Before you can help a client with their legal problem, you need to work out how they're going to pay for it. Funding isn't just an admin task — it's a core professional obligation. You must give clients clear, upfront information about costs and explore all available funding options with them.
Under the SRA Standards and Regulations, you're required to provide costs information that's transparent and in a format the client can understand. This isn't optional — failing to discuss funding options properly can lead to regulatory action and complaints.
SQE1 questions on funding often present a scenario and ask which funding option is most appropriate. Make sure you know which options are available for which types of case — for instance, CFAs can't be used in criminal or family proceedings.
A private retainer is the most traditional funding method — the client simply pays you for your work from their own resources. The terms are set out in a client care letter, which forms the contract between you and the client. This letter must be sent at the outset of the retainer.
Your client care letter must cover the scope of work, your charging basis, and who's responsible for costs. It also needs to explain the client's right to complain, your complaints procedure, and their right to refer complaints to the Legal Ombudsman.
The SRA Transparency Rules require you to publish price and service information for certain types of work (like conveyancing, probate, motoring offences, and employment tribunals). Even where the rules don't apply, you must give the client the best possible costs information at the start and update it as things change.
There's an important difference between an estimate and a quotation. An estimate is an informed guess — you're telling the client roughly what it might cost, but you're not bound by that figure. A quotation (or fixed fee) is a firm price — you're committing to do the work for that amount, and you can't charge more unless the scope changes.
With hourly rate billing, you charge for the time you actually spend. You'll typically record time in units of six minutes (one-tenth of an hour). The client pays for all time spent, including phone calls, emails, research, and drafting. This method gives flexibility but makes costs harder to predict for the client.
If costs are likely to exceed your original estimate, you must tell the client immediately and get their informed consent to continue. Failing to update costs information is one of the most common grounds for complaints to the Legal Ombudsman.
A conditional fee agreement is a "no win, no fee" deal. If the client loses, they don't pay your base costs (though they may still be liable for the other side's costs and disbursements). If they win, they pay your normal fees plus a "success fee" — a percentage uplift on your base costs as a reward for taking the risk.
CFAs are governed by s.58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 2013. The key requirement is that a CFA must be in writing. If it's not in writing, it's unenforceable — meaning you can't recover any fees at all.
The success fee is expressed as a percentage uplift on your base costs. It's capped at 100% of base costs — so if your base costs are £10,000, the maximum success fee is another £10,000. The percentage reflects the risk you're taking: higher risk cases justify a higher success fee.
In personal injury cases, there's an additional cap. The success fee cannot exceed 25% of the damages awarded (excluding damages for future care and loss). This protects injured claimants from having too much of their compensation eaten up by legal costs. The client pays the success fee — it's not recoverable from the losing side since LASPO 2012.
Clients on CFAs often take out ATE insurance to cover the risk of having to pay the opponent's costs if they lose. The premium for ATE insurance is paid by the client (it's no longer recoverable from the losing side in most cases since LASPO 2012). In clinical negligence cases, however, ATE premiums for expert reports are still recoverable.
You cannot use a CFA in criminal proceedings or family proceedings. If you try to, the agreement will be unenforceable. This is a common exam trap — always check the type of proceedings before recommending a CFA.
Remember the key numbers: success fee capped at 100% of base costs generally, and 25% of damages in personal injury. Also remember that since LASPO 2012, success fees and ATE premiums are generally not recoverable from the losing party — the client bears these costs.
A damages-based agreement is where you agree to take a percentage of the client's damages as your fee. If the client doesn't recover anything, you don't get paid. This is sometimes called a "contingency fee" arrangement. DBAs follow the "Ontario model" — your payment comes only from the damages recovered.
DBAs are governed by s.58AA of the Courts and Legal Services Act 1990 and the Damages-Based Agreements Regulations 2013. Like CFAs, a DBA must be in writing to be enforceable. The regulations set out specific requirements for what the agreement must contain.
The maximum percentage you can take depends on the type of case. In personal injury, the cap is 25% of damages (excluding damages for future care and loss). In employment matters, it's 35% of damages. In all other civil litigation, it's 50% of damages. These caps include VAT but are net of any costs recovered from the other side.
| Type of Case | Maximum Percentage | Notes |
|---|---|---|
| Personal injury | 25% of damages | Excludes future care and loss damages |
| Employment | 35% of damages | Includes tribunal and settlement claims |
| Other civil litigation | 50% of damages | Commercial disputes, debt recovery, etc. |
Under the Ontario model used in England and Wales, you're only paid from the damages the client actually recovers. You can't charge the client separately for your costs on top of the percentage — the percentage is inclusive of everything. If the client recovers nothing, you get nothing.
Like CFAs, DBAs cannot be used in criminal proceedings or family proceedings. They're also not available for proceedings before a coroner. Always check the type of case before suggesting a DBA to a client.
A fixed fee is exactly what it sounds like — you agree a set price for a defined piece of work. This works well for routine, predictable matters like straightforward conveyancing, simple wills, or uncontested divorces. The client knows exactly what they'll pay, which removes uncertainty.
With a fixed fee, the financial risk shifts to you as the solicitor. If the work takes longer than expected, you can't charge extra. That's why it's crucial to define the scope of work precisely in your client care letter. Make clear what's included and what would be treated as additional work at extra cost.
Always include a clear scope limitation in fixed fee arrangements. For example: "This fixed fee covers a standard freehold purchase with no title defects. If unexpected issues arise requiring additional work, we will discuss this with you and agree any additional charges before proceeding."
Criminal legal aid is administered by the Legal Aid Agency (LAA), an executive agency of the Ministry of Justice. It funds legal advice and representation for people accused of criminal offences who can't afford to pay privately. The rules and availability differ depending on the stage of the criminal process.
Legal advice at the police station is free and available to everyone, regardless of means. There's no means test and no merits test — anyone who's been arrested or is voluntarily attending for interview has the right to free legal advice. This is a fundamental right, and you should always advise clients to take it up.
For cases in the magistrates' court, legal aid is subject to two tests: a means test and an interests of justice test. The client must pass both tests to qualify. The means test checks whether the client can afford to pay for their own representation. The interests of justice test considers whether the case is serious enough to warrant public funding.
For Crown Court cases, the interests of justice test is automatically satisfied — anyone facing trial in the Crown Court meets the merits threshold. However, a means test still applies. If the client's income or capital exceeds certain thresholds, they may be required to make contributions towards their legal costs through a contribution order.
In the Crown Court, clients who pass the means test but have some income or capital may receive legal aid with a contribution order. This means they must pay regular contributions from income during the case, and may also have to pay from capital. If acquitted, contributions from income are refunded. If convicted, the court can order them to pay the full costs from capital.
The interests of justice test is based on the "Widgery criteria," which assess factors like whether the client is likely to lose their liberty, livelihood, or reputation, whether they can understand the proceedings, and whether the case involves complex legal points. You need to demonstrate at least one factor applies.
Think of it in three tiers: police station (always free, no tests), magistrates' court (means + interests of justice), Crown Court (means test only, interests of justice is automatic). The key difference is that Crown Court cases are considered serious enough that the merits test is automatically met.
Civil legal aid was dramatically reformed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). This Act significantly reduced the scope of civil legal aid, removing many categories of case from funding. The aim was to cut the legal aid budget, but the effect has been to leave many people without access to legal help.
LASPO works on an "in scope" basis — only cases listed in Schedule 1 of the Act qualify for civil legal aid. The main categories that remain in scope include: cases involving risk to life or liberty, homelessness, debt where the home is at risk, cases involving children at risk of abuse, asylum and immigration detention cases, and cases involving domestic violence.
Many areas that used to be covered are now out of scope. These include most private family law disputes (like contact and residence disputes, unless there's evidence of domestic abuse), most clinical negligence, most housing disrepair, most employment law, and most welfare benefits appeals. Personal injury was already removed from legal aid before LASPO.
Even if the case is in scope, the client must pass a means test. This looks at three things: gross income (must not exceed a set threshold), disposable income (income minus certain allowable deductions), and disposable capital (savings, assets, etc., minus certain exemptions like the value of the home up to a limit). Both disposable income and capital must fall below set limits.
The client must also pass a merits test, which assesses the prospects of success and cost-benefit. The case must have at least a 50% prospect of success for full representation (though a lower threshold applies for some categories). The likely damages must also justify the likely costs — there's no point funding a case where the costs will far exceed any recovery.
Here's something many clients don't expect: if you win a civil legal aid case, the LAA may recoup its costs from the damages or property recovered. This is called the statutory charge. It operates like a first charge on any money or property the client recovers or preserves. There are some exemptions — for example, the first £5,000 of any damages in most money claims is exempt.
You must always warn your client about the statutory charge at the outset. If they recover damages or property, the LAA will want its money back. Clients can be shocked to find their legal aid wasn't truly "free" after all. Failing to explain this properly is a common source of complaints.
Even if a case is out of scope, the client can apply for exceptional case funding (ECF). This is available where failure to provide legal aid would breach the client's rights under the European Convention on Human Rights (usually Article 6 — right to a fair trial) or enforceable EU rights. ECF applications are rare but important as a safety net.
Third party funding (also called litigation funding) is where an external funder — someone with no direct interest in the case — agrees to pay the client's legal costs in exchange for a share of the damages if the case succeeds. If the case fails, the funder loses their investment. This is increasingly common in high-value commercial disputes.
The funder enters into a litigation funding agreement (LFA) with the client. The funder pays the solicitor's fees and disbursements as the case progresses. If the case wins, the funder takes an agreed share of the recovery — typically a multiple of their investment or a percentage of damages. If the case loses, the funder bears the loss.
Third party funders aren't directly regulated by the SRA, but many belong to the Association of Litigation Funders (ALF) and follow its Code of Conduct. The ALF Code requires funders to maintain adequate capital, not to influence the conduct of the litigation, and to ensure clients receive independent legal advice before entering a funding agreement.
As the solicitor, you still owe your duties to the client, not the funder. You must ensure the client understands the terms of the funding agreement, including the funder's share and any circumstances in which funding might be withdrawn. Watch out for potential conflicts of interest between the client's objectives and the funder's financial interests.
BTE insurance is a policy the client already has — they took it out before the legal problem arose. It's often included as an add-on to motor insurance, home insurance, or household contents policies. Many clients don't even know they have it. You have a duty to ask your client whether they have any existing BTE cover before recommending other funding options.
If the client has BTE cover, the insurer will typically pay the client's legal costs up to a specified limit. The policy may require the client to use a panel solicitor (one approved by the insurer), but in contested proceedings the client has a right to choose their own solicitor under the Insurance Companies (Legal Expenses Insurance) Regulations 1990. The premium has already been paid, so there's no additional cost.
ATE insurance is taken out after the legal problem has arisen, specifically to cover the risk of having to pay the other side's costs if the case is lost. It's commonly used alongside CFAs. The premium is usually payable only if the case succeeds (a "deferred and contingent" premium), so the client pays nothing upfront.
Failing to ask about existing BTE cover is a serious oversight. If your client has BTE insurance that would have funded their case, but you put them on a CFA with a success fee instead, you could face a complaint or negligence claim. Always ask about existing insurance at the very first meeting.
| Funding Method | Client Pays Upfront? | Risk to Client | Available For | Key Feature |
|---|---|---|---|---|
| Private retainer | Yes | High — pays regardless of outcome | All case types | Client funds from own resources |
| CFA | No (usually) | Medium — may pay opponent's costs if loses | Civil (not criminal/family) | No win, no fee + success fee |
| DBA | No | Low — pays only from damages | Civil (not criminal/family) | Solicitor takes % of damages |
| Fixed fee | Yes (or staged) | Low — cost is certain | All case types | Agreed price for defined scope |
| Criminal legal aid | No (or contributions) | None to low | Criminal only | Means + interests of justice tests |
| Civil legal aid | No (but statutory charge) | Low — but statutory charge applies | In-scope civil cases | Means + merits tests, LASPO scope |
| Third party funding | No | Low — funder bears costs | High-value commercial | Funder pays in exchange for share |
| BTE insurance | No (already paid) | None | Depends on policy | Pre-existing cover, check first |
| ATE insurance | Deferred premium | Limited — insures against adverse costs | Civil cases | Covers opponent's costs risk |
In the exam, work through the options methodically. First, check if the client has BTE insurance. Then consider legal aid eligibility. Then look at CFAs or DBAs for civil cases. Only recommend a private retainer if other options aren't available or the client prefers certainty about solicitor choice and case control.
| Legislation | What It Covers |
|---|---|
| Courts and Legal Services Act 1990, s.58 | Provides the legal basis for CFAs |
| Courts and Legal Services Act 1990, s.58AA | Provides the legal basis for DBAs |
| Conditional Fee Agreements Order 2013 | Sets requirements for valid CFAs |
| Damages-Based Agreements Regulations 2013 | Sets percentage caps and requirements for DBAs |
| LASPO 2012 | Reforms civil legal aid scope; makes success fees and ATE premiums irrecoverable from losing party |
| Insurance Companies (Legal Expenses Insurance) Regulations 1990 | Gives clients right to choose own solicitor in legal expenses insurance cases |
| SRA Standards and Regulations | Overarching obligation to provide transparent costs information |
You have a professional duty to discuss all available funding options with your client, not just the one that benefits your firm the most. This includes telling them about legal aid if they might qualify, asking about BTE insurance, and explaining CFAs and DBAs where appropriate. Informed consent means the client understands the pros and cons of each option.
Clients aren't limited to just one funding method. In complex cases, you might see a combination — for instance, a CFA with ATE insurance, or third party funding with an ATE policy for adverse costs. The key is to put together a package that gives the client access to justice while managing their financial risk.
Whatever funding method you use, document everything. Record the options you discussed with the client, why a particular method was chosen, and ensure all agreements are in writing. If a dispute arises later about costs, your file notes will be your best defence.
The exam often presents a client scenario and asks you to identify the most appropriate funding option. Common traps include suggesting a CFA for a criminal case (not allowed), forgetting to check for BTE insurance, or confusing the DBA percentage caps. You'll also be tested on the statutory charge and the differences between magistrates' and Crown Court legal aid.
Don't mix up CFAs and DBAs. With a CFA, you charge your normal fees plus a success fee (percentage of your costs). With a DBA, you take a percentage of the client's damages. The risk profile and caps are different. In the exam, read the question carefully to identify which arrangement is being described.
Before the exam, make sure you can: (1) identify which funding options are available for each case type, (2) state the CFA success fee cap and DBA percentage caps from memory, (3) explain the three tests for civil legal aid (scope, means, merits), (4) describe the statutory charge, and (5) explain why you must always check for BTE insurance first.