Group litigation is a powerful way for individuals to pursue a lawsuit. But the legal costs of such claims can be substantial, especially when taking on large, well-funded defendants. However, there are cost-effective ways of funding group litigation, which enable claimants to participate in collective legal actions.
In this guide, we’ll break down what you need to know about funding group litigation. We’ll cover the different types of available funding, how it affects the litigation process, and what claimants should consider before joining a group claim.
Available ways of funding group litigation
The most common funding options available in the UK are no-win, no-fee agreements. But there are various ways to fund a group litigation case, each offering different advantages and potential drawbacks.
1. CFAs (no-win, no-fee)
A Conditional Fee Agreement (CFA), also known as a no-win, no-fee arrangement, is a popular funding method in group litigation. When claimants sign up to a CFA, they don’t have to pay anything upfront. The legal team that represents the claimants will only earn fees if they win the case. If the case is won or settled, the law firm charges a “success fee” in addition to their standard costs.
In many CFA agreements, the law firm combines the success fee and standard costs into one percentage. This means you have a clear idea about how much of your compensation will go toward legal fees, ensuring you’re never surprised by unexpected charges.
2. DBAs (no-win, no-fee)
A Damages-Based Agreement (DBA) is another no-win, no-fee funding option for group litigation (although it’s not as popular as a CFA). With a DBA, the law firm’s fees are capped at a pre-agreed percentage of the compensation awarded, meaning you’ll only ever pay a set portion of your damages, up to a maximum of 50% by law. There is no separate success fee with a DBA.
3. Private funding
If you are funding your claim, you’ll pay for the law firm’s services from the beginning of the case, regardless of whether you win or lose. Private funding can be risky since there is no protection if the case is unsuccessful. You would be responsible for all legal costs and expenses, even if the case does not result in compensation. You might also find yourself liable for the other side’s costs.
4. Legal expenses insurance
Legal expenses insurance (LEI) is a type of insurance that can help cover the costs associated with group litigation. You may already have this type of insurance through your home or car policies. It is also known as Before-the-Event (BTE) Insurance.
How no-win, no-fee works when funding group litigation
In no-win, no-fee cases, law firms usually charge an agreed percentage if a case results in a win or settlement. Although this fee can seem high, it compensates firms for the risk of taking on your case without any upfront or guaranteed payment. The percentage will vary depending on the case.
Example of a 20% fee under a no-win no-fee agreement
| If the case is won or settled | If the case is lost |
Upfront fees | £0 | £0 |
Success fee | 20% | £0 |
Compensation awarded | £10,000 | £0 |
Fees paid by claimant | £2,000 (deducted from compensation) | £0 |
Amount received by claimant | £8,000 | £0 |
Advantages of no-win, no fee:
- No upfront cost: Claimants don’t have to pay anything to join the litigation, which removes financial barriers for individuals who can’t afford legal fees.
- Reduced financial risk: Since you only pay if the case wins, there’s less financial risk involved in pursuing a claim.
Drawbacks of no-win, no fee:
- Success fee deduction: If the case succeeds, a portion of the compensation will go to the legal team to cover their costs. This means claimants may receive less than the total award.
- Risk if unsuccessful: In some cases, there may be minor administrative costs if the case fails, although this varies depending on the agreement.
In summary
No-win, no-fee arrangements are often the preferred option for group litigation because they provide claimants with access to justice without upfront financial commitment. However, it’s essential to fully understand the terms, including any fees that apply if the case is successful.
Legal expense insurance (After-the-Event Insurance)
Law firms expect to win the no-win, no-fee cases they take on. When they do, the defendant usually has to pay all costs, fees, and expenses. But who pays the expenses and defendants legal costs if the case is lost?
To protect claimants from the risk of having to pay expenses and the defendants legal fees, law firms usually take out After-the-Event (ATE) insurance policies. This type of insurance is purchased after the group litigation claim has started.
ATE is commonly used when funding group litigation and ensures the insurer pays all costs – including any fees that may need to be paid to the defendant – if the case is lost.
The role of litigation funders in group claims
Litigation funders are playing an increasingly important role in group claims. These funders, often specialised companies or investors, provide law firms with capital to cover their legal costs and other expenses. In exchange, they expect a share of the compensation if the case succeeds.
Litigation funders make it easier for law firms to run group action claims and hold corporate giants accountable for their misdeeds.
Access to justice
Complex cases often require significant resources for legal fees, expert witnesses, document review, and court expenses. Litigation funders cover these upfront costs, ensuring financial limitations don’t prevent people from seeking fair compensation.
Reduced risk
Litigation funders assume the financial risk of the case. If unsuccessful, the funder (or their insurance provider) absorbs the costs, so claimants don’t owe anything.
Supports complex claims
With the added resources provided by funders, law firms can investigate thoroughly, prepare stronger arguments, and handle complex claims against well-funded defendants.
Better case evaluation
Litigation funders carefully evaluate cases before committing to fund them, only investing in claims they believe have a strong chance of success. This can be reassuring for claimants, as it means a reputable funder has confidence in the case.
Helps with decision-making
Funders are experienced in assessing risk. While the legal team ultimately controls the case, input from a funder can help claimants achieve the best possible outcome, whether through a settlement or a court victory.
In group claims, litigation funders only receive compensation if the case succeeds. This means both parties share a common goal: securing the highest possible compensation and achieving a successful outcome.
Don’t be afraid to ask a law firm how a claim is being funded, as well-resourced cases may be more likely to win.
How funding affects the group litigation process
Understanding how funding impacts different aspects of the case can help claimants know what to expect.
Case pace and timeline
Well-funded cases often progress more efficiently because legal teams can access all the necessary resources upfront, including expert witnesses, research support, and additional administrative assistance. However, litigation can still take time, and cases often require years to resolve, especially when they involve large groups and complex legal issues.
Claimant obligations and financial responsibilities
While funding typically covers most legal costs, claimants should be aware of any potential financial obligations that may arise. Before signing up, make sure you understand the following:
- How much you will have to pay if you lose
- If there are any conditions that will invalidate your no-win, no-fee agreement
- How much you may have to pay if the case wins
- If ATE insurance is in place and how this cost will be paid
- If there are any additional expenses or fees you could be liable for.
By clarifying these funding issues, you can join a group litigation case with a clear understanding of your financial position, regardless of the result.
Key considerations for claimants
In summary, before joining group litigation, you should always take the time to understand the funding arrangements and potential implications. Transparency is key, so don’t hesitate to ask questions or request clarification if anything is unclear. Here are some crucial factors to consider:
The costs involved
Different funding options come with varying costs and terms. Claimants should fully understand any success fees, legal fees, or ATE insurance premiums that may apply. Reviewing these terms will help you gauge how much of the compensation you may receive and whether it aligns with your expectations.
The potential liabilities
While funding arrangements generally protect claimants from direct costs, clarifying any potential liabilities before joining the case is essential. For example, some no-win, no-fee arrangements may include small administrative costs if the case is unsuccessful, so knowing what to expect in either scenario is helpful.
The impact on any compensation
Funding arrangements may reduce the compensation claimants receive in a successful case. Understanding how success fees affect any potential payout ensures you’re comfortable with the financial outcome.
In conclusion: understanding the role of funding in group litigation
Funding is a fundamental aspect of group litigation, making it possible for everyday people to join forces and pursue justice without overwhelming costs.
No-win, no-fee arrangements, third-party funding, and legal expense insurance all make it easier to participate in collective actions against powerful organisations, ensuring companies answer for their wrongdoing and claimants have access to fair compensation.
Want to learn more about how group litigation works?
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