A Client Guide to Negligence Claim Finance

Claims or disputes which involve proceedings in the civil courts (High Court or County Court) are known as ‘litigation’.
In dealing with litigation, our aim is always to achieve a practical and cost-effective outcome to your case, which is acceptable to you. Sometimes we can best achieve this without going to court, by negotiation, mediation or some other form of alternative dispute resolution. On other occasions it may be necessary to go to court to get the result you need.
We set out below some of the main requirements and obligations of litigation, so that you can understand what will be expected of you.

Cost Benefit Analysis

Litigation is typically unpredictable both as to outcome and as to cost.  At the beginning of the case, and at regular intervals thereafter, we will consider with you what you hope to achieve by litigation, what the cost is likely to be, and what the likely benefit may be to you.  If we doubt that it makes financial sense for you to pursue the case, we will tell you.  However, the ultimate decision will be yours and by instructing us to proceed we will assume that you have decided that the risk is worthwhile.

Use of barristers and experts

We may recommend to you that some of the work on your case be handled by ‘counsel’ (a barrister).  If so, we will seek your agreement and obtain quotations of likely fees.  Unless counsel is working under a Conditional Fee Arrangement, we will usually require a payment from you to cover counsel’s likely fees before counsel does any work.  This is known as a payment on account.

We may also need to have other people work on your case, for example, experts and/or expert witnesses to prepare reports, and costs draftsmen to prepare costs estimates and detailed Bills of Costs required by the court in order to assess costs.  Once again, we will usually require a payment from you on account of their likely fees before we instruct them.

Information and documentation

We will need information from you to help us run your case.  Strict time limits in litigation mean that it is important that you do not delay in supplying that information to us.  In addition, it is vital that you tell us if you think that the information is not complete or is inaccurate in any way.

The court rules which lawyers and their clients have to comply with are strict about anything which might be evidence in the case.  All paperwork, records and notes, however damaging to your own case or commercially sensitive to your business, must be kept safely by you or us and made available to the other side.  The only exception involves the legal advice you receive from us.  The rules of disclosure, as it is called, require you to satisfy the court by signing a certificate that you have conducted a reasonable and proportionate search to locate all documents which could be relevant.  There are penalties and sanctions for failure to do so.  Accordingly, where litigation is reasonably contemplated, any routine document destruction policies should generally be suspended.

Confidentiality

We will need information from you to help us run your case.  Strict time limits in litigation mean that it is important that you do not delay in supplying that information to us.  In addition, it is vital that you tell us if you think that the information is not complete or is inaccurate in any way.

The court rules which lawyers and their clients have to comply with are strict about anything which might be evidence in the case.  All paperwork, records and notes, however damaging to your own case or commercially sensitive to your business, must be kept safely by you or us and made available to the other side.  The only exception involves the legal advice you receive from us.  The rules of disclosure, as it is called, require you to satisfy the court by signing a certificate that you have conducted a reasonable and proportionate search to locate all documents which could be relevant.  There are penalties and sanctions for failure to do so.  Accordingly, where litigation is reasonably contemplated, any routine document destruction policies should generally be suspended.

The litigation process

You may have heard of the “Jackson reforms” which represent the biggest change to civil litigation procedure in England and Wales since the Woolf reforms of 1999 which changed the whole culture and conduct of litigation.  The key points to note about the process generally are as follows:-

  • The issuing of court proceedings is seen as the last resort. Attitudes such as “we will see you in court” or “issue the writ first and talk later” are not tolerated by the courts, and can result in penalties being imposed.  Delaying tactics are not permitted
  • Pre-action protocols and practice directions require a ‘cards on the table’ approach, with information and evidence being exchanged at an early stage. It is not possible to ambush your opponent by keeping key aspects of your case secret until the last minute
  • The court has the power to assess the strength of a party’s case and the likely cost of proceedings at an early stage, and can put pressure on either or both parties to reach a settlement. This may result in an outcome which is less satisfactory than you hoped for
  • The ability of the parties to instruct their own experts is tightly controlled by the courts. If an expert’s fees are to be recovered from the opponent, the court must have given permission for that expert to be used.  The joint instruction of a single expert will be ordered whenever possible
  • Parties are expected to take every reasonable opportunity to settle the case by negotiation or mediation. Failure to do so can be punished by the court when it comes to make orders for payment of legal costs.  Settlement offers made under Part 36 of the Civil Procedure Rules (known as “Part 36 offers”) require careful discussion between lawyer and client, and can have considerable financial significance.

The above matters can help to avoid a long- drawn out court case, but they do mean that investigation of the facts and evidence and analysis of the law has to be done more fully and earlier than used to be the case, tending to “front-load” the legal charges for which you are responsible.

There will be significant involvement on your part at an early stage, for example, in searching for documents and verifying the truth of documents and of witness statements.

If court proceedings have to be issued, the judges effectively take control of how the case is to be conducted or “case managed”.  They have wide-ranging powers and (particularly in the light of the Jackson reforms – see further below) may enforce time limits rigidly, and penalise the conduct of a party if it is thought to have acted unreasonably, or to have incurred costs out of proportion to what is at stake.

Where applications have to be made to the court, the judge will normally assess a figure for legal costs summarily and order it to be paid within 14 days.  However desirable it may seem to make an application to the court, you must decide whether you are prepared to accept the possible risk of such a costs order being made against you before the proceedings are finally decided.

This approach of caution and co-operation may mean that we cannot handle the case as aggressively as you might wish.  We will warn you if a proposed tactic or step runs the risk of an adverse costs order.

It is not possible to undertake litigation on a point of principle.  Judges will not allow the courts to be used for cases where the likely costs are out of proportion to the financial sum or other tangible issue at stake, save where a test case is necessary in order to establish a legal precedent.

The Jackson Reforms in detail

The Jackson reforms have had an impact on all stages of the litigation process and some of the key changes are set out below:

  • Success fees payable under conditional fee agreements (CFAs) are not recoverable from your opponent under CFAs entered into after 1 April 2013
  • After-the-event insurance premiums are not recoverable from your opponent under after-the-event insurance policies entered into after 1 April 2013
  • Contingency fee agreements (known as damages based agreements) are now possible for contentious work although there are caps on the amount of damages that can be taken on a contingency basis (see below)
  • There is now a menu of disclosure options available for cases proceeding before the courts and standard disclosure (i.e. where each party discloses documents upon which they rely, which adversely affect their own case, adversely affect another party’s case or support another party’s case), is no longer the default option. Parties also have to file and serve reports 2 weeks before the first case management conference describing what documents exist, where and how they are stored, and the likely costs of giving standard disclosure in order to assist the court on deciding on the appropriate order
  • Parties are now expected before the first case management conference and at regular stages throughout the case to prepare, seek to agree with the other side and submit for the Court’s approval, detailed costs budgets, showing how much the case is going to cost
  • There is a new costs management procedure for large (multi-track) cases that commenced on or after 1 April 2013 (with the exception of the Commercial Court and claims for more than £2 million in the Chancery Division, Technology and Construction Court and Mercantile Courts). Essentially, when assessing recoverable costs, the court will not depart from a party’s agreed costs budget without good reason
  • A new test of proportionality has been introduced for costs recoverability purposes designed to control those cases where costs become disproportionate to the issues in dispute
  • An additional costs sanction has been introduced (equivalent to 10% of the value of the claim but subject to a maximum payment of £75,000 for claims of £1 million or more) payable by defendants who do not accept a claimant’s reasonable Part 36 offer that is not beaten at trial
  • The rules on granting relief from sanctions for breaching rules or court orders have been amended, imposing a stricter approach to compliance.

Keeping to the timetable

You, with us, will have to meet strict timetables or risk having your case being struck out by the court.  This may be difficult for you.  You may have more pressing personal matters or commercial concerns which you feel ought to have priority over our need for your help or instructions.  Particularly in the light of the Jackson reforms, the courts will not allow us more time to comply with the timetable set by the judge, where there is no good reason for delay.

Once you get involved in court proceedings, whether as claimant or defendant, you should be aware that both the pace of the litigation [and the tactics we adopt] are no longer set by us or by you, but to a large extent are imposed on us by the court.

The outcome

All this may mean that the outcome of litigation, whether achieved by negotiation or through the courts, is not what you expected or hoped for.

But there is of course a positive side to the reforms.  The new litigation procedures can bring about quicker resolution of disputes, with tighter control of the legal costs involved.  Overall, we believe that the changes have improved the way in which litigation is dealt with, and are ultimately to your advantage.

Funding litigation

It is impossible to give an accurate estimate of the likely costs of litigation at the outset, because there are many risks and uncertainties, such as:

  • Might the dispute be settled early?
  • Will the other side fight all the way?
  • Will expensive expert evidence be needed?
  • What issues will arise as the case progresses?
  • Will additional parties (for example additional defendants) need to be added?

These and other questions cannot all be answered when you first come to us for advice.

As has been mentioned already, you are responsible for meeting the legal charges and expenses of your own case.  If you lose or withdraw your claim, after it has been missed at Court you will be liable to pay your opponent’s legal charges and expenses.

As a general rule once a Court claim is commenced, the three situations in which you will not have to pay the other side’s costs are: (a) if you proceed to trial and win (or the other side gives up and pays your claim and costs); (b) you conclude a “drop hands” settlement (each party agrees to bear their own costs and walks away); or (c) you agree a successful settlement of the claim.

Funding options

There are however, a number of different funding options available.  We may have already discussed the relevant options with you.  Please let us know if you want further information about any of these:-

  • Public Funding [legal aid]
  • Funding by a third party
  • Insurance funding
  • No win, no fee arrangements
  • Pay-as-you-go funding

Funding by a third party

If you are a member of a Trade Union, it may be that your Union will fund claims which you bring.  Alternatively, your employer may have a legal expenses scheme, or you may have a relative who is willing to provide funding.  You should tell us immediately if you think that any of these may apply.

In larger cases, where the prospects of success are perceived to be high and where the other side’s ability to pay appears to be good, it may also be possible to obtain funding from a specialist third party litigation funding company.  These specialist companies will invest in litigation and cover all or part of your costs, any ATE premium payable and any costs that you are required to pay to your opponent in return for a substantial share of any litigation proceeds (usually up to 50% of any settlement sum and/or damages awarded).  This market is still in its relative infancy, but it is a growth area for litigation funding.

Insurance Funding - ‘Before the Event’ Policies

These are legal expenses insurance policies which provide cover for legal problems arising in the future.  Even if you do not have a specific Legal Expenses Policy, you may well have one as an “add-on” to a home contents or car insurance policy or a credit card, or as part of your membership of a club or association.  Such policies are sometimes very limited in what they cover, and may restrict your freedom to choose your own lawyer.  If you think that you may have any such policy, please let us see the policy schedule as soon as possible.

Insurance Funding - ‘After the Event’ Policies

These are policies which help to cover the cost of litigation once the dispute has arisen, and include cover for the legal costs you may have to pay your opponent if you lose the case.

Insurance cover can be purchased to protect against both your own and your opponents’ legal charges and expenses.  But you should be aware that:-

  • The usual basis of such policies is that payment is made only if your case fails completely. For example, if for any reason you decide to withdraw your claim, the insurance will not apply, and we will have to look to you for payment of our charges and expenses.  It is possible to procure policies which cover your own expenses such as barristers’ fees and expert witness fees but this added protection comes with increased up front cost
  • The insurers will not pay any legal costs that you are ordered to pay your opponent while the case is progressing.

Insurance Funding – Paying the Premium

As with any insurance, the amount of the premium and the means to pay it are important considerations.  Points to bear in mind are:-

  • It may be possible to obtain a linked loan to cover the cost of the premium, and our interim bills. The loan does not have to be repaid in the event that you lose the case
  • However, for After the Event Insurance policies entered into post 1 April 2013, it is no longer possible to recover the premium payable from the other side if successful
  • Premiums for accident cases are modest. For other types of litigation, they may be between 20% to 30% of the total legal charges against which you want to protect yourself.  In substantial commercial litigation, the premiums may be even higher.

We are not insurance brokers, and do not pretend to be aware of all of the possible insurance policies available to the public.  We do not undertake to give you “best advice” on these products.  While we believe that any policy or funding arrangement which we suggest to you is suitable, we cannot guarantee that the means of funding adopted by you will necessarily be the most appropriate to your needs.

Remember that any insurance policy is a contract between you and the insurer to which we are not parties.  It is essential that you read the terms of the policy carefully.  Unless you ask us to do so specifically, we will not be advising you as to all the relevant terms of the policy.

No Win, No Fee Arrangements

We can offer you a ‘no win, no fee’ type of arrangement in suitable cases.  There are four main options available:-

  • A Conditional Fee Agreement where the lawyer makes no charge if the case is lost, but charges a “success fee” on top of his normal fee if you win. Insurance cover is available to cover your liability for your own expenses and your opponents’ legal costs if you lose.  Prior to 1 April 2013, success fees and insurance premiums were recoverable from the losing party.  However, that is no longer the case for agreements entered into on or after 1 April 2013.  You would be required to pay all of the success fee and insurance premium if you won for any post 1 April 2013 agreements
  • Partial or Discounted Conditional Fee Agreements where a lower hourly rate is invoiced monthly during the course of the matter and, if the case is either settled or decided in your favour, an agreed further percentage is paid by you. Again, following 1 April 2013, this success fee is not recoverable from the other party
  • Contingency Fees – where, again, you are not charged if you lose, but the fee if you are successful is a percentage of the sum which is recovered. This arrangement cannot be used for cases which actually go to court
  • Damagesbased agreements (DBAs) – these agreements operate in much the same way as conditional fee agreements but, instead of billing you on a time spent basis, your fees would be satisfied by way of an agreed share of any damages recovered. The percentage would be agreed in advance and would not exceed 50% (NB – there are caps on the amount of damages that can be taken as contingency fees which range from 25% for personal injury cases, 35% for employment cases and 50% for all other claims).  The costs recovered from the other side would be set off against the DBA in a successful case, reducing the amount payable by you to any shortfall in recovery between the costs recovered and the DBA fee.

The idea of paying no fee if you lose may be attractive, but you should bear in mind that:-

  • We will be sharing a joint venture with you, and will therefore be entitled to have a say in how the litigation is conducted
  • In particular, the relevant agreement will give us a right to terminate the funding arrangement where the merits of the claim change or where you refuse to accept settlement offers, which, if refunded, may affect your ability to recover costs from the other side
  • We will carry out a risk assessment at the beginning of the case and during the course of it, to decide whether we are prepared to take it on or to continue with it, as these agreements mean we are investing in your case. The two main risk factors which determine whether we are willing to enter into such a funding agreement are: (i) the strength of your claim; and (ii) the asset position of the Defendant
  • You will have to satisfy yourself whether the success fee we propose is fair and reasonable
  • We will require you to pay for some initial investigation into your case before deciding whether to offer a risk sharing arrangement, including investigation into the credit worthiness and assets of the Defendant and typically the instruction of a barrister to provide an opinion on the strength of the claim
  • Under a DBA, you will only pay costs which are proportionate to the benefit that you have gained from the litigation, but if the case settles at an early stage then the amount payable could considerably exceed the value of the work done
  • There will, in any event be costs, known as disbursements, payable to run a claim, including Court fees and Counsel’s fees. Our standard terms of acting in contingently funded cases typically do require the client to fund those disbursements and to pay the costs to us on account, i.e. before we pay them on your behalf.  Even where we act on a no win, no fee basis, therefore, you should not expect any claim to be cost-free.
  • You should be aware that most claims will settle without having to go to trial. A typical tactic in such settlement discussions is for the Defendant to seek to “drive a wedge” between the Claimant and his or her lawyer by making settlement offers expressed as a lump sum, leaving the Claimant and the lawyer to apportion that amount between damages payable to the claimant and costs payable to the lawyer.  You should be aware that in such situations, whilst we do not rule out discussing that split with you, our position will be that the firm’s entitlement to costs is as expressed in the relevant funding agreement.

Pay-as-you-go Funding

  • Unless one of the other funding arrangements mentioned above applies, we will require you to make an initial retainer payment (i.e. a payment on account), and subsequent payments to cover our interim bills, which will be rendered at regular intervals.

Public Funding [legal aid]

Public Funding is a means-tested and merits-based funding system paid for by the Government.  Eligibility is assessed by the Legal Aid Agency [LAA] which decides whether or not it should be granted.

The means tests apply to both capital and income, and we can give you details if required.  If you qualify on your means the LAA will then consider whether your case has any merit.  They will look to see whether there is an arguable case, and whether or not the matter that is in dispute (if it has a monetary value) is proportionate to the legal costs likely to be incurred.  The LAA will also consider whether a privately paying client would be willing to fund the claim from their own resources.

Once Public Funding is granted it is regularly reviewed, and the LAA will require updated information in respect of your finances.  If these requests are not returned promptly, or erroneous information is given, the LAA may cancel your certificate, and you could be liable to repay the LAA the legal costs incurred to date.

The LAA may limit the scope of the certificate, for example to initial enquiries to establish whether or not there is sufficient evidence to support your case.

Usually, when money or property is recovered, the LAA has a charge (the Statutory Charge) on any recovered or preserved assets to offset the expense of making the claim.  In certain situations this charge may take the form of a mortgage on property, or may be postponed.  Interest is payable.

Public funding is as a rule not available for business matters.  As such the vast majority of commercial disputes with which the firm deals will not be eligible for such funding.

Legal Help and Help at Court

Legal Help is a limited form of funding designed to cover the initial steps in making or defending a claim.  It will allow your lawyer to give you preliminary advice and to prepare any necessary correspondence and documents to enable you to apply for Legal Representation.

Help at Court covers the cost of having a solicitor represent you at a particular hearing, where Full Representation would not be justified (see below).

Where money is recovered in a clinical negligence case, your solicitor’s charges will be deducted from this money.

Legal Representation

To obtain a Legal Representation certificate, you have to apply to the LAA, which decides whether the application satisfies the criteria for funding.  You may have to pay a contribution towards your legal costs, either a one-off payment from capital, or monthly payments from your income which continue until your certificate is discharged or your financial circumstances change.

Where money or property is recovered or preserved following Legal Representation, the LAA has the right to deduct from that money or property all sums paid to your solicitor or barrister under the certificate, including any expenses incurred.  This right is called the Statutory Charge.  Any sums recovered from your opponent in respect of legal costs will reduce the amount of the statutory charge.  More information can be found in a guide published by the LAA (Paying back the LAA – the Statutory Charge) by following the link above.

If your case is unsuccessful, your contribution (if any) is normally the most you will be asked to pay for your own solicitor’s or barrister’s charges.  However, you may be ordered to pay your opponent’s legal costs, depending on your financial circumstances, and whether you have acted reasonably in bringing or defending the case.

Discharge and Revocation of Legal Representation Certificates

When your case has come to an end, the work done under your certificate will be set out in a Bill of Costs.  The Bill is assessed by the court or by the LAA, which certifies the sums which should be paid to your solicitor or barrister.   If the Statutory Charge applies, you will receive a copy of the Bill, and if you wish you can attend the assessment hearing to object to particular costs being allowed.  The certificate will be discharged when this process is complete and all costs have been paid.

Where work is done under public funding, your lawyer must tell the LAA if you act unreasonably, for example in refusing to accept a reasonable settlement offer, or to agree to mediation. The LAA will give you an opportunity to show that you have not been unreasonable, but where it is satisfied that public funding should not continue, it may discharge or even revoke your certificate.  If your certificate is revoked, you would become liable to pay all legal costs incurred under the certificate.

Your certificate can also be revoked if you fail to co operate with any assessment of means or you fail to inform the LAA of any improvement in your financial circumstances after funding is granted.

Compensation and means-tested benefits

If you receive a compensation payment in respect of a personal injury and you are in receipt of means-tested benefits (for example Income Support), your benefits may be stopped because the compensation you receive may take you over the means-tested financial threshold.  Having the damages paid in to a Compensation Protection Trust (also known as a Personal Injury or Special Needs Trust) can preserve your continuing entitlement to means-tested benefits.  Over the course of a year that could amount to quite a significant sum of money particularly when receipt of means-tested benefits can also provide entitlement to other valuable services such as free prescriptions and school dinners for children.

By setting up a Compensation Protection Trust, you can ring-fence your compensation money to ensure it is disregarded in any assessment for means-tested benefits.  You will be able to claim or continue to receive your means-tested benefits without the money you have received from your personal injury settlement being taken into account.  This will mean you can use your compensation for the purpose for which it was intended and not to meet a potentially significant shortfall in your income should you lose your means-tested benefits.

Even if you are not in receipt of means-tested benefits at the time your personal injury claim is settled you should also consider whether it would be wise to set up such a Trust.  If you have an injury which causes a continuing inability to work then circumstances can change whereby an application for means-tested benefits could be made.

Compensation and the cost of Local Authority care

Such a Trust can also protect your compensation with regard to care home fees.  Should you ever require long-term care in the future, the money (capital and income) in your Compensation Protection Trust will be disregarded when you are assessed for liability to pay care home fees.

What is a Compensation Protection Trust?

The Trust is created when you sign a Trust Deed.  This will state that your compensation is to be held by Trustees and used for things you need.  You can choose your Trustees or change them.  The Trust Deed will explain how your money is to be invested and looked after for your benefit.

Your normal daily living expenses are supposed to be met by your means-tested benefits.  These are things like gas, electricity, water, food most rents, mortgage interest etc.  Those payments should continue to be met from your means-tested benefits where possible.  If there is a shortfall (for example an unexpectedly large heating bill) then that can be met by the Trust.

Day to day expenses which aren’t covered by means-tested benefits such as your telephone bill, TV, the cost of extra care etc. can be met from your Trust.  In addition that money can be used to pay for a house, new care, petrol, holiday, home improvements and much more.

The money you do not need can be invested by your Trustees to provide for the long term.

A Compensation Protection Trust can be wound up should your circumstances change to the extent you no longer require its protection.

Upon your death any money left in the trust will be included in the value of your estate for inheritance tax purposes.

Who should be your Trustees?

You will need to choose at least two.  You can choose family members or a professional person such as your solicitor, accountant or financial advisor.

Your choice of Trustees is very important.  They are responsible for investing your money and ensuring they comply with the regulations which provide for the special treatment given to this money.  They should ensure you are involved in decision making.  Your Trustees will also need to complete tax returns on your behalf.

Capacity

If the person who is entitled to receive the personal injury award does not have mental capacity to manage their own affairs then they cannot sign the necessary Trust Deed.  Instead they will require a Deputy appointed by the Court of Protection to manage their affairs.

Enable Law can provide specialist advice to ensure your trust is set up to meet your individual needs.  We can also act as a Professional Trustee if needed to ensure your compensation funds are effectively managed and invested.

The information contained in this guide is for generic use only and cannot be relied upon for any specific purpose.  We recommend that specialist professional advice is taken before entering into (or refraining from entering into) a particular transaction.

Enable Law is the trading name of Clinical Negligence Services Limited which is part of the Foot Anstey Group. “Enable Law” is authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales. Registered number 04061490.

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