If a law firm takes on your case on a ‘no win- no fee’ basis, they are entitled to recover from you money that they have spent on your case as expenses (also known as ‘disbursements’ or ‘outlays’) in addition to charging you a professional fee for work done on your behalf.
Whilst some firms pay these expenses out of their own pocket and get them back when the case is finalised; usually with interest added, other law firms may want you to enter into a litigation loan. This is a commercial loan from a third party credit provider that covers the cost of the expenses the law firm has to pay on your case, but which has to be paid back (with interest) once the matter is finalised.
This helps the law firm’s cash flow considerably as legal expenses on each case run on a speculative basis can be quite considerable, literally running into thousands of dollars.
Things to remember if you are asked to enter into a litigation loan:
- Such loans are completely separate from the ‘no win – no fee’ costs agreement you enter into with the law firm.
- Be careful to find out what the interest rate and other charges are, as the litigation loan has to be repaid at the conclusion of your case, in addition to the costs charged under the ‘no win-no fee’ agreement.
- Read all the terms and conditions of the proposed litigation loan agreement terms carefully, so you are clear on precisely what you are being charged.
- If you are unsure about anything, remember you can always seek independent legal and financial advice before committing to the loan.
If the agreement also allows the lender to provide you with cash, in addition to covering legal expenses, ensure you are aware of the interest charges and any other fees, which can be considerable.
- It is worthwhile asking your lawyer to give you an example of what you could be left with ‘in your hand’ at the conclusion of your case, once the legal fees and expenses are taken into account, as well as an third party litigation loans and interest to be repaid, and other refunds that are required by law to be made e.g. to Workcover or other government departments.
- Whilst the lawyer may not be able to give you precise figures until the value of your claim is known, they should be able to give you examples, so that your expectations of what you will receive are realistic.
NB. Also, read our article on the “50/50 rule” or ask your lawyer about how the 50/50 rule that applies to fees and expenses chargeable by law firms and the impact it has on the amount of money you will receive in your hand.
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