the prospects of success, we refer to a "Success Fee Calculator", to determine the appropriate level of success fee. The success fee will never exceed 100% of our standard hourly rates.
How much of the fees charged under a successful CFA can a party to a dispute recover from the opposing party?
The normal rules of recovery apply. The party on a CFA may claim from the opponent the discounted fees, the conditional fees and the success fee. The client can expect to recover approximately two thirds of each.
Is it necessary to notify the opponent that a CFA has been entered into?
Yes. We will notify your opponent if the CFA provides for a success fee. You do not have to tell the opponent what the success fee is, merely that one exists.
How does one define success?
Success will be defined by reference to the likely remedies/outcomes, usually the recovery of money whether achieved through a court order or compromise, but there are many other possibilities. The definition is something that we will discuss and agree with you.
Will barristers work on a CFA?
The answer will depend in each case on the particular barrister. No set of barristers with whom we work regularly has a policy preventing their barristers from working on a CFA.
After the Event Insurance
What is After the Event Insurance (ATE)?
ATE insurance is an insurance policy taken out after a dispute has arisen to protect against the risk of having to pay the opponent's costs if you lose. The policy can, on occasion, be extended to cover some or all of your disbursements, such as counsel's fees and expert's fees.
What does it cost?
As with any insurance, the insured must pay a premium. The premium will be in the region of 25-60% of the amount of cover being sought.
What are the tactical advantages of ATE?
There are three main tactical advantages:
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If the premium is staged, it increases the pressure on the opponent to settle before the premium increases.
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The insured will not be intimidated by the high costs estimates of the opponent because it will be the insurer who pays these in the event of a loss.
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The opponent will be aware that the merits of the case have been assessed by an independent insurer and the insurer has concluded that the case has good merits.
What type of cases are suitable for ATE?
ATE insurance is available for all types of cases except family and criminal cases and employment tribunal claims. ATE insurance can be taken out in respect of court, arbitration or appeal proceedings. It is available in principle to both claimants and defendants, although many insurers may only offer ATE insurance to claimants.
ATE insurance will only be available for those cases where the insurer considers that the prospects of success in the case are good. This means that the prospects of success are equal to or exceed 60%.
Who is the insurer?
The insurer will be a well known established insurer. In cases requiring a significant amount of cover the insurer may be a lead insurer with a following market of co-insurers. The identity of the insurer is important as the insurer should be properly regulated and have sufficient assets to provide the level of cover sought.
At what point should a party to a dispute consider ATE insurance?
ATE insurance is available at any time after a dispute has arisen up to the determination of the trial. We will consider with you the likely terms of ATE insurance at the outset. The earlier you apply for ATE insurance, the better the terms are likely to be.
How does the insurer define "win" or "lose"?
This is a matter for negotiation with the insurer. Usually "success" will be the recovery of any amount of money in respect of the claim.
In what circumstances does the premium have to be paid?
The usual position is that the premium does not have to be paid if the case is lost, even though the insurer indemnifies the insured for the insured risks.
The premium is payable if the case is won. The general rule is that the payment of the premium is deferred until the end of the case, and it is contingent on success (i.e. it only becomes payable if you win).
In most cases the premium will be staged, so that the amount due to the insurer increases as various trigger points in the litigation arrive. Usually there are three stages, with trial being the final stage. If the premium is staged, you should inform the opponent that the premium will increase at certain stages.
Is the premium recoverable?
Yes, normally the premium is recovered in full.
It is open to the opponent to challenge the level of premium if it does not consider it to be reasonable or proportionate. However, the courts are reluctant to interfere with the pricing of ATE premiums.
Is it necessary to notify the opponent that an ATE policy has been taken out?
Yes. We will notify your opponent once you have taken out an ATE policy and tell them that the policy provides for the payment of an additional liability (i.e. the premium) which may be recoverable from them.
Third Party Funding
What is Third Party Funding (TPF)?
TPF is the provision of funds by those who have no connection with the litigation in return for a share of the proceeds. It is available for litigation, arbitration and other forms of Alternative Dispute Resolution.
Is TPF legal?
Yes, provided the funder does not exercise any control over the dispute.
What are the advantages of TPF?
TPF gives the claimant:
Which cases are suitable for TPF?
Typically the funder will only consider those cases where:
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There is a good prospect of success (>60%).
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The opponent has sufficient assets to pay and/or is backed by insurance.
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The estimated costs are proportionate to the claim value.
Who are the funders?
The funder can be any party with no connection to the claim, although they tend to be institutional investors, private equity funds, hedge funds and private investors. Funding large scale litigation can be an attractive investment opportunity as it bears no relation to economic conditions.
What will the funder fund?
The funder will fund all or part of the legal costs and expenses of taking the matter to trial. If full funding is not required, it may be possible to obtain funding in respect of any one or more of the following:
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A percentage of the legal fees that you will incur.
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Some or all disbursements, for example, expert's fees or counsel's fees.
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The opponent's costs that you may be ordered to pay if you lose.
What does the funder expect in return?
The funder will expect to make a profit in return for its outlay and the risk that it has taken on. The funder's fee is contingent on success: if you lose the case, there is no fee payable to the funder. If you are successful, however, the funder will typically require the greater of:
The TPF market is still embryonic. In current market conditions, the funder will look for something in the region of 3 times its investment or 30-40% of the damages recovered.
Is the funder's fee recoverable from the other party if you win the case?
No. The funder's fee comes out of your damages award, thereby reducing your net recovery. It is not a recoverable cost of litigation.
A funder is interested in the case. What happens next?
The funder will perform due diligence on the case. We will supply the funder with a summary of the case, the key documents and a costs estimate. The funder may instruct external solicitors and/or a barrister at its own cost to assess the case on its behalf.
How long will it take to obtain TPF?
If you use a broker, we would estimate about 3-4 months from the point of identifying the need for funding to completion of a funding agreement. If dealing direct with a funder, this timescale could be reduced to 2 months. Some funders will agree to pay some or all of legal costs and expenses incurred before the funding agreement has been finalised. This is a matter for negotiation.
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