Contentious private client cases vary enormously. The world of high net worth individuals is international and complex, and the legal issues they face correspondingly diverse. Cases may involve complicated structures across multiple jurisdictions, with disputes around the entitlement of beneficiaries to trust assets and the identity of trustees – while the case may involve a significant pool of assets, these may not be available until the dispute reaches a conclusion.
Similarly, probate cases may involve an ultimately lucrative outcome for an otherwise illiquid client. Where a will is contested, a beneficiary may not have access to their legacy potentially for years, depending on the complexity of the estate. A claim under the Inheritance (Provision for Family and Dependants) Act 1975 often – by its very nature – involves a claimant who has insufficient assets pending the outcome of the claim.
This creates a familiar problem: how should a potential party with limited resources secure the advice necessary to obtain a substantial settlement or judgment?
What are the options?
The way in which legal proceedings can be financed continues to evolve. Most firms will now consider conditional fee arrangements (CFAs), in which the solicitor’s fees are discounted by up to 100%, with the full rate, plus a success fee (typically 20%-60% of fees incurred), only payable on a successful outcome – the definition of success being a matter of negotiation. This mitigates some of the client’s financial risk of a loss (in return for paying a higher fee if successful).
Some cases may be appropriate for a damages-based agreement (DBA), under which the law firm will be paid an agreed percentage of a client’s damages if the case is won, but will receive nothing if the case is lost.
Some solicitors may also offer deferred fee arrangements, whereby the client will be liable for the legal fees regardless of the outcome, but only at a later date, widening access to legal representation but lacking some of the benefits on either side of a CFA.
All of these options involve risk for solicitors which they may not be able or willing to take on. However, there is an alternative option in the form of legal fee lending. The finance market has seen significant development in commercial litigation but has historically been less prominent in private client litigation. That is changing and we are now seeing exciting new options for solicitors and clients involved in this area of law.
Lenders can provide access to sufficient funds to level the playing field and ensure proper representation for parties involved in contentious probate litigation. Funds may be provided in the form of a loan which will be repayable with accrued interest at the conclusion of the case, regardless of the outcome. Alternatively, the lender may take a percentage of the final award, in which case the lender takes on the risk of the claim failing. This latter option may shift some risk to the lender, but may not be appropriate where, for example, the client is relying on receiving a certain legacy to sustain them in the future.
Legal fee lending arrangements guarantee the payment of the solicitor’s fees, but do not allow the solicitor to share financially in the success of the claim. This may be a good option for firms needing to generate cashflow, particularly in the current global climate.
Family law lending in the form of a loan may be cheaper overall for a client without the charge of significant uplift costs (although they will need to repay it regardless of the outcome of their case), and the interest costs are likely to be less than those in a CFA. The solicitor reduces their exposure and the need to run the gamut of the finance committee to take on a client, ultimately reducing the firm’s risk taken and enabling solicitors to take on more cases without impacting the firm’s cash flow. And as with all legal fee lending, those involved also benefit from having an independent view taken of the merits of the claim.
The future of lending
An increase in the options available benefits both clients and solicitors; fewer parties are unable to represent their interests due to a lack of liquidity, access to justice is widened, and solicitors can take on more clients.
Contentious private client practitioners should also bear in mind that even if conventional arrangements do not suit their case, a bespoke solution can often be found, such as when acting for the trustee of an illiquid trust in a difficult situation requiring an application for directions. Although the question of security will need to be addressed, this may well be the next area in which the legal fee lending market can develop to provide assistance – continuing the lenders’ drive to broaden the range of options for litigants.
George Williamson and Jonathan Arr, ‘Can I afford it?’, STEP Journal plus, August 2020.
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