Define: Conditional Fee

Conditional Fee Agreements (CFAs), also known as “no win, no fee” agreements, are a type of funding arrangement in UK law that allows individuals to pursue legal claims without having to pay their solicitor’s fees upfront. Under a CFA, the solicitor’s fees are only payable if the case is successful, and they are usually calculated as a percentage of the compensation awarded to the client. If the case is unsuccessful, the client is not required to pay their solicitor’s fees, although they may still be liable for other costs, such as court fees or the opponent’s legal costs. CFAs were introduced in the UK in the 1990s to increase access to justice for individuals who may not have the financial means to pursue legal action. They have since become a common funding option in various types of legal cases, including personal injury claims and certain types of commercial litigation.

A conditional fee arrangement (CFA) is one in which a claimant pays his legal representatives’ fees only in the event of a successful outcome. The lawyer may seek to cover the expenses of lost cases in a number of ways. Here is the historical background of CFA, the metas of CFA that are currently lawful, and some hazards associated with such arrangements for the client and the lawyer.

History

It has been assumed for centuries that contingency fee arrangements are unlawful for Champerty, which encourages the view that litigation is a money-making procedure for the plaintiff rather than a way of seeking restitution for wrongs. It was argued that solicitors would seek to recover larger amounts of compensation than were merited by the case in order to enhance their remuneration. In spite of this, many jurisdictions, notably the USA, accept that contingency fees are a valid way to finance litigation.

In the UK, contingency fees are mostly limited to conditional fee (‘no win, no fee’) arrangements. These were made lawful by the Courts and Legal Services Act (1990), which gave the Lord Chancellor the authority to define which types of litigation could be the subject of such an arrangement and how it should be administered. It was not until 1995, however, with the enactment of the Contingency Fees Agreement Regulations (1995), that the Lord Chancellor made it practicable to use conditional fees in practice by allowing them in personal injury, insolvency, and human rights cases. These regulations also allowed for, indeed mandated, the levying of a ‘success fee’ by the lawyer. This was a fee in excess of the lawyer’s basic charge, aimed at offsetting some of the costs of losing unfunded cases.

The problem with the success fee was that the client would have to pay it, even if the case were successful, so in practice, he did not recover the full measure of damages. The Contingency Fees Agreement Regulations (2000) changed all this by permitting the successful party to recover the success fee from the losing party, provided that certain formalities were adhered to. Incidentally, at about the same time, legal aid was withdrawn for personal injury, defamation, and corporate matters. It was also enacted that legal aid should be refused where conditional fee agreements were a more appropriate form of funding.

In the meantime, the courts had begun to formulate a limited common law doctrine of conditional fees; in particular, Thai Trading v Taylor (1998) decided that a ‘no win, no fee’ arrangement in the ‘spirit’ of the 1990 Act would be enforceable, even when technically outside the remit of the 1995 Regulations (by not stipulating a success fee). The 2000 Regulations made this type of arrangement statutory.

Current Legal Position

CFAs are currently allowed for all civil cases except family cases. They may include a success fee, or not.

Where a success fee is included, it will be a percentage of the lawyers’ costs (the ‘Uplift’). Under the 2000 Regulations, the success fee is recoverable from the paying party, as is an insurance premium paid by the claimant to cover the risk of losing the case, provided that certain formalities are complied with.

Where no success fee is levied, this is still a valid CFA, provided that it complies with the statutory formalities.

Hazards for the claimant Under a CFA, the claimant is not liable to pay his lawyer’s costs if he loses the case, but other liabilities may be incurred in the course of litigation; these may well not be recoverable. Such liabilities include disbursements, barristers’ fees (if the CFA is with a solicitor only) and, of course, the costs of the other side. Claimants may take out insurance to cover this risk, and the premium should be recoverable if the claimant wins the case. In some cases, an existing insurance policy may cover this eventuality (e.g., motor insurance), but in most cases, the claimant will need to take out after-the-event insurance’. This insurance is usually only recoverable from the losing party if proceedings have been issued, so it may be ‘better to defer the purchase of a policy until this time.

Hazards For The Lawyer

Courts in the UK have been quick to penalise solicitors that they feel to be in champertous relationships — however unobjectionable — with their clients; such penalties have included the setting aside of contracts between solicitors and clients, leaving solicitors unable to recover any part of their fees. Probably the most notorious recent case is Aratra Potato v. Taylor Joynson Garrett (1995), in which the High Court held to be unenforceable a contract between client and solicitor that allowed for a modest reduction in fees in the event of losing the case. As a result, the solicitors ended up out of pocket by about a quarter of a million pounds, as they could not recover their expenses from their clients. Although it could be argued that this case occurred before the statutory acceptance of CFAs, no such claim could be made in Awwad v. Geraghty (2000). Here, the Court of Appeal set aside an agreement in which the solicitor agreed to accept a much-reduced fee if the case were lost and the normal fee in the event of a win. Had the solicitor offered to waive the fee completely, this would presumably be acceptable under the 2000 Regulations. This suggests that the courts will reject contingency fee agreements that don’t fall within the regulations’ limited parameters.

Section 28 of the Access to Justice Act 1999 states that a conditional fee arrangement that complies with all the statutory provisions cannot be deemed unenforceable simply because it’s a conditional fee arrangement. However, it goes on to say that all other arrangements that purport to be conditional fee arrangements shall be unenforceable. This second clause presumably serves to prevent the emergence of a common-law doctrine of conditional fees in addition to the statutory one (as Thai Trading did). This has the unfortunate side effect that a CFA could be deemed unenforceable simply by failing to comply with a trivial formality. If it is unenforceable, then defendants that lose cases against a CFA-funded claimant have sought to avoid paying costs on the basis that the claimant’s solicitor cannot claim against his client, so the client does not need to pay. Solicitors are therefore advised to be very careful that the formalities are followed, and these include ensuring that the written agreement includes a statement to the effect that the client has been given full advice about the funding opportunities available.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 9th April, 2024.