14.4 Civil Legal Aid, Third-Party Funding and Insurance

Civil legal aid: scope, means, merits

Civil legal aid is public funding administered by the Legal Aid Agency (LAA) under LASPO 2012. Eligibility is not a single income number. Functioning knowledge uses three gates, in order.

Gate 1 — scope. Only services described in Part 1 of Schedule 1 to LASPO (and not taken out by Part 2) are "in scope" under section 9. The remaining civil list is narrow. Typical in-scope files include public-law children and care; private family work that passes a domestic-abuse, forced-marriage or FGM evidence gateway; homelessness and some housing cases where the home is at serious risk or the disrepair is serious; community care; mental-health detention work; much public law and judicial review; asylum and some immigration; special educational needs; specified discrimination claims; and some Court of Protection work. Most ordinary personal-injury, clinical-negligence, employment, consumer and private-family cases are out of scope. If the matter is out of Schedule 1, consider exceptional case funding under section 10: the Director of Legal Aid Casework may fund the case where failure to do so would breach (or risk breaching) the individual's Convention rights or assimilated enforceable rights to legal services, or where it is appropriate having regard to that risk. ECF still usually has to pass means and merits. Inquests have their own ECF practice.

Gate 2 — means. The Civil Legal Aid (Financial Resources and Payment for Services) Regulations 2013, applied through the LAA's GOV.UK guidance last updated 5 August 2026, set the financial test. First ask whether a partner's resources must be aggregated. Then ask whether the client is passported on income because they receive Income Support, income-based JSA, Universal Credit, Guarantee Credit, or income-related ESA. Passporting on income does not skip the capital test, except that a client receiving National Asylum Support Service support under sections 4 or 95 of the Immigration and Asylum Act 1999 is passported on both income and capital for controlled-work immigration and asylum matters only.

If the client is not passported on income, gross monthly income must be £2,657 or less (add £222 for the fifth child dependant and each further child). Disposable income must then be £733 or less per month. Disposable capital must be £8,000 or less, or £3,000 or less for the controlled-work immigration matters in regulation 8(3). Controlled work and family mediation do not attract contributions. Licensed work (certificated legal representation and family help (higher)) can: the LAA collects contributions where disposable income exceeds £315 per month and/or capital exceeds £3,000. For a protection order against domestic abuse or forced marriage, the LAA waives the upper eligibility limits, but a contribution may still be required. Assets in dispute have a special rule: the value of the client's interest exceeding £100,000 is brought into the assessment (regulation 38). Keep the evidence (CW1 / CIV MEANS forms). The online checker tests money only; it does not decide scope or merits.

Gate 3 — merits. The Civil Legal Aid (Merits Criteria) Regulations 2013 require the Director to apply a prospects-of-success test and, for many representation applications, a proportionality or cost-benefit test (regulation 8: whether the likely benefits justify the likely costs, having regard to prospects and all the circumstances). Full representation is not a vehicle for a hopeless claim. A case of overwhelming importance to the individual (life, liberty, physical safety, or immediate homelessness risk) is treated differently from a straightforward money claim. The provider must hold the right LAA contract (or be able to make an ECF application). A newly qualified solicitor in a firm with no civil contract cannot "grant legal aid" by letter.

Forms of service. Controlled work (legal help, help at court, family help (lower), family mediation, and some controlled legal representation) is determined by the contracted provider using the means rules above. Licensed work is determined by the LAA on a certificate. Tell the client which they are applying for.

The statutory charge. LASPO section 25 creates a first charge on property recovered or preserved in the funded dispute, and on costs payable to the individual, for the amounts the Lord Chancellor spent on the services (to the extent not recovered another way) and other amounts the individual owes under sections 23 and 24. In functioning terms: if legal aid pays for a family or housing case and the client keeps or wins a house or a lump sum, the LAA can take its spend back out of that property, sometimes by postponing enforcement and charging interest. Warn the client before they treat the house as "free". The LAA's Statutory Charge Manual (July 2026 edition, listed on the legal-aid guidance page) is the practitioner text; SQE1 will test the existence and the warning, not every enforcement regulation.

Third-party funding after PACCAR

Third-party funding is a commercial funder paying some or all of the client's legal costs in return for a share of the proceeds or another return if the claim succeeds. It is common in heavy commercial claims and collective actions. The funder is not the client. Principle 3 still requires independence: the funder must not dictate the legal advice. A pure funder who stays at arm's length is in a different costs position from a controller who runs the litigation for their own benefit.

The Association of Litigation Funders maintains a voluntary code (capital adequacy, termination, complaints). Membership is not a statutory licence.

R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 held that a litigation funding agreement under which the funder's return is a percentage of damages is a damages-based agreement because litigation funding was treated as claims-management services for section 58AA. An LFA that is a DBA and does not satisfy the DBA Regulations is unenforceable. That is why so many funders rewrote agreements as a multiple of capital deployed, sometimes capped by damages recovered.

In July 2025 the Court of Appeal (including Sony Interactive Entertainment Europe Ltd v Alex Neill Class Representative Ltd) treated those multiplier structures, capped by recoveries, as not DBAs in the collective-proceedings context. Drafting still matters: a clause that in substance awards a percentage of damages re-enters PACCAR.

The Litigation Funding Agreements (Enforceability) Bill 2024, which would have said an LFA is not a DBA and would have applied retrospectively, lapsed at the 2024 election. In December 2025 the government said it intends to legislate that LFAs are not DBAs, prospectively, and to regulate funding. Commentary on the 2026 King's Speech recorded that PACCAR remained in force with no enacted reversal by that point. Unless an SQE1 stem states that a later Act is in force, apply PACCAR to percentage LFAs and treat a clean multiplier-capped LFA as the structure the 2025 Court of Appeal accepted.

Legal expenses insurance

Before-the-event (BTE) legal expenses insurance is often bolted on to household or motor policies. After-the-event (ATE) is bought once the dispute exists, usually to cover opponent's costs and sometimes own disbursements. Both are contracts of insurance (RAO article 75). Arranging or advising on a particular ATE product is insurance distribution: use section 14.2. Check existing BTE before selling ATE. If BTE already covers the claim, another premium may not be in the client's interests.

After LASPO, the ATE premium is generally not recoverable from the opponent in ordinary civil claims. In personal injury, qualified one-way costs shifting (a Dispute Resolution topic) reduces the need for ATE against adverse costs, but ATE is still sometimes bought for disbursements. Explain who pays the premium if the claim fails.

Choosing a model on a live file

Work in this order. Identify the client and the matter. Ask whether BTE already exists. Ask whether the matter is in LASPO Schedule 1 and whether the client can pass means and merits — if yes, explain civil legal aid, contributions and the statutory charge. If not, compare a private retainer or fixed fee the client can actually pay with a CFA or DBA, using the caps and a realistic damages and costs sketch. For a heavy commercial claim, ask whether a third-party funder is realistic and whether the LFA is a PACCAR percentage or a multiplier. Record the advice. If you use "no win, no fee" language, make the January 2026 warning notice's points express: fees on success, liabilities on failure, referrer relationships, and a check that the client understood.

The FLK1 funding list now covers eligibility for civil legal aid only: the 2026 annual review deleted "criminal and" from that line for assessments from 1 September 2026. Revise representation-order procedure and the crime means test in FLK2 Criminal Law and Practice first hearings, where those rules are applied to a live file.

Exam traps

• Treating a DBA as a CFA with a different label, or putting future loss into the 25% PI pot.
• Forgetting that DBA caps are including VAT.
• Reciting pre-LASPO recoverability of success fees and ATE premiums as if it were still the ordinary rule.
• Treating criminal legal aid as if it were still an FLK1 Legal Services funding item after the September 2026 deletion of "criminal and" from that line.
• Telling a civil client they are "eligible" because they receive Universal Credit without checking capital, scope and merits.
• Missing the statutory charge on a house that was recovered or preserved.
• Treating every third-party LFA as enforceable, or every multiplier LFA as automatically void.
• Marketing "no win, no fee" without explaining disbursements, ATE and the success fee.
• Treating this independent OpenExamPrep chapter as an LAA or SRA publication. It teaches the published rules; it is not an official product and does not claim official approval.