Litigation funding

The Code requires solicitors to discuss alternative funding options with the client on litigation matters. Keystone's template Litigation Engagement Letters help achieve compliance in this regard by attaching the Alternative Funding Sheet.

It has been suggested that some firms are not discussing with clients the options for funding their claim and in particular, they are not exploring whether the client has insurance that would cover their legal costs, so that the firm can charge an uplift on their fees. Remember, you must not take advantage of your clients and you have a duty to make clients aware of, and understand, the options for funding their claim and the terms of any fee agreement they enter into with you. (See, for example, paragraphs 1.2, 8.6 and 8.7 of the code of conduct for solicitors, RELs and RFLs and paragraphs 1.2 and 7.1(c) of the Code for Firms).

We usually only accept cases on the basis of the client paying our full fees, and so you'd simply let the client know this and refer them to the alternative funding sheet in the Engagement Letter should they ask. Typically, if they don't wish to pay for the work themselves in the usual way, you'd decline the instruction. You are under no obligation to do work on an alternative funding basis. However, where you agree to then you should review the section on CFAs, the section on the Insurance Distribution Directive and bear the following in mind:

• You should consider whether there is an alternative funding option that is more appropriate than Third Party litigation funding or whether it should be part of a funding package (e.g. with ATE insurance and/or a CFA).
• You should ensure that the claimant fully understands the costs and risks associated with pursuing the litigation. Does the claimant have the financial resources to meet those costs and risks? Does the claimant understand the likely monetary value of the claim in comparison with the likely costs and risks of pursuing the claim (including, in particular, adverse costs orders)? The calculation of the funder's fee may be complex and the funder may seek a share of the claimant's recovery, usually around a third.
• We cannot recommend a single litigation funder, the same rules about recommending any third party apply. However, you can give the client the details of ALF (Association of Litigation Funders) - who may be able to help. There is also a list of funders in each issue of the Law Society's bi-monthly Litigation Funding magazine. Alternatively, it is possible to use a specialised broker.
• The claimant should investigate the proposed funder's reputation, track record and financial resources.
• You must Conflict Check the funder(s).
• The introduction of a third party usually slows the litigation down, reduces the client's autonomy and means that confidential information will need to be shared with that third party. This should be drawn to the client's attention and express written instructions should be given to pass confidential information to the funder. Consider a confidentiality agreement at the outset of discussions or before any confidential information is provided to the funder and always bear in mind the position in respect of privilege (as the funder is not your client). You need to carefully consider the impact of the funder's involvement on legal professional privilege, which belongs to the client.
• If dealing with a funder, you should ask if they have funded a Keystone case before and if so, the name of the case and the Keystone colleague. You can ask the colleague about how it was to work with that funder.
• Putting in place funding can take considerable time and should be budgeted and charged for. The credit approval process requires extensive due diligence regarding the prospects of the claim. Often counsel must opine on the prospects as well. Some, but not all, funders will pay for this work if they decide to fund. You therefore need to discuss how the client will pay for the time incurred in applying for third party funding, which may or may not be successful. The client would usually be charged for the Central Office time as well. Where the matter is being undertaken on a CFA, Central Office will agree to defer its charges until the CFA is successful and waive them if it is not.
• If a funder offers funding, then it will typically require the client and Keystone to sign up to many documents and we may be asked to provide undertakings. You do not have the authority to bind the firm and therefore need to involve the Compliance team in good time. You should tell the client that reviewing these documents can be expensive and that we'll quote for that work once we have been sent the draft terms.
• You must send the draft terms to the General Counsel as soon as you get them and ask for a quote for reviewing them. Review of lengthy funding agreements and undertaking documents and negotiating the terms can take considerable time so you should ensure that you provide these in plenty of time.
• Your time and that of the General Counsel should be charged to the client. If you are already on a CFA, then the General Counsel will usually agree to work on the same basis.
• You should recommend that the client obtain independent legal advice on the terns of the proposed Funding agreement. We cannot advise the client on the terms of an agreement where we are one of the contracting parties.

PLC have helpful guidance on Third Party litigation funding with some further key issues for you to consider.

If you have further questions, you should contact the General Counsel.