A law firm is a business which, like all businesses, requires a regular supply of cash to manage its operational and administrative costs, including rent, staff salaries, utilities, insurances, professional subscriptions etc. Accordingly, if a client is to employ a solicitor, the first step that needs to be discussed is how such legal services are to be funded.
Where a client has resources, this should be a relatively straightforward mechanism by which the client pays for all legal services as they are provided, charged on the basis of the time spent and the experience of that fee earner.
Where this is not possible then the solicitor may be willing to enter into some sort of alternate arrangement which provides for his/her fees to be paid from sums recovered as a result of their instruction. We discuss the different types of funding arrangement which can be entered into with a solicitor here.
Alternatively, for whatever reason, it may be that you require financial assistance from a third party to support or import your instructed solicitor and underwrite or pay their legal fees. We discuss such arrangements at our separate webpage here.
However the solicitor is funded, it is important to understand how the solicitor is funded.
This circumstance exists where a solicitor may have entered into a funding arrangement with his/her client and then seeks separate arrangements with a third party financier.
The arrangement may include a share of any contingency fee arising under a Damages Based Agreement or a share of any uplift or premium payable under a Conditional Fee Agreement, although this is less common and relevant only to smaller claims.
The client will often be informed about this but otherwise it may not affect them other than to make it easier to persuade their instructed solicitor to enter into such an arrangement and, in certain situations, the financier may seek to additionally reserve the right to recover the solicitors’ fees it has paid for (making this type of funding arrangement more expensive for the client).
However, the solicitor will not pursue the client for his solicitors’ fees as they accrue, but will only seek recompense from the financier and otherwise will have no right to recovery other than for disbursements and, in respect of the arrangement itself, upon the client successfully concluding matters.
This type of arrangement is more unusual.
These comprise more common types of arrangement whereby a client enters into a funding agreement with a Third Party Funder either as a Bridging Loan, comprising an outright loan of monies, an assignment of the claim wholly or partially (please see more information here) or where the client enters into a Damages Based Agreement with the Third Party Funder (more information on Damages Based Agreements can be found here).
Where the client obtains Bridging Finance, they remain in control of the proceedings.
However, where there is either an assignment of the claim or a Damages Based Agreement is entered into, the Third Party Funder remains very much involved in what has now become an income producing asset for them. In these circumstances the Third Party Funder may take direct responsibility for the solicitors’ fees and the client will not usually be required to pay them.
This frees the client from the cost of solicitors and delegates this to the Third Party Funder.
Benefit of Solicitor Funding
The benefit of entering an arrangement where a solicitors’ fees are paid immediately is that the legal costs are minimised (although possibly replaced to a lesser degree by the finance costs).
Additionally, although professional rules applicable to solicitors prohibit it, there can be no perception of any influence on the solicitor/client relationship where a settlement offer exists or where, in litigation, the prospects of success change.
In addition, where a solicitor is funded, the due diligence and risk considerations are less material to a solicitor (other than in adherence to his/her professional obligations) and thus this enables certain types of instruction to be taken on when otherwise they may be rejected by reason of an absence of funds to pay legal costs.
Risk of Solicitor Funding
Third Party Funding of your solicitor’s legal costs may ultimately lead to two layers of costs, comprising the solicitors costs themselves and the funder’s interests in the return obtained. This is not usually the case in litigation proceedings, where the legal costs are additionally recoverable in addition to the claim itself.
This does appear to be a necessary evil in circumstances where direct solicitor funding may not be possible and the only other option may be paying the legal fees direct which, as with all claims, may ultimately be repaid out of the proceeds arising upon your case being successful.
In other words, the use of a Third Party to fund your legal costs (which may additionally be recoverable) is merely a way of making your case pay for the claim.
At Francis Wilks & Jones we are extremely familiar with working on such Third Party Funding arrangements and can operate in any of the above situations. We are more than willing to discuss such options on an initial no obligation basis.
Please call any member of our commercial litigation team for your consultation now on 020 7841 0390. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.