The Conditional Fee Agreement is an agreement between a solicitor and his/her client of the basis for charging legal fees arising on a contentious litigation instructions, which protects a client from the risk of failure yet provides a reward (or a “premium”) to the solicitor in the event of a successful outcome.
Historically, such legal costs (including the premium) are recoverable as part of legal costs generally recoverable in such proceedings where a claim or defence is successful.
From April 2013, for most types of legal proceedings, any legal proceedings which are funded by a Conditional Fee Agreement can no longer seek recovery of the premium (or uplift) portion that is payable to the solicitor. Please see our webpage which provides a more comprehensive explanation of a Conditional Fee Agreement here.
This does not mean the Conditional Fee Agreement is invalid, as it still suspends the liability to fund your solicitor’s legal fees and the “uplift” is still payable by you to your solicitor, but it may mean that you will not be able to recover a significant portion of your legal costs and thus could undermine or weaken the benefit of the Conditional Fee Agreement.
From April 2013, the legislation curtailing the use of a Conditional Fee Agreement also introduced the concept of the Damages Based Agreement, whereby the solicitor would be funded by taking a portion of his client’s end judgment.
This is often referred to as a Contingency Agreement but in the UK is referred to as a Damages Based Agreement. For more information about Damages Based Agreements see here.
If this is not appropriate then the standard time costs proposed by your solicitor could be fixed under a Fixed Fee Agreement or you could propose a Blended Rate.
However, these are not always the solution and another alternative may be to agree a separate arrangement, which will fall outside of any control within legal proceedings, whereby your solicitor agrees to terms of engagement on the basis of standard hourly rates but which are discounted in the event of a specified or unsuccessful outcome. The discount can be quite considerable such that the costs risks are severely diminished.
This is commonly referred to as a Discounted Conditional Fee Arrangements.
How does a Discounted Conditional Fee Agreement work?
Before assessing whether this type of arrangement is appropriate, the solicitor will need to conduct an enquiry into the risks present in the case. Subject to this, the Discounted Conditional Fee Agreement will usually be structured to provide lower hourly rates (making such legal services less expensive) but on the basis that any such discount will cover the solicitor’s ordinary business costs (and so limit the risk to the solicitor).
A Discounted Conditional Fee Agreement can work for both contentious litigation instructions and non-contentious instructions, although it is more relevant to litigation disputes.
The client retainer agreement entered into between the client and solicitor will normally provide the same terms as a conventional client/solicitor retainer agreement and will not be altered. The solicitor will charge the rates prevalent to the fee earner involved and the time spent on the matter, and will continue to invoice on a regular basis or otherwise as agreed between the client.
However, a separate agreement will exist which will provide that in the event that the claim, defence or other circumstance fails or does not proceed (or any other defined scenario) then the rates applicable in the client retainer agreement will be discounted (the method of discount usually being a different set or hourly rates or a percentage reduction).
How the solicitor charges and gets paid for his services (either on the retainer rates or the rates under the Discounted Conditional Fee Agreement) is entirely a matter for negotiation between the solicitor and his/her client.
Does this breach the Indemnity Principle?
The Indemnity Principle is an important legal requirement that, in contentious legal proceedings, a party cannot seek costs against his/her/its opponents that are not payable by the party allegedly incurring such costs.
Statute was introduced in the early 1990s and more recently in 2013 to amend this rule to allow the recovery of legal costs under a Conditional Fee Agreement and under a Damages Based Agreement.
However, outside of these statutory exceptions, the Indemnity Principle seeks to prevent a situation where a successful claim can be manipulated to bring in the recovery of additional substantial sums (in addition to the judgment sum) as a ”reward” to that winning party. This was a part of the historic prohibition (often referred to as champerty and maintenance) on Third parties (particularly solicitors) benefitting from a claim to gain a return, thus considerably increasing the risk and cost of such proceedings to the opposing party (and potentially breaching ethics at the time) and at the same time extinguishing any sense of reasonableness and proportionately arising from the legal justice system.
However, a Discounted Conditional Fee Agreement does not change the obligation of the client. At all times the client will be seeking standard rate costs under the client retainer agreement to which s/he/it is liable, and so which can similarly be sought from their opponent.
Why not just do a Conditional Fee Agreement as opposed to a Discounted Fee Agreement?
Of course, looking at a Conditional Fee Agreement and a Discounted Conditional Fee Agreement, from a layman’s point of view they would appear almost identical. There are more legal costs payable (and recoverable) in the event of a successful claim or defence and the cost of such proceedings are potentially minimised in the event you are unsuccessful.
However, that is not the case. A Conditional Fee Agreement provides no return to the solicitor where the claim/defence is unsuccessful and provides a recovery of standard time costs plus an agreed uplift where there is a success (although the “uplift” portion can no longer be sought from the opponent meaning that the solicitor bears more risk in terms of recovery of such sums from his/her client).
Dependant on the client’s verified resources, this may not be a risk a solicitor is willing to consider.
However, with a Discounted Conditional Fee Agreement, whilst the outcome upon success is identical, the legal costs remain payable (although at a lower rate) where the claim or defence fails. Whilst this may not be ideal for the client, it provides access to justice at a much more affordable rate than would otherwise be available and limits the risk to the solicitor.
When is a Discounted Fee Agreement appropriate?
A Discounted Conditional Fee Agreement may be more appropriate to clients who have comparatively small resources to expend on legal matters but want to maintain control of their legal costs.
It is a very useful tool for clients who are unwilling to engage a solicitor under a Conditional Fee Agreement by reason of the potential reduction to their recovery (for claimants) or where a solicitor considers the risk a little too high to enable engagement in litigation without payment, potentially for a number of years without any guarantee (solicitors firms generally do not take a high proportion of such instructions as they present high cash-flow risk to their business).
A Discounted Conditional Fee Agreement is a very useful tool for short-term instructions with some element of risk, particularly for statutory demands, winding-up petitions and bankruptcy petitions.
At Francis Wilks & Jones we can assist in advising as to whether a Discounted Conditional Fee Agreement is appropriate in terms of your needs and we will, if appropriate and risks permit, enter into a Discounted Conditional Fee Agreement in respect of our fees. We can also discuss alternative forms of litigation funding applicable to your situation.
Please call any member of our commercial litigation team for your consultation now. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.