Funding options for legal services - Conditional fee agreements (CFAs)

Learning Outcomes

After studying this article, you will be able to explain the legal structure and requirements of Conditional Fee Agreements (CFAs), identify the statutory and regulatory rules governing their use, and apply the principles of success fees and client liabilities in practical scenarios. You will also understand the professional conduct duties solicitors owe when advising on and entering into CFAs, enabling you to answer SQE1-style questions on this funding option.

SQE1 Syllabus

For SQE1, you are required to understand the funding options available for legal services, with a focus on CFAs. In your revision, pay particular attention to:

• the statutory requirements for valid CFAs (including writing, definition of success, and success fee caps)
• the calculation and implications of success fees
• the effect of recent legislative changes (e.g., LASPO 2012) on recoverability of fees
• the professional conduct duties when advising on and entering into CFAs
• the risks and practical consequences for both clients and solicitors

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What statutory requirements must a Conditional Fee Agreement (CFA) satisfy to be enforceable?
2. What is a success fee, and how is it calculated in a CFA?
3. Who is responsible for paying the success fee under a CFA if the client wins the case?
4. What professional conduct duties must a solicitor observe when advising a client about a CFA?

Introduction

Conditional Fee Agreements (CFAs) are a key funding option for civil litigation in England and Wales. Under a CFA, a solicitor’s fees (or part of them) are payable only if the case is successful. This arrangement, often called "no win, no fee," allows clients to pursue claims without paying legal fees upfront, but may require payment of an additional fee (the success fee) if the claim succeeds. Understanding the legal requirements, calculation of fees, and professional conduct obligations is essential for SQE1.

Key Term: Conditional Fee Agreement (CFA)
A contract between a client and solicitor where payment of some or all legal fees is conditional on the outcome of the case.

Statutory Requirements for CFAs

CFAs are governed by the Courts and Legal Services Act 1990 (as amended), the Access to Justice Act 1999, and the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). To be enforceable, a CFA must:

• Be in writing.
• Clearly define what constitutes "success" in the case.
• State the percentage or amount of any success fee.
• Comply with statutory caps on success fees (e.g., 25% in personal injury cases).
• Not relate to criminal or family proceedings.

Key Term: Success Fee
An additional fee payable to the solicitor under a CFA if the case is successful, usually expressed as a percentage of base costs.

Structure and Operation of CFAs

A typical CFA sets out:

• The solicitor’s standard hourly or fixed fee (base costs).
• The agreed success fee, payable only if the client wins.
• The definition of "success" (e.g., obtaining damages, settling on favourable terms).
• The client’s liability for disbursements (e.g., court fees, expert reports), which are usually payable win or lose unless otherwise agreed.

The success fee reflects the risk the solicitor takes in not being paid if the case fails. The higher the risk, the higher the justified success fee—subject to statutory caps.

Worked Example 1.1

A solicitor agrees to act for a client in a personal injury claim under a CFA. The base costs are £4,000. The CFA specifies a success fee of 20%. The client wins and is awarded £10,000 in damages.

Answer: The solicitor’s base costs (£4,000) are usually recoverable from the losing party. The success fee (20% of £4,000 = £800) is payable by the client and is deducted from the damages. The client receives £9,200 after paying the success fee.

Professional Conduct Duties

Solicitors must comply with the SRA Code of Conduct when advising on and entering into CFAs. Key duties include:

• Explaining all funding options, not just CFAs.
• Ensuring the client understands the terms, including liability for success fees and disbursements.
• Advising on the availability and cost of legal expenses insurance (before-the-event or after-the-event).
• Avoiding conflicts of interest—success fees must reflect genuine risk, not be set arbitrarily high.
• Acting in the client’s best interests at all times.

Key Term: After-the-Event (ATE) Insurance
Insurance taken out after a dispute arises to cover potential liability for the opponent’s costs and disbursements if the case is lost.

Key Term: Qualified One-Way Costs Shifting (QOCS)
A costs rule in personal injury cases where a losing claimant is not usually liable for the defendant’s costs, subject to exceptions.

Practical Implications and Risks

For Clients

• If the claim is successful, the client pays the success fee (from damages), plus any unrecovered disbursements.
• If the claim fails, the client usually pays no solicitor’s fees, but may still be liable for disbursements and, unless protected by QOCS or insurance, the opponent’s costs.
• The success fee is capped at 25% of damages (excluding future losses) in personal injury cases.

For Solicitors

• If the claim fails, the solicitor may receive no payment for their work.
• The success fee must be justified by a documented risk assessment.
• Failure to comply with statutory or conduct requirements can render the CFA unenforceable.

Worked Example 1.2

A client loses a CFA-funded claim. The solicitor’s base costs were £5,000, and the client had paid £500 in court fees (disbursements). The client had no ATE insurance.

Answer: The client pays no solicitor’s fees but remains liable for the £500 disbursement. If QOCS does not apply, the client may also be liable for the opponent’s costs.

Recent Legislative Changes

LASPO 2012 made significant changes:

• Success fees under CFAs are no longer recoverable from the losing party (except in limited cases). The client pays the success fee from their damages.
• In personal injury claims, the success fee is capped at 25% of damages (excluding future loss).
• QOCS protects most personal injury claimants from paying the defendant’s costs if they lose, but not from paying their own disbursements.

Exam Warning

In SQE1, read questions carefully to determine who is responsible for paying the success fee and whether QOCS or ATE insurance applies. Remember, the success fee is now deducted from the client’s damages, not paid by the losing party.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• CFAs are agreements where solicitor’s fees (or part) are payable only if the case succeeds.
• CFAs must be in writing, define success, and state the success fee.
• The success fee is capped at 25% of damages in personal injury claims and is paid by the client.
• Solicitors must comply with professional conduct duties when advising on CFAs.
• Clients may still be liable for disbursements and, if not protected by QOCS or insurance, the opponent’s costs.
• LASPO 2012 changed the recoverability of success fees and introduced QOCS in personal injury cases.

Key Terms and Concepts

• Conditional Fee Agreement (CFA)
• Success Fee
• After-the-Event (ATE) Insurance
• Qualified One-Way Costs Shifting (QOCS)