Conditional Fee Agreements

Conditional fee agreements are commonly known as "no win, no fee agreements". The basic idea is that a legal representative does not get paid for their time, unless the case is "won", but if the case is won they also get paid a success fee to take account of the risk that they would not get paid.

"No win, no fee" however, is not quite correct. For if you lose the case, you may still have to pay the other side's costs and any out of pocket expenses (disbursements) incurred by the legal representative. You may already have, or can take out, after the event legal expenses insurance against this and policies are available where you only have to pay a fee for the policy, if you win the case.

The regime that applies to any agreement entered into depends on the date of the agreement itself. Any changes to the regime during the existence of an agreement do not normally affect an agreement already entered into.

Conditional fee agreements were originally made lawful, by section 58 of the Courts and Legal Services Act 1990. However, it was not until 5 July 1995 that the first conditional fee agreements were available, under the Conditional Fee Agreements Order 1995.

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The History of Conditional Fee Agreements (CFA)

The Original Rules

The original rules only allowed for conditional fee agreements in personal injury claims, proceedings relating to the administration or winding up of a company, or proceedings before the European Commission or Court of Human Rights. Any success fee and/or legal expenses insurance premium had to be paid by the client, normally out of any damages received. The success fee was limited to a maximum of 100% of the normal (or base) fees. The maximum success fee has remained at 100% ever since. There was no cap on the overall amount of the success fee, although the Law Society, as it then was, recommended a 25% cap and this was followed by a lot of solicitors.

On 30 July 1998, the Conditional Fee Agreements Order 1998 extended conditional fee agreements to all types of claim, other than criminal or family proceedings. The client still had to pay the success fee and/or any legal expenses insurance premium.

From 1 April 2000 the old regulations were all revoked to be replaced by new Conditional Fee Agreement and Collective Conditional Fee Agreement Orders. For the first time both the success fee and any after the event legal expenses insurance premium were recoverable from the other party, with any shortfall between the amount claimed and the amount recovered being payable by the client. Suddenly legal representatives for insurance companies (as opposed to clients) were examining the agreements and trying to avoid having to pay. At the same time legal aid was withdrawn from all mainstream personal injury claims and, in October that year, the Human Rights Act 1998 was implemented.

As the agreements were a creature of statute the argument was that a material breach of the agreement made it invalid. The requirements for the agreement were strict and this led to a challenge that the Law Society model agreement, which was followed by a large percentage of solicitors, was invalid. This sent shock-waves through the legal profession with firms looking at going bust overnight and the Law Society facing massive negligence claims.

On 2 June 2003 further changes to the regulations enabled solicitors to offer their clients a shortened agreement (known as "CFA Lite") where the client was guaranteed all of their damages. The take up was low given the ongoing background of challenges to existing agreements. Legal representatives were sticking with what was currently working rather than risk embracing the change.

The original regulations were brought in to protect the public from greedy lawyers. However, in practice insurers and paying parties were using the regulations to avoid having to pay. More money and time was regularly being spent arguing over costs than had been incurred in the original claims. In addition, the large information requirements that had to be complied with before an agreement could be entered into were both unwieldy and completely confusing to most clients. This was seen as preventing access to justice, rather than promoting it.

On 1 November 2005 all of the current regulations were scrapped in favour of a simplified regime regulated by the Law Society (now the Solicitors Regulation Authority). Breach of any of the requirements for a conditional fee agreement no longer mean that the lawyer is not entitled to be paid, but a breach may lead to disciplinary action.

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How CFA's Work

The Basis Of A Conditional Fee Agreement

The basis of a conditional fee agreement is that the legal representative takes on the risks of litigation along with the client. The success fee on the winners is supposed to off-set the losses on the losers. As a result the legal representative is usually entitled to withdraw from the case if the client does not follow their advice.

For a conditional fee agreement to be valid it has to be in writing, so if you have not signed one you are not represented on one. Any work your solicitor does may therefore have to be paid for irrespective of the outcome.

Terminating a Conditional Fee Agreement

A client is entitled to terminate a conditional fee agreement, in the same way as any client agreement, but if they do then the legal representative is usually entitled to be paid in full immediately. If your solicitor is advising you that you do not have good prospects then you should speak to another solicitor before doing anything and, whatever you do, you must make it clear that if your current solicitors do not wish to proceed they are terminating the agreement not you. If the solicitor terminates the agreement for lack of prospects they are not normally entitled to be paid. If the client terminates it they are.

Criticism of Conditional Fee Agreements

Conditional fee agreements have come under criticism lately for a number of reasons including:

  • The insurance industry's general perception that they have caused an increase in the total amount of costs they have to pay, causing a rise in premiums
  • The fact that the legal representative defines a "win" and the definition is therefore likely to favour the legal representative
  • Some firms of solicitors will only accept sure-fire winners, meaning they pocket the extra success fees without having any losers.

If you have an issue with a CFA, call us on 01935 823883