A conditional fee agreement, or CFA, is an alternative funding arrangement for those not wanting or able to fund legal representation up front.
Commonly referred to as ‘no win, no fee’ arrangements, a CFA is an agreement with a solicitor that provides for their fees and expenses, or any part of them, to be paid conditional upon a particular set of circumstances – typically, if the case is won. In this way the solicitor accepts some, or all, of the litigation risk.
The expectation would be that the losing party would then cover the legal costs.
Conditional fee agreements are commonly used in personal injury and clinical negligence claims, although they can be used in many other areas of law.
What is an ‘ATE premium’?
An after-the-event (ATE) insurance premium is the cost of an insurance policy commonly taken out in personal injury claims after an accident has taken place. In the event that your claim is unsuccessful, this policy will cover you if you have to pay your opponent’s costs and your solicitor’s disbursements, for example, medical reports, court fees and barrister’s fees.
ATE policies are designed to work alongside the conditional fee agreement. The option of taking out a policy will often be made available to you when entering into a conditional fee agreement, as a means of protecting yourself against any litigation risk. Typically, the ATE premium will be payable at the conclusion of the claim, and usually only if the case is successful.
The ATE premium is not recoverable from the other side and must be paid out of your damages.
What is a ‘success fee’ under a conditional fee agreement?
New rules in relation to the way in which CFAs are allowed to work came into force in 2013. In particular, albeit with some limited exceptions, successful parties can no longer recover a ‘success fee’ from the losing side. These instead have to be paid out of any damages awarded in favour of the claimant.
Typically, a conditional fee agreement allows your solicitor to charge a success fee if you win. This fee is an uplift on the basic costs that a solicitor is entitled to charge you, in return for accepting the litigation risk. It is essentially an enhancement of costs in the event of a successful outcome.
If a claim is successful, you will be entitled to seek recovery from the defendant of all or part of your solicitor’s basic charges, expenses and disbursements. However, the success fee can no longer be recovered from the other side. Instead, this is payable via a deduction from any compensation awarded to you if your claim is successful.
The maximum success fee that a lawyer can charge as an uplift on basic costs is 100%. Further, there is a cap on the amount that can be deducted as the success fee from your damages in personal injury and clinical negligence claims.
The recoverable success fee in these types of claims is limited to 25% of general damages (for pain suffering and loss of amenity) and past losses. Further, the solicitor’s basic charges are usually subject to an overall cap under their own terms and conditions.
Whilst the changes introduced in 2013 placed the claimant entering into a conditional fee agreement in a more costs adverse position, a 10% increase in awards of general damages was implemented at the same time to partially offset the payment of additional legal fees.
What is ‘qualified one-way costs shifting’?
If you have a claim for personal injury, regardless of whether you have an ATE insurance policy in place, you will benefit from what is known under the rules as qualified one-way costs shifting (QOCS).
Implemented alongside the other legislative changes in 2013, QOCS protects the personal injury claimant against the enforcement of an adverse costs order in the event that their claim is unsuccessful.
The rule effectively means that in the majority of cases, a claimant will not be liable for the defendants’ costs if they lose.
In exceptional circumstances, however, you may still be required to pay your opponent’s legal costs, namely where:
- The claim disclosed no reasonable grounds for bringing the proceedings.
- There was an abuse of the court’s process.
- Your conduct, or the conduct of someone acting on your behalf, was likely to obstruct the just disposal of proceedings.
- Your claim is found, on the balance of probabilities, to be fundamentally dishonest.
- The proceedings include a claim that has been made for the financial benefit of someone else.
In the event that you are afforded the protection of QOCS, you may still need to reimburse any expenses and disbursements incurred by your solicitor, so consideration should still be given to taking out an ATE insurance policy.
What if I fail to beat a formal offer made by the defendant?
You are also at risk of an adverse costs order being made against if you fail to beat a formal offer to settle.
This means that if you reject a formal offer made by the defendant to settle your claim prior to trial, and you go on to recover less than this offer, you may be ordered to pay the defendant’s costs. However, the level of costs will be capped at the amount of any damages and interest awarded in your favour.
Any order for costs in such circumstances cannot be enforced until after the proceedings have been concluded, and any shortfall will not be treated as an unsatisfied or outstanding judgment.
Are all conditional fee agreements the same?
Each conditional fee agreement is underpinned by the basic principle that payment of legal fees is conditional upon certain circumstances being met, usually the claim being successful.
A conditional fee agreement is often tailored to the type of case, the client’s individual circumstances and the solicitor’s own business model. For example, some forms of agreement will allow the solicitor to recoup from the client any shortfall in the costs recovered from the other side, whilst other conditional fee agreements will provide for this shortfall to be waived.
The numerous different types of agreement mean that it is usually possible to create one that is mutually beneficial to both yourself and your solicitor. That said, care should always be taken to carefully read any pre-drafted conditional fee agreement to ensure that you fully understand the costs implications –no matter what the outcome of your case.