Litigation funding & after the event insurance in Australia
There are a number of different litigation funding options available to you. Each reduce, to a varying degree, financial barriers to justice, allowing you to litigate your meritorious claim when you would not otherwise have been able to do so for lack of financial resources.
It is always important to check whether or not you have any existing insurance policies which might cover your legal expenses.
Contingency fees are not allowed
Contingency fees, that is fee agreements contingent upon successful outcomes, where a solicitor’s remuneration is determined by reference to the quantum of a settlement or judgement, are prohibited by legislation in all Australian states. An example is where a solicitor agrees to take 25% of the damages that are awarded to you. However, a number of commentators, the Productivity Commission and the Victorian Law Reform Commission, have recommended the introduction of damages-based contingency fees in Australia. These fee arrangements would facilitate greater competition in the funded litigation market, thereby reducing consumer costs and ultimately enhancing access to justice.
Conditional costs agreements are allowed
Conversely, Australian lawyers are permitted to enter into conditional costs agreements, commonly known as ‘No Win No Fee’ agreements. In a conditional costs agreement, if your case is unsuccessful no fees will be payable by you (however you might have to pay the other parties’ costs). In the event that your case is successful you will be required to pay for the legal services plus an ‘uplift’, or ‘success’ fee. In NSW, the maximum ‘uplift’ fee is 25%. This fee is determined by reference to the overall professional costs incurred, not by reference to the quantum of damages received.
Your eligibility for a ‘No Win No Fee’ agreement is generally dependent on an assessment of the merits of your case, an assessment that considers your prospects of success, and also considers the defendant’s ability to pay any adverse orders against it. This assessment model combined with the diversification of cases, both in terms of funding and practice area, allows lawyers to mitigate the risks of undertaking your claim.
Third-party litigation funding addresses the gap in the funded litigation market left by the prohibition of contingency fees and limitations of conditional costs agreements.
It is important to note that conditional costs agreements do not cover you in the event of an adverse costs order against you and thus you should always consider After the Event insurance and weigh the cost of the premium against the status, likely procedure, merits and risks in your case.
Third-party litigation funding
Following the 2006 decision of Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386, third-party litigation funding has become an established and ever-growing aspect of the Australian legal landscape. Third-party litigation funding was initially used for insolvency litigation, but the industry is diversifying, and it is increasingly used in a range of civil and commercial litigation, particularly in class action claims.
Dependant on the nature of your claim, third-party litigation funding may fund the entirety, or a portion of your costs in exchange for a ‘success’ fee of generally 25 – 45% of the total settlement or judgement monies. This percentage is decided with regard to various factors including the nature of your claim and its likely duration. As with conditional costs agreements, your eligibility for third-party litigation funding is dependent on an assessment of the merits of your case and recoverability. Ultimately, the third-party litigation funder is concerned with whether the outcome of your case will be significant enough to justify their investment and risk.
Disbursement only funding
Disbursements are fees payable for services acquired in connection with one’s litigation, they may include barristers’ fees, expert fees, witness fees, court filing, and hearing fees. Disbursements are usually recoverable from the defendant if your case is successful, however if you are unsuccessful or unable to recover from the defendant in full, then you will be required to cover the costs of the disbursements. Disbursement only funding by third-party litigation funders is typically coupled with a conditional costs agreement as whilst your solicitor may be willing to act on a ‘No Win No Fee’ basis, other associated parties may not be.
After the Event insurance
After the Event insurance insures you against an adverse costs order in the event that your claim is unsuccessful. After the Event insurance policies typically cover both the adverse costs order and your disbursements. As with conditional costs arrangements and third-party litigation funding, one’s eligibility for After the Event insurance is dependent on the merits of the case and overall prospects of success.