Funding Options for Legal Services
A client sitting across the desk from you has a strong case and no money to pay for it. Another client has plenty of money but wants certainty, not a blank cheque for hourly billing. A third qualifies for state help but doesn't know it exists. The funding conversation is where the practice of law meets the economics of justice — and get it wrong, and you can breach your conduct obligations before you've drafted a single letter.
The default funding arrangement is the private retainer: the client pays the solicitor's fees directly, win or lose. There is no contingency, no risk-sharing — the solicitor is paid for the work done, regardless of outcome.
Private retainer fees are usually structured in one of two ways:
- Hourly rate — the solicitor's time is logged and billed at an agreed rate per hour (or per six-minute unit, in traditional practice).
- Fixed fee — a single agreed sum covers a clearly defined scope of work, irrespective of how long the solicitor actually takes.
Key trade-off: A fixed fee gives the client cost certainty — they know exactly what the matter will cost from the outset. But it shifts the risk the other way: if the matter turns out to be more complex or time-consuming than anticipated, the solicitor absorbs that cost, because the fee doesn't move. Hourly billing is the mirror image — the client bears the risk of the matter running long, while the solicitor is protected against under-charging for genuinely complex work.
Neither option involves any element of risk-sharing tied to whether the client actually wins. For that, you need to look at contingency-based funding.
A conditional fee agreement (CFA) is the classic "no win, no fee" arrangement. If the case is lost, the solicitor typically charges nothing (or a reduced fee). If the case succeeds, the solicitor is paid their normal (base) costs plus a success fee — an uplift calculated as a percentage of those base costs, designed to compensate the solicitor for the risk of getting nothing on the cases they lose.
Two hard numerical caps govern the success fee, and SQE1 loves testing whether candidates confuse them:
CFA success fee caps
- The success fee can never exceed 100% of the solicitor's base costs — this is the general statutory ceiling, whatever the type of claim.
- In personal injury claims specifically, the success fee is additionally capped at 25% of the damages awarded for pain, suffering and loss of amenity, and for past pecuniary loss. Damages for future pecuniary loss are excluded from that 25% calculation — the client's compensation for ongoing future costs (care, lost future earnings) is ring-fenced from the solicitor's cut.
Why does this second cap exist at all, given the first? Because before it was introduced, a personal injury claimant with modest base costs but a very meritorious (i.e., highly likely to succeed, and therefore commercially attractive) claim could theoretically see almost all of even a large damages award consumed by a 100%-of-costs uplift. The 25%-of-damages cap protects the claimant's actual compensation, not just the solicitor's fee entitlement.
A CFA has one non-negotiable formality: it must be in writing to be enforceable. An oral "we'll only charge you if we win" conversation is not a valid CFA.
Where the success fee comes from now: the Jackson reforms
Before 2013, a winning claimant could recover the success fee from the losing opponent, on top of their own costs. Following the Jackson costs reforms — implemented by the Conditional Fee Agreements Order 2013, which took effect on 1 April 2013 alongside the Damages-Based Agreements Regulations 2013 — that changed fundamentally. The success fee is now recovered from the client's own damages, not from the losing party. Win the case, and the success fee comes directly out of what you were awarded.
This shift is precisely why after-the-event (ATE) insurance so often travels alongside a CFA. ATE insurance is taken out once the dispute already exists (hence "after the event") and covers the risk of having to pay the opponent's costs, and the client's own disbursements, if the claim fails. Just as with success fees, the Jackson reforms mean ATE premiums are not generally recoverable from the losing party — the client (or their damages) bears that cost too, which is why solicitors must factor the premium into the overall funding advice they give.
CFAs are not universally available. They cannot be used to fund most criminal proceedings or most family proceedings — the policy logic being that criminal liberty and family status disputes shouldn't be commodified through a contingent financial stake in the outcome.
A damages-based agreement (DBA) takes contingency funding a step further: instead of an uplift on hourly-rate costs, the solicitor's entire fee is calculated as a percentage of the damages the client recovers. As with a CFA, the solicitor is paid only if the case succeeds — no win, no fee, but here the fee itself is the winnings, sliced.
The percentage cap depends entirely on the type of claim, and this table is worth memorizing cold:
| Claim type | DBA cap | Notes |
|---|---|---|
| Personal injury | 25% of damages recovered | Excludes damages for future care and future losses |
| Employment tribunal | 35% of the sum recovered | — |
| Most other civil claims | 50% of damages recovered | The general default cap |
Notice the structural echo with CFAs: personal injury claims get the tightest cap (25%) in both regimes, precisely because personal injury damages are meant to compensate for real, often life-altering, harm and future need — Parliament doesn't want funding arrangements eating too deeply into that.
A DBA is not simply a private contract the parties can draft freely; it must satisfy statutory requirements, including being in writing and specifying the reason for setting the particular percentage chosen. This forces the solicitor to justify the fee level at the outset, rather than retrofitting a rationale if the client later disputes it.
When is a DBA the more attractive option over a CFA? Generally, where the anticipated damages are high. Because the solicitor's DBA fee is capped as a proportion of recovery rather than tied to time actually spent, a large, relatively efficient case can be highly lucrative under a DBA in a way that hourly-rate-plus-uplift billing under a CFA would not replicate. Conversely, a CFA tends to suit meritorious civil damages claims where the client cannot afford to pay privately and is comfortable sharing the downside risk of losing with the solicitor, without necessarily handing over a slice of a large recovery.
Legal aid is state funding for legal advice and representation, administered by the Legal Aid Agency. Its modern scope and framework rest primarily on the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) — the same reforming statute era that reshaped CFAs and introduced DBAs, all part of a coordinated overhaul of how litigation gets paid for in England and Wales.
LASPO dramatically narrowed what civil legal aid covers. Schedule 1 to LASPO sets out the scope of civil legal aid, and it is a much shorter list than pre-2013 practice. Civil legal aid remains available for:
- Family cases involving domestic abuse or child protection concerns
- Housing matters, particularly loss-of-home possession claims and cases of serious disrepair
- Asylum applications and certain immigration detention matters
- Community care and certain mental health matters
Notice the common thread: these are all areas where a person's home, safety, liberty, or fundamental welfare is directly at stake — the categories LASPO preserved are the ones Parliament judged too consequential to leave entirely to the private market.
Getting through the door: means and merits
Qualifying for civil legal aid is not automatic even within an in-scope category. An applicant must satisfy both:
- A means test — assessing the applicant's disposable income and disposable capital, and, where relevant, that of a partner too.
- A merits test — assessing the strength and proportionality of the case, so that public money isn't spent pursuing weak or trivial claims.
Both gates must open for funding to flow.
The safety valve and the safety net
Two mechanisms soften LASPO's otherwise hard scope boundaries:
Exceptional Case Funding (ECF) allows legal aid to be granted for a matter that falls outside the normal statutory scope, where refusing funding would risk a breach of the applicant's human rights. Think of it as the pressure valve that stops LASPO's scope cuts from producing outcomes that are unlawful under the Human Rights Act.
The legal aid statutory charge is the recoupment mechanism: it allows the Legal Aid Agency to recover the cost of funding the case from money or property the client recovers or preserves in the proceedings. Winning your case with legal aid funding doesn't mean the funding was free — the Agency can claw back its outlay from what you actually receive.
Criminal legal aid: a different gate
Criminal legal aid for representation at court runs on a different pairing of tests: a means test and an interests-of-justice test (rather than a merits test in the civil sense). But there is one important carve-out that removes the gate entirely: advice given to a person under criminal investigation or arrest at a police station is available through legal aid regardless of means. Whatever your income, you get free advice at the police station — a deliberate protection of the earliest and most vulnerable stage of the criminal process.
Beyond CFAs, DBAs, and legal aid, three further funding routes matter for SQE1 purposes.
Third-party (litigation) funding involves a commercial funder — unconnected to the underlying dispute — paying the costs of litigation in exchange for a share of any proceeds recovered. It is typically non-recourse: if the case fails, the funder simply loses its investment and has no claim against the funded client. Because this is an unregulated-by-statute but reputationally sensitive market, third-party funders in England and Wales commonly subscribe to a voluntary code of conduct promoting standards of capital adequacy (so funders can actually pay out when they lose) and case control (limiting how much a funder can dictate litigation strategy).
Legal expenses insurance comes in two flavours, distinguished by timing relative to the dispute:
| Type | Taken out | Purpose |
|---|---|---|
| Before-the-event (BTE) | Before any dispute arises, often bundled into household or motor insurance | Provides a fund towards legal costs, subject to policy limits and prior-approval requirements, if a covered dispute later arises |
| After-the-event (ATE) | Once a dispute has already arisen | Covers the risk of adverse costs and disbursements if the claim fails |
BTE is the quiet, background cover most clients don't realise they already have until you ask the right question at the first interview. ATE, as covered above, is the active risk-transfer product typically paired with a CFA.
One further procedural development has reduced reliance on ATE insurance in a specific category: Qualified One-Way Costs Shifting (QOCS) protects a losing claimant in most personal injury claims from having to pay the defendant's costs. If a claimant is already shielded from adverse costs by QOCS, the case for paying an ATE premium to cover that same risk weakens considerably — though ATE may still be worth taking out for disbursement risk or the exceptions to QOCS (such as fundamental dishonesty).
Finally, don't overlook trade union membership as a funding source: unions can fund a member's legal costs in certain workplace-related disputes, an option easily forgotten amid the statutory funding regimes but genuinely available to eligible clients.
SQE1 rarely tests these funding mechanisms in isolation — it tests whether you can advise a client on the right one for their situation. That requires two conduct-driven steps before any comparison of mechanisms:
- Identify all funding options reasonably available to the client for the matter in question — not just the one your firm happens to offer.
- Give the client the best possible information about the likely overall cost of the matter, including the funding options available, so the client can make an informed choice.
A specific trap worth flagging: a solicitor should tell a client if their matter may be eligible for legal aid, even where the solicitor's own firm does not undertake legal aid work. You cannot stay silent about legal aid eligibility simply because directing the client elsewhere costs your firm the instruction — that would put your commercial interest ahead of the client's, a clear conduct failure.
Once the field of options is honestly laid out, choosing between them comes down to weighing four factors together, not any one in isolation:
- The client's financial means
- The merits and value of the claim
- The client's risk appetite
- The type of proceedings involved (which may rule certain options out entirely — recall that CFAs and DBAs are unavailable for most criminal and family matters)
Put schematically, the pattern SQE1 rewards is: legal aid first if the matter is in-scope and the client is eligible (it removes the client's direct cost exposure entirely); a CFA for a meritorious damages claim where the client can't pay privately but is willing to share the downside risk; a DBA where anticipated damages are high enough that a percentage-of-recovery fee outperforms hourly billing for the solicitor while still being attractive to the client; and a private retainer or fixed fee where the client can simply afford to pay and wants either flexibility or certainty of price. The exam scenario rarely announces which of these applies — you have to read the client's means, the claim's value, and the type of proceedings, and reason your way there.