Conditional Fee Agreements (“CFA’s”) are a relatively new phenomenon first introduced in 1995 for a very limited case type in which legal aid was not available. In 1998 the availability of conditional fee agreements was significantly extended so that they became available for all types of cases with the exception of family and criminal matters.
Although there are numerous variants to CFA’s, the general principle is that a client’s exposure to his own advisors legal costs is limited in the event that he does not succeed in his case, depending upon the exact terms of the CFA the losing client may be obliged to pay for disbursements such as court fees, expert fees and barristers fees. In the event that the client succeeds in his case then he is obliged to pay not only the solicitors costs and disbursments but a “success fee” which may amount to an uplift of anything up to 100% of solicitors ordinary costs. A conditional fee agreement does not relieve the losing client from paying his opponents costs although such exposure can be mitigated by a client effecting an After the Event (“ATE”) insurance policy.
In the early days of CFA’s the losing party was not responsible for paying the success fee or the ATE premium which would have to be met by the client out of any damages that were awarded to him. This changed in April 2000 so that the losing party in litigation which was funded by a CFA was not only exposed to his opponents base legal costs, but also the success fee and the ATE premium. Obviously the increased exposure provided an added incentive for a defendant to settle all but the weakest of claims. It should be noted that the Jackson Report of 2010 recommends reverting to the earlier position whereby the losing party is not burdened with the success fee and ATE premium.
It is important to understand the difference between a conditional fee and a contingency fee.
A contingency fee is a generic term used to describe any arrangement between solicitors and clients where payment of fees is dependent upon the results of work. A conditional fee, which is lawful, is a species of contingency fee regulated by section 58 of the Courts and Legal Services Act 1990 whereby the liability to pay costs is assessed by virtue of the work undertaken by the solicitor and a successful outcome . What is not however lawful is an agreement for costs to be assessed by reference to damages awarded, so if for example an arrangement existed whereby a solicitor would recover 25% of a party’s damages in addition to his legal costs from the losing party then such an agreement would be invalid and unenforceable. Note again however that the Jackson Report of 2010 recommends that contingency fees be made lawful.
Another form of CFA which is perfectly valid is where a solicitor agrees to reduce his usual hourly rate but to increase it where a party succeeds in his case. Such an arrangement may or may not be combined with a success fee as in Gloucestershire County Council v Evans & Others (2008) EWCA Civ 21 where the agreement was that the solicitors costs would be £95.00 an hour win or lose, but that an additional £50.00 would be paid to the solicitor if the case was successful together with an uplift of 100% by way of success fee.
It is worth noting that the restrictions on contingency fees only apply in work which is classified as contentious. Therefore work within an Employment Tribunal or within Adjudication (which is not classified as contentious) can be subject to a contingency fee agreement. This is important because legal costs are not usually recoverable in such matters and linking payment to the degree of success may prove attractive to the parties.
There is no doubt that the cost of legal services is a real bar to justice. Many clients, understandably, are reluctant to pay their lawyers on an hourly rate when there is no correlation between success or quality of service and payment. Although solicitors are obliged by their professional rules to always act in the best interests of their client, the fact that they are paid the same regardless of outcome is a sore point for many clients. Of course there are those situations when a client is informed that its chances of success are below 50% and in such cases it is arguably wrong to ask the solicitor to assume cost risk, but in other situations there is some merit to argue that there should be linkage between payment and outcome. Indeed when the author has worked on non contentious projects which may or may not succeed, almost invariably the lawyers were retained on a discounted hourly rate combined with an uplift for a successful outcome. Maybe this is the future for contentious work.
