Conditional fee arrangements can be defined as fee arrangement, whereby payment to the solicitor is dependent upon the result of the proceedings, and is permitted by Section 58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 1998. Conditional fee agreements are becoming increasingly popular, this is because if the claimant is unsuccessful he/she will not have to pay the Solicitor for his service, hence, no win, no fee. Therefore it is in the best interest of both parties for the Solicitor to win the case, and the claimant to be awarded the damages.
When dealing with a civil case it is very difficult to know how much taking the case to court will cost. This is mainly because it is difficult to predict how serious the other party is and how far they are willing to go to defend the case. It is possible that once a court case has started the other party may admit liability, therefore the case does not need to proceed, and so can be settled quickly and comparatively cheaply. However if the case does proceed then the costs of running that case can rise considerably.
Other than the cost of a lawyer, there is also the expense of obtaining evidence to support your case and the cost of an expert?s report on it if necessary, and in addition court fees must also be paid. It is very easy for some civil cases; especially those dealt with in the High Court to cost hundreds of thousands of pounds to run. If the claimant is victorious then they are able to claim most of, if not all, of the costs back from the losing party. In addition to this the Access to Justice Act 1990 now gives the courts the power to make the losing party pay the success fee to the winning parties solicitor on the winning parties behalf.
This is because it is believed that if the winning party had to pay their solicitor a success fee then they would have not received the full compensation. However if the claimant is unsuccessful in their case then not only will they have to pay their own costs of taking the case to court, but they would also have to pay the other parties costs. Because of the uncertainty that surrounds a civil case most people would find it too risky, even if they have been advised to go to court because they have a strong case. It is because of this that conditional fees were introduced.
It is possibly to get insurance to protect yourself financially should you lose a case. This means that if a client were to lose then the insurance company would pay the winners fees, leaving no burdens on the client. It is important that clients are aware that even though they will not have to pay their solicitor if they lose a case, they can still find themselves with financial burdens. This is because as mentioned the losing party has to pay the costs that the winning party has incurred from bringing the case to court.
Because of this it may be a good idea for a client to purchase insurance. This must be purchased in advance and the premiums are based on the likelihood of the client being successful. As mentioned above the main advantage of taking out insurance is that if the client was to lose then the costs will be paid by the insurance company. However many people who are less well off financially may find the insurance to expensive to purchase. These firms are very similar to conditional fee agreements and operate in the same way.
Their main function is to negotiate a deal of compensation on behalf of their client against the opposing party. However one of the main problems with claim firms is that they have a reputation for having exorbitant rates of insurance cover. On the other hand they do allow people to approach these firms without the intimidation of getting involved with solicitors. Typically, in the construction industry, the relative strengths and weaknesses of a case may only become clear after an action has started and once an opponent’s position has been made clear.
Therefore, it is only at this time that a proper risk assessment for the Conditional Fee Arrangmentsmay be undertaken. However, by this time the charging method should already have been agreed between the solicitor and his client, and to be able to claim the “success fee” element of his costs, the Claimant needs to advise the Respondent of the details of the Conditional Fee Arrangments at the commencement of the action. In such circumstances early risk assessment is at best an art and not a science and may obviously not accurately reflect the true position.
Similarly, of course, Insurers will only provide insurance after a risk assessment has been carried out, and this can cause difficulties in a fairly typical construction case where it is difficult to assess the merits of the case and the risks involved prior to some reasonably detailed research being carried out in the first instance. Alternatively, because the Insurance companies will be unable to carry out an accurate risk assessment, they may assume that the risk is much greater than it actually is, and they may therefore consequently increase the Insurance premiums to exorbitant levels.
On a practical level, of course, many solicitors may be unwilling to enter into conditional fee arrangement for large complex commercial cases given the difficulties of assessing the risk of success or failure at an early stage when there has been little opportunity to explore in detail the relevant facts which may determine the outcome of the case. How, for example, will a party and its legal advisers be able to judge the risk in a construction loss and expense claim or delay claim with sufficient certainty to take on a considerable financial investment and bring a claim ?
Alternatively, where expert opinion is needed to identify the cause of a defect, how will a party be in a position to tell whether the initial view of his expert is more credible than any other and therefore whether the risk is good. In addition, solicitors may not be prepared to enter into a conditional fee arrangement because of the cash-flow implications that will arise from the absence of interim billing and the need to finance the possibly very substantial working capital which will be tied up in long running, uncertain and expensive litigation.
In the normal course of events in litigation if a party wins the case, and his opponent is ordered to pay his costs, he will (in general terms, and assuming that the necessary requirements are met) be able to recover the “success fee” element of his costs from his opponent assuming that the “success fee” element of his costs is found to be reasonable and also the premium of the “After the Event” Insurance. If the “success fee” is not found to be reasonable, then, if so ordered by the court, the solicitor maybe entitled to recover the remainder of the “success fee” from his own client.
It should of course be noted that in respect of Adjudication the general rule is that each party pays its own costs, irrespective of which party wins the case. Therefore, in this case a successful party would be liable for both the basic costs and the “success fee” element of the costs, and this therefore makes conditional fee arrangement unappealing for a party The extension of conditional fee arrangements and the growth of “after the event” insurance is likely to introduce a new dimension into settlement negotiations.
As the Defendant will be aware of the conditional fee at the commencement of the action he will be aware that an “independent” risk assessment of the case has been made before the action commenced. Similarly, many claimants who have the benefit of insurance cover may wish to disclose this on a voluntary basis in order to demonstrate that they are not at risk as to the costs of the action and that their claim has also been independently assessed by insurers and accepted as a good risk.
Conversely, if a Defendant is found liable, he faces, not only an award of damages, interest and standard costs, but also, in certain circumstances, liability for the claimant’s success fee and insurance premium. This may be a powerful incentive to settle. By the same measure, where liability is a “live” issue, a Defendant may be able to exploit the concerns of a claimant’s solicitors acting under a conditional fee arrangement in order to achieve settlement on more favourable terms.
It must be remembered that Solicitors are subjected to significant commercial pressures and there is a real risk that some advisers will allow these additional financial pressures to influence their judgment and advice to clients. In addition, Defendant’s solicitors – if properly informed – will be aware of the terms commonly found in “after the event” policies which enable insurers to control the action and they will be able to exert pressure on their opponents through carefully reasoned offers.
The recent EC Directive in respect of legal aid in Member States may point towards some future development in the format, use and application of conditional fee arrangement. The basic principle of the Directive is that a cross border litigant shall be treated in the same way as if he resided in the Member State of the forum in which the case is to be heard if he meets the conditions provided for by the Directive. The same applies to third-country nationals who habitually and lawfully reside in a Member State.
The Member State with jurisdiction shall therefore assume responsibility for provision of legal aid. This is a step towards full harmonization of legal aid rules. Although this Directive relates to legal aid rules it also presents a bridgehead from which further legislation may follow which may eventually lead to the legal profession in some Member States utilising alternatives to legal aid, such as, for conditional fee arrangement. Conditional fees do provide the public with a great service.
People who may not have been able to afford or felt threatened about taking a civil case to court are now finding the prospect slightly less daunting. In addition to this insurance cover is now available so that should a client be unsuccessful in his claim, the fees of the losing side will be paid for by the insurance cover. This is a major step forward for the legal system in allowing the public access to justice.
Kelly David, Slapper Gary The English Legal System Routelegde; Cavendish 2005 Martin Jacqueline The English Legal System Hodder Arnold 2005 http://www. lexisnexis. com/uk; Wikipedia: https://en.wikipedia.org/wiki/LexisNexis