What Are Litigation Funding Agreements?

sarah ryan
Sarah RyanAccount Manager @ Lawhive & Non-Practising Solicitor
Updated on 30th April 2024

For those involved in a legal dispute, the prospect of hefty legal costs and solicitors fees might make you hesitant to seek justice. However, there are ways to mitigate financial risks and costs, including litigation funding agreements.

what-are-litigation-funding-agreements

What is litigation funding?

Litigation funding is when someone else pays for a legal case you’re involved in. This could be a matter being heard in court or a disagreement settled outside of it. Instead of paying for it yourself, a company pays. If you win, they make money. If you lose, you don’t owe them anything.

The amount they get from what you win is decided before the case even starts. It could be a percentage of what you get, a multiple of what they paid, or a mix of both.

Litigation funding helps people who can’t afford the costs of legal proceedings on their own. Right now, it’s mostly used for commercial disputes, not things like personal injury cases.

Litigation funding as allowed by law in the UK.

In England and Wales, the Jackson reforms recognised that litigation funding helps people afford to take legal action.

The Association of Litigation Funders has a code of conduct that sets the rules for how funders should act. For example, In the UK, litigation funders can’t control the cases they support, interfere with settlements, or make lawyers break their professional rules.

It's also the responsibility of lawyers to discuss with their clients the different ways to pay for a case, including litigation funding.

What are litigation funding agreements?

Litigation funding agreements are arrangements where a third-party funder pays a litigant’s legal expenses in exchange for a portion of the damages awarded if the case succeeds.

These agreements can come in two forms:

  1. No Win, No Fee: This means you won’t have to pay your solicitor’s fees if you don’t win the case.

  2. Third-party funding: This means another party provides the funding for your legal expenses in exchange for a share of the outcome if you win.

What do litigation funding agreements cover?

Litigation funding agreements (LFAs) are designed to help you finance a court claim against someone, whether it’s a person, company, or other legal entity.

As long as the arrangement meets your solicitor’s requirements (i.e. they get paid) and is within the bounds of the law, it’s considered a litigation funding agreement.

How do you arrange a litigation funding agreement?

You can set up a litigation funding agreement directly with your solicitor. This may involve agreeing on a fixed fee cost for a specific stage of the case, a particular task, or a certain period. Alternatively, it might be based on your solicitor’s assessment of the case’s chances of success (a conditional fee agreement) or as a percentage of what you recover (a damages-based agreement).

Alternatively, you can make arrangements with third-party financial institutions. They might agree to cover your solicitor’s cost at their usual rates but take a share of the winnings in return.

For individuals looking for funding, it’s important to ask if the funder has their own money or if they’re just middlemen. Middlemen can make things slower and more complicated they have to gather money from different places for each case.

What is the Litigation Funding Agreements (Enforceability) Bill?

In July 2023, the Supreme Court made a significant ruling regarding litigation funding agreements, declaring that under certain circumstances an LFA could be classified as a damages-based agreement. This ruling added a layer of complexity to LFAs, as damages-based agreements are subject to distinct legislative requirements.

The Litigation Funding Agreements (Enforceability) Bill aims to address the consequences of the Supreme’s Court decision by seeking to overturn it. This new clause is to be added to section 58AA of the Courts and Legal Services Act 1990.

The new clause says that LFAs are not considered DBAs. It designs LFAs as agreements where one party (the funder) agrees to pay for legal services or costs for someone else (the litigant). In return, the litigant agrees to pay the funder back under certain conditions outlined in the agreement.

The reasoning behind this move is driven by a concern that LFAs if treated as DBAs, might become tangled up in regulatory constraints that could render them unenforceable.

Simply, the bill is an attempt to clarify the legal landscape surrounding LFAs, ensuring that they remain a viable option for individuals seeking financial support to pursue their legal rights.

How can Lawhive help?

We understand that working out the potential costs of taking legal action and seeking justice can feel overwhelming. We aim to provide full transparency in terms of costs, such as solicitors fees, up-front so you can make an informed decision. What’s more, our solicitor's fees are fixed, including disbursements and VAT.

In some circumstances, such as housing disrepair or personal injury claims, our solicitors may be able to offer their support on a conditional fee basis. That means, if your case isn’t successful, you don’t have to pay.

For more information, and to explore your options, our Legal Assessment Team is on hand to guide you through the different options depending on your legal matter. Contact us today to get started.

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