Conditional Fees, After The Event Insurance And Other Litigation Funding Mysteries

Litigation costs in England and Wales

All businesses and organisations have to deal with disputes from time to time and most will seek successfully to resolve these by negotiation, mediation or informal routes. As a last resort, a formal resolution in the civil courts may be necessary, but only after a careful analysis of the costs of doing so.

Charities face the same problems and increasingly so. If the statistical evidence is right, disputes about wills have been increasing in number in recent years. Disputed legacies place the charity trustees in a difficult position as they are obliged to ensure that the charity receives full benefit from the testator's generosity, but equally need to ensure that charitable funds are used sensibly on legal fees and a commercial approach is taken to litigation.

It is only in limited circumstances that charities need to obtain the consent of the Charity Commission or court before litigating. Essentially this boils down to two types of dispute: proceedings which are internal to the charity (such as an action against a charity trustee for, say, fraud) and significant external claims where the costs incurred are likely to be material to the charity's functioning.

In situations where charities are concerned about the merits of a case, entering into a funding agreement with the lawyer whereby the risks of the litigation are, in effect, shared or obtaining insurance against adverse costs, if it is available, may help allay the risk of allegations that funds have been spent unwisely should the case ultimately be unsuccessful.

It is important for those responsible for making the decision to go to court to understand not just how much a case might cost but also the various ways costs can be funded, both by the charity and by the opposing party, and how these funding choices can affect the progress and the cost of the case and the likelihood of settlement in particular.

Costs of litigation

The English Civil Procedure Rules 1998 (CPR) define costs in Rule 43.2 as follows:

'costs' includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 48.6, any additional liability incurred under a funding arrangement and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track.

In practice, litigation costs are typically represented by three elements:

your own legal advisers' fees expenses –...