Conditional Fee Agreements

by Brian Fender, FRIBA FRICS FClArb MAE

There has been much talk of conditional fee agreements lately. They may be a clever way of cutting the Legal Aid bill, but the one thing they will not do is to deliver a just solution.

The essence of the conditional fee agreement is that the advocate agrees to accept a reduced fee if his client does not succeed, and an enhanced fee if he does. Good idea, one may think; but is it?

There is the little problem of the indemnity principle. The law rightly says that he who has to go to law to get his just deserts is entitled to recover costs necessarily incurred in doing so; but it is not necessary to pay an enhanced fee to succeed. Indeed, section 58 of the Courts and Legal Services Act 1990 expressly excludes recovery of any enhanced element. Those who agree to pay enhanced fees do so merely as insurance against losing. There is no reason why the defendant should pay more if he loses merely because the claimant doesn't have the courage of his convictions.

If a claimant sues for £100,000, wins on most issues and is awarded say £80,000, he can be said to have won. He can expect to get his costs, subject to normal taxation, but what he will not get is any enhancement that he has agreed to pay for success, to offset the free service he gets if he loses.

If, on an ordinary fee basis, his costs would have been, say, £30,000, of which, say, £10,000 would have been disallowed on taxation, he will effectively be £10,000 out of pocket on the £80,000 awarded. That may be acceptable, but if he has agreed to remunerate his legal advisers (or claims consultants) on a no-win no-fee basis, where there is a doubled fee for success, he will have to pay his advisers £60,000 instead of £30,000, but can still only recover £20,000 from the defendant. In that case he will be £40,000 out of pocket on the £80,000 awarded. That takes the gilt off the gingerbread!

Perhaps the moral might be thought to be to accept a no-win no-fee agreement (if you can get one) if you are likely to lose, but not if you think you will win. But is even that such a good idea? Losers may be exempt from their own advisers' costs but they are certainly not exempt from cost orders made against them.

So it seems that conditional fee agreements are not quite the panacea that they are made out to be. They are a costly way of winning and not that much benefit if you lose.