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What is a Conditional Fee Agreement (CFA)?

A CFA is a form of agreement between a lawyer and client where payment of the fees, or the amount of the fees, is dependent upon the outcome of the case. (The term CFA is to be contrasted with Contingency Fee Agreements or Damages Based Agreements, although in both those types of agreement the fees payable are also determined by the outcome.)

Although CFAs are very common in personal injury claims, they are suitable for almost all forms of civil proceedings.

How does a Conditional Fee Agreement work?

There are many different types of CFA and each type operates in a different way.

Examples of the types of CFA available include:

  • Hourly rate, no win, no fee agreement without a success fee: Solicitor charges normal hourly rate if successful but nothing if the case is lost.
  • Hourly rate, no win, no fee agreement with a success fee: Solicitor charges normal hourly rate plus a success fee (of up to 100%) if successful but nothing if the case is lost.
  • Discounted hourly rate agreement: Standard hourly rate charged if successful (with or without a success fee) but discounted hourly rate charged if unsuccessful.
  • Discounted fixed fee agreement: This can be structured so that standard hourly rates are charged if the case is successful but a discounted fixed fee is payable if the case is unsuccessful. The fixed fee can be staged with the amount payable varying depending on the point the case settles at.

How is the success fee calculated?

Not all conditional fee agreements include a success fee. When they do, the purpose of the success fee is to compensate the solicitor or other lawyer against the risk of not being paid any costs (where the CFA is a no win, no fee agreement) or reduced costs (if the CFA is a discounted agreement) if the case is lost.

The traditional approach to calculating success fees is set the success fee at a rate such that the success fees recovered on successful cases will balance out the costs not recovered on the unsuccessful cases.

Crucially, the success fee is always a percentage of the lawyer’s basic charges. The success fee is never a percentage of the damages recovered (although the CFA may contain a cap on the success fee calculated by reference to the damages).

What are the advantages of entering into a Conditional Fee Agreement?

Solicitors are facing a relentless battle trying to maintain market share in the face of continuous consolidation by the larger law firms combined with new entrants to the market disrupting existing business models. Law firms face the seemingly insoluble problem of trying to meet clients’ demands for ever lower fees whilst simultaneously attempting to maximise their own profit margins.

The careful use of CFAs can provide an answer.

From the client’s perspective, there are clear benefits having their cases funded through a CFA. These include:

  • Enabling an individual who might not otherwise be able to afford legal representation to pursue (or defend) a claim. This enhances access to justice by levelling the playing field for those with limited financial resources. The most obvious example of this is in the field of personal injury litigation where CFAs enable otherwise impecunious clients to pursue potentially expensive claims against defendants with bottomless pockets.
  • CFAs align the interests of the client and the lawyer, as both have a vested interest in achieving a successful outcome. Lawyers are motivated to achieve success as their fees are dependent upon a successful outcome.
  • Shifting (or sharing) the financial risk. With a conventional retainer, the client takes on 100% of the risk of failure. The financial consequences of failure may prevent risk adverse clients from bringing (or defending) claims even if they theoretically have the funds. A CFA shifts some or all of this risk on to the lawyer.

It is these very factors that also benefit solicitors and other lawyers. The key opportunity that these types of agreement offer to lawyers is that they enable claims to be brought (or defended) that clients would not otherwise be able fund.  Simply put, offering to undertake cases on a conditional fee agreement basis will increase the number of instructions received.  If you do not offer these types of agreement, you will lose work to other solicitors.

Conventional retainers limit the number of potential instructions to those who can afford to pay (and afford the risk of losing). CFAs open up the potential number of new instructions significantly.

Are there any disadvantages or risks associated with CFAs?

Many solicitors are naturally wary about the use of such agreements. Concerns include:

  1. Unsustainable levels of work-in-progress accumulating that cannot be billed until the successful conclusion of the matter.
  2. Having to write off large amounts of work in the event of an unsuccessful outcomes.
  3. Technical challenges to the enforceability of CFAs, either by the client or by opponents, potentially leading to all costs being disallowed.

The first myth to dispel is that the only type of CFA available is a straight “no win, no fee” agreement. Most lawyers, whether claimant or defendant, will have memories of the “costs wars” and the endless technical challenges to CFAs, often linked to questionable claims management companies. In truth, there are a very wide variety of CFAs available to solicitors (see above) where the risk can be shared between the client and lawyer, rather than a straight no win, no fee CFA.

With discounted CFAs, the client can be asked to make interim payments based on the discounted fees as the case progresses. The balance of the fees and any success fee are only payable upon conclusion. This approach can significantly reduce the lawyer’s cash flow concerns.

If the amount of the basic charge (whether hourly rate or fixed fee), and success fee where applicable, has been set at the right level, any write-off of costs on unsuccessful cases should be comfortably offset by the costs recovered on successful cases.

As to concerns about technical challenges, this is where it is crucial to instruct genuine costs experts to draft the CFA.

Do Conditional Fee Agreements work for Defendants?

For those firms undertaking defendant insurer panel work, all work should be undertaken on the basis of some form of discounted CFA (unless the lawyer is in the fortunate position of being able to charge full hourly rates). This enables firms to continue to offer reduced hourly rates (or fixed fees) to the insurer client but allows for recovery of full hourly rates (in line with at least Guideline Hourly Rates) where there is a successful outcome and costs are recovered from the other side. These agreements can include a cap such that where there is a successful outcome the amounts charged to the client are limited to the amounts recovered from the other side. Because this type of agreement does not cost the insurer client anything more than they would have to pay in the absence of the CFA, most are more than happy to enter into them. If your firm does not already have such agreements in place for all insurer work, you should take immediate steps to remedy this.

In the context of commercial litigation, discounted CFAs, with or without success fees, can be an ideal method of funding for defendants so long as the solicitor believes there are reasonable prospects of defending the claim. Offering CFAs to defendants may enable claims to be defended that would not otherwise have been.

Should the Conditional Fee Agreement contain a cap on the amount charged?

The attractiveness of CFAs for potential claimant clients can be increased further if the solicitor is prepared to offer additional safeguards for the client. Options to consider for the structuring of CFAs include:

  • Client liable for any shortfall in costs recovery from opponent.
  • Costs limited to level of costs recovered from opponent.
  • Shortfall in costs recovery capped by reference to level of damages recovered.
  • Success fee not capped by reference to damages recovered (except where required by statute).
  • Success fee capped by reference to level of damages recovered.
  • Costs and success fee payable in addition to those recovered from opponent capped by refence to level of damages recovered.

For personal injury matters, there is a mandatory cap on the amount of success fee calculated by reference to the damages recovered. Any CFA in a personal injury claim that does not contain this cap will be unenforceable. Great care needs to be taken in the drafting of the relevant clause.

What types of cases are suitable for CFAs?

The suitability of CFAs is not limited to traditional civil litigation. Many other areas of legal work can be dealt with using CFAs. For example, they work very well for judicial review in immigration matters. Although a number of different types of CFA can be used, discounted fixed fee CFAs have an obvious appeal to both solicitor and client with the fixed fee being linked to the stage at which the matter concludes. The client benefits from knowing from the outset what their maximum liability will be. The generally predicable level of work that is required from such judicial reviews means the solicitor can set the level of fixed fee with a considerable degree of confidence.

GWS Costs have drafted CFAs and advised on existing agreements in areas as varied as:

  • Claims against the police
  • Immigration
  • Personal injury
  • Product liability
  • Professional negligence claims
  • Property damage

What expenses are covered by a Conditional Fee Agreement?

There is complete flexibility as to how to deal with expenses, including:

  • Requiring the client to make advance payments on account so the solicitor can pay disbursements as they are incurred.
  • Requiring the client to pay disbursements as they are incurred.
  • The solicitor pays disbursements as the case progresses but is reimbursed by the client at the conclusion of the case, win or lose.
  • The solicitor pays disbursements as the case progresses and the client only becomes liable for these if the case is successful.

Can a Conditional Fee Agreement be terminated before the conclusion of the case?

A properly drafted CFA should contain clear clauses as to the circumstances in which the client or the lawyer can terminate the agreement and what, if any, costs are payable upon termination. The lawyer will usually wish to be able to terminate the agreement if the prospects of success deteriorate significantly or if the client does not keep to their obligations. The client will usually have a right to terminate the agreement at any time, but the lawyer will want to have their financial interests protected if this happens, usually with the client becoming liable for, at least some of, the costs that have been incurred at the point of termination.

Contact us now if you would like to discuss instructing GWS Costs to draft a conditional fee agreement for your firm or wish us to undertake a FREE, NO OBLIGATION, review of your existing retainer documents.

For a free, no obligation discussion about how we can help, simply call us now on 020 3617 1904, email us at info@gws-costs.co.uk or complete a Free Online Enquiry and we will be happy to discuss.

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