Conditional fee agreements (CFAs)
A CFA is a type of agreement whereby the client pays different amounts to the solicitor depending on the outcome of a case in litigation or arbitration proceedings.
Generally, if the client loses the case, it will not be liable to pay for the fees and any expenses that are subject to the CFA. A losing client will still be liable to the winning side for its costs and any damages it is awarded, though it may be possible to obtain ATE insurance which will cover such liability.
If the client wins the case, it will be liable to pay all fees and expenses. In practice, however, much of these sums will be recoverable from the losing party. It is possible, and usual, to include a ‘success fee’ within the scope of a CFA. This is an additional amount payable for to a solicitor over and above the amount which would normally be payable if there was no CFA. A success fee will only be payable in specified circumstances (usually if the client wins the case), and must be expressed as a percentage uplift of the amount payable if there were no CFA. The maximum uplift is 100%. It should be noted that owing to recent reforms in the law, it is no longer possible to recover a success fee from the other side. Most types of CFAs can be entered into by both claimants and defendants. We would be happy to discuss the possibility of entering into a CFA where this is appropriate.
Damages based agreements (DBAs)
A DBA is a type of CFA whereby the fee obtained by a solicitor is dependent on whether the claimant is successful and on the amount of damages awarded to the claimant. The solicitor is able to take a pre-agreed share of the damages if the client is successful. This is known as the ‘contingency fee’.
If the client is not successful, the solicitor will not be paid. However, clients will still be responsible for the opposing party’s costs, though these may be covered by ATE insurance.
There is a cap on the contingency fee of 50% of the damages awarded to the client, except for in personal injury cases where the limit is 25%, and employment cases where it is 35%. The contingency fee should include any barrister’s fees that are required to be paid.
Generally, DBAs are only available to claimants, unless the defendant has a substantial counterclaim, because the solicitor’s fee is closely linked to the level of damages awarded.
We would be happy to discuss the possibility of entering into a DBA where this is appropriate.
Third Party Funding
Third party funding occurs where an unconnected party agrees to finance all or part of the legal costs of litigation or arbitration, in return for a share of any money recovered by the funded party.
The extent of what is covered by the funding varies from agreement to agreement, but it may cover some or all of the solicitor’s and barrister’s fees, any tribunal or court fees and other expenses that would ordinarily be incurred by the funded party.
In order to obtain third party funding, it will generally be necessary to show that the claim has good chances of success and that it will be commercially viable for the funder.
Many funders will insist on the litigant obtaining ATE insurance due to the risk that in its absence, the funder will be required to pay a successful opposing party’s costs under an adverse costs order.
In addition, some funders prefer to fund part of the solicitor’s fees, with the remainder funded either by the litigant, or by the law firm through a CFA, under which the solicitors will only be partly paid, or not paid at all, in the event of an unsuccessful outcome.