Date 13 May 2011
Conditional Fee Agreement (“CFA”)
A conditional fee agreement or CFA is an agreement between solicitors and client whereby the solicitors agree that all or part of their fees will only be paid in certain circumstances - usually if the outcome of the case for the client is successful (as defined in the CFA).
Full CFA
A CFA where the solicitors agree that they will not be paid any of their fees if the outcome of the case is unsuccessful but that they will be paid their standard hourly rates and a success fee if the outcome of the case is successful. Full CFAs are colloquially known as “no win, no fee” agreements.
Discounted CFA
A CFA where the solicitors agree that they will charge rates which are less than their standard hourly rates as the case progresses, with the balance of the standard hourly rates to be paid if the outcome of the case is successful, together with a success fee.
Success Fee
An additional amount payable to solicitors under a CFA if the outcome of the case for a client is successful. The success fee must be expressed as a percentage uplift on the amount which would be payable if there were no CFA. The maximum uplift is 100%.
Base Costs
The amount that would normally be payable by a client to its solicitors if there were no CFA.
Disbursements
Expenses incurred in a dispute other than solicitors’ fees. Examples of disbursements include counsel’s fees, court fees, expert fees, travel costs and photocopying charges.
After the Event Insurance (“ATE”)
Insurance which is taken out after a dispute has arisen to cover some or all of the potential liability to pay an opponent’s costs and disbursements, and potentially a client’s own disbursements, if the case is lost.
Before the Event Insurance (“BTE”)
Insurance which the client already had in place before a dispute arises to cover some or all of the client's own legal costs and/or their potential costs liability to their opponent. BTE often forms part of an individual’s home or car insurance policy.
Costs Follow the Event
The costs of the party who wins the case are paid by the losing party. Costs can be assessed on either the standard basis or the indemnity basis.
Standard Basis
Where costs are assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue and any doubt as to whether or not costs were reasonably incurred or are reasonable and proportionate in amount are resolved in favour of the party paying costs. Generally, assessment on the standard basis results in costs of between 60-70% being recovered from an opponent.
Indemnity Basis
Where costs are assessed on the indemnity basis, any doubt as to whether costs were reasonably incurred or were reasonable in amount are resolved in favour of the receiving party. There is no requirement for the costs to be proportionate. Typically, this results in more costs being recovered than under the standard basis.
Proportionality
Relates the costs of litigation to the value and importance of the case and the complexity of the issues involved.
The Indemnity Principle
A party cannot recover more costs from an opponent than the party is obliged to pay to its own solicitors.
Detailed Assessment
The determination by the Court of the amount of costs payable by one party to another.
The Jackson Report
A major review undertaken by Lord Justice Jackson of the civil litigation costs system.
Contingency Fee Agreement (also known as damages based agreement)
An agreement whereby the fees payable to a solicitor if the client wins are calculated as a percentage of the damages recovered. These are currently only permitted in limited circumstances.
Qualified One Way Costs Shifting
A proposal whereby a losing defendant would pay the successful claimant’s costs but a losing claimant would only be required to pay a successful defendant’s costs if in all the circumstances it was reasonable for it to do so.
Fixed Costs
Fixed amounts which represent the maximum that a party can recover from their client in respect of their legal costs, unless the Court orders otherwise.
Part 36 Offer
A without prejudice offer to settle a claim which complies with the requirements in Part 36 of the Civil Procedure Rules and which has potential costs consequences for a party who does not accept such an offer.
If the Claimant does not accept a Part 36 offer made by a Defendant and then wins at trial but fails to obtain a more advantageous judgment than the terms of the offer, the Court will generally order the Claimant to pay the Defendant’s costs from the date when the relevant period for accepting the offer expired (generally 21 days from the date that the offer was made) plus interest.
If the Defendant does not accept a Part 36 offer made by a Claimant and loses at trial and the judgment for the Claimant is equal to or more advantageous than the Part 36 offer, the Defendant will generally be ordered to pay the Claimant’s costs on the indemnity basis from the expiry of the relevant period, together with interest on those costs at up to 10% above base rate and interest on damages at up to 10% above base rate from the same date.
If you would like more information or advice relating to a specific matter, please do not hesitate to contact Clare Mackay on 01727 798084 or by email at clare.mackay@salaw.com or any member of the Commercial Dispute Resolution team.
© SA LAW 2011
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.