Model Conditional Fee Agreement | - The legal costs specialists

Model Conditional Fee Agreements

Most solicitor firms, and individual barristers, will look to use some form of model conditional fee agreement. Indeed, the majority of CFAs in operation will be based on a model CFA. Unfortunately, this often creates significant problems. These difficulties can be grouped into the following main categories:

Using a defectively drafted model conditional fee agreement.
Adapting a good model CFA but introducing drafting errors.
Using a model CFA that is not suitable or properly adapted for the case and/or your firm’s requirements.

Using a defectively drafted model conditional fee agreement

This is the most serious problem as a defectively drafted CFA can potentially render the whole retainer unenforceable such that no costs can be recovered from the other side or charged to the client.

Law Society Model Conditional Fee Agreement

The potential problems with using defectively drafted model CFAs are, perhaps, best illustrated by the old Law Society’s model conditional fee agreement.

The last model agreement was updated in 2014 and, even then, appears to have been a temporary job as the header to the document stated:

“This model agreement is in the process of being amended to take make it fully compliant with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. You should refer to those regulations before using this model.”

The agreement was removed from the Law Society website, in July 2021, with a message stating:

“The Law Society’s model conditional fee agreement (CFA) is in the process of being reviewed, and so is not currently published.

Solicitors using an old version should be aware that it does not reflect all of the recent changes to legislation, or case law, that may affect the viability of CFAs.

The model CFA and guidance were last updated in 2014. The model is intended for use in personal injury and clinical negligence claims.

We will issue a revised version in due course, taking into account ongoing judgments from 2021.

Thank you for your patience in the meantime.”

To date, no new model CFA has been published.

Even at the time the old model CFA was first published, it was riddled with drafting errors:

Law Society Model CFA – Drafting error number 1

A combination of s58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 2013 requires CFAs in personal injury claims to include a maximum success fee that may be charged capped by reference to certain elements of the damages awarded (basically general damages and past losses). The maximum percentages that can be charged are:

“(a) in proceedings at first instance, 25%; and

(b) in all other proceedings, 100%.”

The Law Society model CFA was specifically designed for personal injury matters. This is how it dealt with the cap:

“Cap on the amount of Success Fee which you will pay us in the event of Success in proceedings at first instance

There is a maximum limit on the amount of the success fee which we can recover from you.

That maximum limit is 25% of the total amount of any:

(i) general damages for pain suffering and loss of amenity; and

(ii) damages for pecuniary loss, other than future pecuniary loss;

which are awarded to you in the proceedings covered by this agreement. The maximum limit is applicable to these damages net of any sums recoverable by the Compensation Recovery Unit of the Department of Work and Pensions. The maximum limit is inclusive of any VAT which is chargeable.

[The maximum limit includes any success fee payable to a barrister who has a CFA with us.]

However, this maximum limit applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings (such as, for example, an appeal against a final judgment or order).”

In relation to proceedings at first instance, there was no problem with the wording. It clearly set out the cap and that cap was consistent with the maximum percentage allowed by the Conditional Fee Agreements Order 2013.

The problem arose in relation to “other proceedings”, most likely an appeal.

The model agreement expressly stated that it covered:

“Any appeal by your opponent.

Any appeal you make against an interim order or an assessment of costs.”

It is therefore clear that the model CFA covered certain potential appeals (i.e. matters that were not proceedings at first instance).

The wording of the model CFA just stated that the maximum limit (i.e. the 25% cap) “applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings”. No alternative cap was provided for in the event the matter proceeded to an appeal covered by the CFA.

However, it is clear beyond doubt that the Conditional Fee Agreements Order 2013 does not simply set a cap in relation to proceedings at first instance. It provides for a further cap of 100% “in all other proceedings”. Unfortunately, this further cap is completely omitted from the Law Society model CFA.

This defective drafting almost certainly renders any Law Society model CFA still in use, or one that mirrors this wording, unenforceable (even if the claim itself settles without an appeal).

Law Society Model CFA – Drafting error number 2

The body of the agreement stated:

“… if you end this agreement before you win or lose, you pay our basic charges and expenses and disbursements. If you go on to win you also pay a success fee.”

This was written in commendably clear language. If the client ended the agreement early, the basic charges, expenses and disbursements were automatically payable (win or lose) at the point of termination. If the client then went on to win the claim, they would be liable to pay the success fee in addition.

However, when you turn to the Law Society Conditions, that were attached to and formed part of the model CFA, those stated, under “paying us if you end this agreement”:

“You can end the agreement at any time. Unless you have a right to cancel this agreement under Schedule 3 and do so within the 14 day time limit we then have the right to decide whether you must:

- pay our basic charges and our expenses and disbursements including barristers’ fees but not the success fee when we ask for them; or
- pay our basic charges, and our expenses and disbursements including barristers’ fees and success fees if you go on to win your claim for damages”

Therefore, contrary to what was stated earlier in the agreement, the client was not automatically liable to pay basic charges and expenses and disbursements upon termination. At the point of termination, the solicitor was meant to elect one of the two options:

Immediately get paid their basic charges, expenses and disbursements. If this option is chosen, the solicitor forgoes their right to recover a success fee if the claim is eventually won; or
Wait until the conclusion of the matter and if the client wins the claim to then be paid their basic charges, expenses, disbursements and the success fee. It is implicit in this that if the case is lost, the solicitor is not entitled to be paid such costs (although is possibly entitled to be paid expenses and disbursements depending on how the agreement is drafted elsewhere).

Law Society Model CFA – Drafting error number 3

The Law Society model CFA contained the following clause:

“It may be that your opponent makes a formal offer to settle your claim which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are less than that offer. If this happens, we will [not add our success fee to the basic charges] [not claim any costs] for the work done after we received notice of the offer or payment.”

The section in brackets gives an either/or option as to the relevant consequence if the offer is not beaten. The vast majority of claimant solicitors’ CFAs have similar clause.

This clause is contractual in nature and therefore, if the “not claim any costs” option is taken, also impacts on the indemnity principle.

This would not be a problem, subject to what is set out below, for claimant lawyers if the normal costs consequences of CPR 36.17 were automatic (i.e. the claimant cannot recover costs from the date on which the relevant period expired if an offer is not beaten). But CPR 36.17 simply sets out the default position. The consequences of failure to beat a defendant’s offer are not automatic as the court may order otherwise if “it considers it unjust” to apply the default position. However, if this standard clause is used, the solicitors are unable to charge their client a success fee (at best, if the first option is chosen) or recover any costs from the client or the opponent (at worst, if the second option is chosen) from the date of receipt of the offer or payment, regardless of whether the court limits the period for which costs are recoverable.

The problem does not end there. The clause refers to “the work done after we received notice of the offer or payment”. CPR 36.17 anticipates that the trigger point will be “from the date on which the relevant period expired”. The clause therefore also prevents recovery of either any costs or the success fee at least 21 days earlier than CPR 36.17 anticipates.

It refers to “formal offer”, not “Part 36 offer”. It is therefore arguable that the clause also applies whenever a “Calderbank” style offer is made, in addition to an offer than complies with the formalities of a Part 36 offer, and regardless of what costs order is made as a consequence of the offer.

Adapting a good model CFA but introducing drafting errors

A common mistake solicitor firms make is to take an existing model CFA and adapt it for a particular case or category of cases. This would not be a problem if the adaptation were always undertaken by a fee earner with a deep understanding of costs law and the relevant regulatory requirements. Unfortunately, these adaptations are often made by those with no proper understanding of this complex area of law. A seemingly innocuous amendment can have serious adverse consequences.

Examples of potential drafting errors that may be introduced:

Changing the success fee to a percentage of the damages recovered, rather than a percentage of the basic profit costs. This will inevitably render the retainer unenforceable.
Amending downwards the notice period in a Notice of the Right to Cancel. In certain circumstances there is a requirement to provide the client with a Notice of the Right to Cancel when entering into a CFA. This gives the client the right to the right to cancel the CFA within 14 days. We have seen CFAs where the notice period has been shortened. This completely invalidates the Notice and significantly increases the right of the client to cancel the agreement well after the 14 day period and potentially avoid having to pay any costs to their solicitors.
Amending the costs payable to those recovered from the opponent but using wording such that the agreement falls foul of the indemnity principle and no costs can be recovered from the other side.

Using a model CFA that is not suitable or properly adapted for the case and/or your firm’s requirements

At its most serious, this might mean using a CFA that was drafted for non-personal injury matters in personal injury claim. This would inevitably fail to contain the mandatory cap on the level of success fee and render the agreement unenforceable.

More commonly, a model CFA may provide for some limited options such that some clauses can be adapted to the requirements of the solicitor firm. However, these options are usually limited. A conditional fee agreement will contain a large number of different clauses to govern its operation. Which clauses to include is usually something that should be decided on a firm-by-firm basis (and sometimes case-by-case basis). Examples of the issues to consider include:

Are the costs chargeable to the client capped? Options 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.

How are disbursements and expenses dealt with? Options include:

- 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.

What costs are payable if the client terminates the agreement early? Options include:

- Client pays basic charges only upon termination.
- Wait until the conclusion of the case and, if the claim succeeds, the client pays basic charges and success fee.
- Client pays basic charges upon termination and success fee if subsequently successful.

What costs are payable if the matter is subject to Fixed Recoverable Costs? Options include:

- Client’s liability is limited to recovered costs.
- Client is liable for costs on hourly rate basis regardless of costs recovered from other side.
- Client is liable for costs on hourly rate basis but with a cap on the fees in excess of the recovered costs.

The alternative

At GWS Costs we do not offer a model conditional fee agreement to clients. We believe all agreements should be bespoke to the specific needs of your firm.