News — Costs Disclosure For Litigation Funding Of Disbursements

The bulk of personal injury litigation is run on a no win/no fee basis. 

 

Written by Dr Stephen Shaw BA LLB (Hons) and Amy Pascoe BA LLB (Hons) – July 2019

 

Traditionally, lawyers have either charged for disbursements (particularly the costs of medical legal reports) as they came up or paid them and charged those monies at the end of the matter (usually whether the matter was concluded successfully or not).

More recently, personal injury lawyers have been turning to litigation funders to cover the costs of disbursements. The funder will arrange the medical appointment (often with its own doctors), cover the cost of the consultation and report, then charge the fee for the works undertaken together with the repayment of the costs paid to the doctor, at the completion of the matter. This is not litigation funding in the traditional sense, where the funder takes a percentage of the damages awarded, but it is nonetheless a form of litigation funding.  It can be a very attractive option for the lawyer. From a client’s point of view, it can make litigation that was unaffordable, even on a no win/no fee basis, possible.

Such arrangements come at a price. The costs of a medical report for a matter that runs for two or three years can be twice the cost of the same report if it were paid for up front. This makes for an important, although perhaps obvious, issue in terms of costs disclosure. A law practice that uses third party funders for disbursements must give very clear disclosure to their clients in respect of the extra costs. Failure to do so may render a costs agreement unreasonable (and therefore, susceptible to being set aside), and it may also mean that the client need not pay the bill until it is assessed. Further, the failure to disclose those costs can constitute unsatisfactory professional conduct or professional misconduct.

If your law practice is using litigation funders, the increased costs for disbursements must be very clearly disclosed and evidenced in writing (preferably within the terms of the costs agreement), at the commencement of the matter, or as soon as it becomes necessary to consider funding. It is important to note that if inadequate disclosure was provided to the client in relation to the additional fees, it is unlikely that the law practice will be able to recover anything over the base price for medical reports and consultation. This can leave a law practice significantly out of pocket.  

There are also party/party costs recovery issues associated with the use of litigation funders for disbursements. Work traditionally done by a lawyer will now be undertaken by the funder (for example, arranging the appointments, liaising with client etc was usually done by the lawyer, considered as part of getting up, and charged accordingly. However, we note that some taxing officers are refusing to allow the costs any such works on a party/party basis if they have been ‘farmed out’ to litigation funders. The basis of any disallowance being that the Scales of Costs only allows for recovery if the works are done by a lawyer or legal firm.  Further, the costs charged above the base price of a medical report and consultation are, quite properly, not recoverable on a party and party basis. After all, it is not the defendant’s fault that the plaintiff was unable to pay for reports up front and has to effectively ‘borrow’ the money to fund them. The lost costs of getting up, combined with the lost extra costs on the disbursements can make a large dent in party/party recovery. This again can give rise to issues of disclosure.

While there is nothing wrong with utilising litigation funders to cover the costs of disbursements, law practices must ensure that the significant added costs of doing so are properly disclosed to clients at the outset of any matter. Please contact us if you require any assistance with drafting these additional costs disclosures.