Funding Options for Legal Services — SQE1 FLK1 Legal Services

A woman injured in a road traffic accident that was not her fault tells a solicitor she has no savings and cannot pay legal fees. The solicitor proposes a conditional fee agreement with an uplift of 30%. She signs it at that first meeting. She is asked nothing about insurance. Two months later she discovers her motor policy carries legal expenses cover of £50,000, which would have paid for the claim.

So she pays the uplift out of her damages. Was the solicitor at fault? Yes. Not for offering the agreement, but for offering it without asking one question first. This is Funding Options for Legal Services. Funding is not an admin task. It is a professional obligation, and it is where the complaints come from. Keep that motor policy in mind.

Here is the route. The duty to advise on funding at all. Then the private retainer and costs information. Then conditional fee agreements, then damages-based agreements, which candidates constantly confuse. Then fixed fees. Then legal aid, criminal and civil, which are two quite different animals. Then third party funding. And last, the two kinds of legal expenses insurance.

Start with the duty, because it frames everything. Under the SRA Standards and Regulations you must give costs information that is transparent and in a format the client can understand. And you must discuss all the options actually open to them, not the one that suits your firm best. That means legal aid if they might qualify. And it means asking about insurance.

The private retainer first. The client pays from their own resources, on the terms of a client care letter. That letter is the contract, and it goes out at the outset. It covers the scope of the work, the charging basis and who is responsible for costs. It also explains the right to complain, your complaints procedure, and the right to go to the Legal Ombudsman.

Then the costs information. The basis of your charges. An estimate or a range where you can give one. Likely disbursements, like court fees and expert fees. Whether VAT is charged. When and how the client is billed. Their right to challenge the bill. And any interest on late payment.

Two words that are not the same. An estimate is an informed guess, and you are not bound by the figure. A quotation, or a fixed fee, is a firm price. You cannot charge more unless the scope changes. And if costs are likely to exceed your estimate, tell the client immediately and get their informed consent to carry on.

On hourly rates you charge for time actually spent, usually in units of six minutes, one tenth of an hour. Calls, emails, research, drafting. Flexible for you, unpredictable for them. Failing to update costs information is one of the commonest complaints the Legal Ombudsman sees.

Conditional fee agreements. No win, no fee. Lose, and the client does not pay your base costs, though they may still owe the other side's costs and their own disbursements. Win, and they pay your normal fees plus a success fee, a percentage uplift on your base costs as the reward for the risk you took.

The framework is section 58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 2013. One formality matters above all others. The agreement must be in writing. Not in writing, not enforceable, and you recover nothing at all. An oral deal followed by an unanswered email is worth precisely nothing.

Now the numbers, and there are two ceilings. Generally the success fee cannot exceed 100% of base costs. On base costs of £10,000, the largest success fee is another £10,000. In personal injury there is a second ceiling. The success fee cannot exceed 25% of the damages, excluding damages for future care and loss.

Work one through. Base costs £15,000. The agreement provides a success fee of £20,000. The claim settles for £80,000, of which £10,000 is future care and future loss. What is the maximum chargeable? First ceiling, 100% of £15,000, is £15,000. Second ceiling, 25% of £70,000, is £17,500. You take the lower. £15,000.

Who pays it? The client. Since LASPO 2012 the success fee is not recoverable from the losing side, and nor, in most cases, is an after-the-event insurance premium. One narrow survivor: in clinical negligence, after-the-event premiums for expert reports are still recoverable. And section 58A puts criminal and family proceedings out of bounds altogether.

Damages-based agreements are the other animal, and this is the distinction the exam loves. Under a conditional fee agreement you charge your normal fees plus an uplift on those fees. Under a damages-based agreement you take a percentage of the client's damages, and that percentage is your entire fee. Recover nothing, and you are paid nothing.

That is the Ontario model. You cannot bill the client separately for costs on top of the percentage. It is inclusive of everything, and inclusive of VAT. Where costs are recovered from the losing party they are set off against your fee, so the client pays only the balance out of the damages. You do not add the percentage on top.

The caps depend on the type of case. Personal injury, 25% of damages, again excluding future care and loss. Employment, 35%. All other civil litigation, 50%. The same prohibitions apply as for conditional fee agreements, plus one more. No criminal proceedings, no family proceedings, and nothing before a coroner.

Fixed fees are simpler. An agreed price for defined work, which suits routine matters: a straightforward conveyance, a simple will, an uncontested divorce. The client knows exactly what they will pay. But the risk moves to you. If the work takes longer, you cannot charge more, so define the scope precisely and say what would count as additional work.

Criminal legal aid now, administered by the Legal Aid Agency. Three tiers, and the tier decides the tests. Tier one, the police station. Advice there is free to everyone, whatever their means. No means test, no merits test. A company director on a large salary has exactly the same right to it as anyone else.

Tier two, the magistrates' court. Two tests, and the client must pass both. A means test, asking whether they can afford their own representation. And an interests of justice test, asking whether the case is serious enough for public money. Tier three, the Crown Court. There the interests of justice test is automatically satisfied, but the means test still applies.

What is the interests of justice test made of? The Widgery criteria, and you need one to apply. Likely to lose liberty. Likely to lose livelihood. Serious damage to reputation. A substantial question of law. Unable to understand the proceedings, through inadequate English, mental illness or disability. Tracing, interviewing or expert cross-examination of witnesses. Or another person's interests requiring representation.

In the Crown Court a client who passes the means test but has income or capital may get legal aid with a contribution order. They pay monthly from income while the case runs, and capital may be assessed too. Acquitted, and the income contributions are refunded. Convicted, and the court can order the full costs paid from capital.

Civil legal aid is a different world, and LASPO 2012 is the reason. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 works on an in-scope basis. Only what is listed in Schedule 1 qualifies. Risk to life or liberty, homelessness, debt where the home is at risk, children at risk of abuse, asylum and immigration detention, domestic violence.

And out of scope? Most private family disputes, including contact and residence, unless there is evidence of domestic abuse. Most clinical negligence. Most housing disrepair. Most employment. Most welfare benefits appeals. Personal injury had gone before LASPO. So if your caller wants to sue a hospital for a missed diagnosis, the answer is not legal aid.

Three hurdles then, not two. Scope, means and merits. The means test looks at gross income against a threshold, at disposable income after allowable deductions, and at disposable capital after exemptions. The merits test asks about prospects and cost-benefit. At least a 50% prospect of success for full representation, and damages that justify the likely costs.

And then the thing clients never expect. The statutory charge. If the client wins, the Legal Aid Agency recoups its costs from the money or property recovered or preserved, as a first charge. A limited range of payments is exempt, mainly in family proceedings. On an ordinary money claim the charge bites on the whole recovery, net of anything recovered from the other side.

So you warn the client at the outset, every time. Clients are shocked to find legal aid was not free after all. One safety net remains. If a case is out of scope, exceptional case funding is available where refusing it would breach the client's rights under the ECHR. Usually Article 6, the right to a fair trial.

Third party funding. An external funder with no interest in the case pays the client's costs for a share of the recovery. Lose, and the funder loses the investment. Common in high-value commercial disputes. But the structure changed. In R (PACCAR) v Competition Appeal Tribunal, from 2023, the Supreme Court held that a funding agreement setting the funder's return as a percentage of damages is a damages-based agreement.

Which makes it unenforceable unless it complies with the Damages-Based Agreements Regulations 2013, and ordinary funding agreements do not. So funders now take a multiple of the capital they deploy instead. Funders are not regulated by the SRA, though many follow the Association of Litigation Funders code. And your duties run to the client, not the funder, so watch for conflicts between them.

Last, insurance, and here our injured client comes back. Before-the-event cover is a policy the client already had, usually bolted on to motor, home or contents insurance. Most clients have no idea it is there. The insurer pays up to a limit and may require a panel solicitor. But in contested proceedings the client can choose their own, under the Insurance Companies Legal Expenses Insurance Regulations 1990.

After-the-event cover is taken out once the problem has arisen, to insure against paying the other side's costs if the case is lost. It usually sits alongside a conditional fee agreement. The premium is normally deferred and contingent, payable only if the case succeeds. So a client with no savings can still be insured. Nothing to find up front.

A word on how SQE1 tests this. You will not be asked to recall a case name or a section number. You get a client scenario, five answers, and one instruction: pick the best funding route. So learn which option is available for which type of case, and learn the caps as numbers.

If you keep only three pegs. Section 58 of the Courts and Legal Services Act 1990, which makes conditional fee agreements possible and requires them in writing. LASPO 2012, which shrank civil legal aid to a schedule and stopped success fees being recovered from the loser. And R (PACCAR) v Competition Appeal Tribunal, which turned percentage-of-damages funding agreements into damages-based agreements overnight.

Four traps. One: check for existing insurance before you propose anything. Before-the-event cover sits inside ordinary motor and household policies, and the client usually does not know. Recommend an uplift to someone already insured and you have a complaint, and possibly a negligence claim.

Two: do not mix up the two agreements. A conditional fee agreement charges your fees plus a percentage of those fees. A damages-based agreement takes a percentage of the client's damages, and that is the whole fee. Different risk, different caps, different arithmetic.

Three: two ceilings on a personal injury success fee, and you apply the lower. 100% of base costs, and 25% of the damages once future care and loss are stripped out. An agreement fixing a higher figure does not make it chargeable.

Four: legal aid is never simply free. Warn the client about the statutory charge at the outset. If they recover money or property, the Agency takes back what it spent. A client who learns that at the end rather than the beginning is a client who complains.

Quick check. A man is charged with assault after a fight outside a public house. The same week the local authority begins care proceedings about his two young children. He has little in savings and no legal expenses insurance. He has seen advertisements for no win, no fee and wants that for both matters, so that he pays nothing unless he succeeds. He asks whether his low income would help him qualify.

Can a conditional fee agreement fund either matter? Three candidates. One: for neither, because conditional fee agreements cannot be used in criminal or family proceedings. Two: for both, provided he first passes the means and merits tests that apply to such agreements. Three: only for the assault, because the risk a solicitor runs in a criminal case justifies an uplift. Pause here if you want a moment.

The answer is one. Section 58A of the Courts and Legal Services Act 1990 means a conditional fee agreement relating to criminal proceedings, or to family proceedings, cannot be enforceable. Both matters sit squarely inside the prohibition. So the funding has to come from elsewhere. Criminal legal aid for the assault, subject to means and interests of justice. Civil legal aid for the care proceedings, which stay in scope.

Why the others fail. Option two borrows the wrong vocabulary. Means and merits tests belong to legal aid, not to these agreements, and no test unlocks something the statute forbids. Option three fails because the ban on criminal work is absolute. How much risk the solicitor runs is beside the point.

Five things to take away. One: ask about existing insurance first, then legal aid, then the conditional or damages-based routes, and only then a private retainer. Our injured client lost her uplift to that one missed question. Two: a conditional fee agreement must be in writing. The success fee is capped at 100% of base costs, and in personal injury also at 25% of damages excluding future care and loss.

Three: a damages-based agreement pays you only out of damages, inclusive of everything, capped at 25% in personal injury, 35% in employment and 50% in other civil work. Four: criminal legal aid runs in three tiers. Police station free to all, magistrates' court means plus interests of justice, Crown Court means only. Five: civil legal aid needs scope, means and merits, and the statutory charge takes the Agency's costs back out of the recovery. Next time, Conflicts, Confidentiality and Disclosure.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.