Date 30 January 2006
For some time Conditional Fee Agreements (generally known as 'no win, no fee' agreements, or just CFAs) have been available as a litigation funding option. However, prescriptive regulations threatened the working of the scheme. Now all the regulations have been swept away for agreements reached from 1 November 2005 onwards, and it has never been simpler to sign up. So how do these agreements work, and who can benefit from them?
Under an ordinary funding agreement, solicitors charge an hourly rate, which is the same, win or lose. Under a classic CFA, the solicitor charges nothing for a loss, but an extra percentage on top of the ordinary fee for a win. The more risky the case, the higher this percentage (or 'success fee') will be, up to a legal maximum of 100%. Since successful parties will often be awarded a proportion of their costs, including the success fee, it seems at first glance an ideal way to lower the risk of litigation. Losing is less bad, winning is no worse.
Unfortunately, things are not all that simple. Firstly, all the payments to third parties - including court fees and experts' fees - are not covered. Win or lose, they have to be paid. Barristers are similar, unless they also enter into a CFA for their own fees.
Secondly, winning does not always mean getting costs, but it does always mean paying the success fee. If a party with a CFA wins and gets 50% of his costs, that party will still pay the success fee on all of them. This makes CFAs a bad choice in cases where success is difficult to measure, or where there are lots of issues - particularly if some are not financial. This is often the case in commercial litigation.
But perhaps most important of all, CFAs do nothing to protect against your opponents costs. Losing remains a significant financial risk, as the chances are an order will be made to pay a proportion of the winner's costs. The only way to guard against that is an after the event insurance policy, and in commercial litigation such policies are not always available and where they are, expect the premium to be hugely expensive. These premiums can in principle be recovered if you are successful, but in practice they are the subject of an assessment by the Court on the grounds of proportionality and reasonableness.
It is therefore easy to assume CFAs are the best option, but as we have demonstrated, this is not necessarily the case. As with everything else, it is a matter of choosing the right tools for the job.
For further advice or guidance, please contact Nathaneal Young on 01727 798092 or by email nat.young@salaw.com
© SA LAW 2006
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