Conditional fee agreements

Gareth Phillips reports on the amendments to the Civil Procedure Costs Rules which come into effect on 3 July.

The Civil Procedure Costs (Amendment No.

3) Rules 2000 (SI 2000/1317.L.11) appeared on the Lord Chancellor's Department Web site on 23 May, some three weeks after they were originally intended to come into force.

In fact, the new rules will not come into effect until 3 July, when they will be accompanied by a substantial revised costs practice direction.

A draft of the practice direction dated 24 May 2000 has recently appeared on the LCD Web site, but has yet to be finalised.

It is anticipated that this will be placed before the Lord Chancellor in early June.Those practitioners who have been waiting to enter conditional fee agreements pursuant to the regulations which came into effect on 1 April are a stage nearer to possessing the tools with which to work.

As discussed in an earlier article (see [2000] Gazette, 23 March, 47), practitioners have previously been left in a void, in that the new regulations were in force, but the related rules were not.

The situation is now being rectified and with effect from 3 July, the new framework will be in place.

Prior to the publication of the new rules many practitioners postponed entering CFAs unless it was absolutely necessary.

However, it was accepted that practitioners with, for instance, limitation problems would have to take some action and accordingly, a running repair to the Law Society's model CFA for personal injury cases was published in the Gazette (see [2000] Gazette, 6 April, ).

This document is to be further revised in the light of the new rules and practice direction, and it is planned to have a plain English version available in time for 3 July.The new rules contain a number of important matters for those intending to proceed under CFAs.

CPR part 43.2 is amended to include a number of definitions relevant to CFAs.

Where a CFA claims a success fee, or insurance premium or agreement with a membership organisation it is known as a 'funding arrangement', and the amount an 'additional liability'.

A definition also appears for 'insurance policy' which appears broad enough to cover a variety of insurance products, and not just after the event insurance of opponents costs.

The new rules define an insurance premium as 'a sum of money paid or payable for insurance against the risk of incurring a cost liability in the proceedings, taken out after the event that is the subject matter of the claim.' It seems that it will be for the courts to determine whether premiums including high marketing costs or substantive commissions will be recoverable in full.

Again the practice direction may give further guidance when it is finalised.Part 44.16 has been added to cover a situation where the court has disallowed any part of a success fee, but the legal representative applies for an order that the disallowed amount should continue to be payable by the client.

This dovetails with paragraph 3(2)(b) of the regulations which states that any part of a success fee disallowed on assessment should cease to be payable unless the court considers otherwise.Part 44.3 is changed by inserting a provision that the court will not assess success fees and insurance premiums until the conclusion of proceedings, thus ensuring that the level of success fee does not become apparent before resolution.

The rule goes on to say that the court can make a summary assessment of all costs, or a summary amendment of basic costs with additional liabilities including success fees to be adjourned to detailed assessment, or for all matters to be referred to detailed assessment, that is to say, it may not summarily assess the success fee or other additional liabilities whilst sending base costs for detailed assessment.A new part 44.3B has been added, which disallows recovery in a number of situations.

The main one is the part of the success fee which relates to the lawyer's cost of funding the action through postponement of fees.

Thus this percentage which is required to be separately stated in the agreement by regulation 3.1b is not recoverable against an opponent.Possibly the most important provision in practical terms is the duty of notification of the existence of the CFA and the fact that the additional liabilities are claimed from the other side.

The amended part 44.15 sets out the basic requirement to notify both the court and other parties.

This must be done both in respect of the original funding arrangement and any changes.

Failure to comply with this duty could lead to an additional liability not being recovered under part 44.3B.

The precise detail of the information to be provided is to be set out in the practice direction.Part 44.12A makes provision for a new and vital procedure for costs to be assessed where the parties have settled the substantive dispute without proceedings but are unable to agree costs.

The claim is to be brought under part 8, but the court must dismiss the claim if it is opposed and effectively can only act as arbiter if both sides agree.

This probably means that a lawyer will need to secure the opponent's consent to this procedure before concluding the settlement of the substantive claim.The transitional provisions state that where a practitioner has entered a CFA and commenced proceedings in between 1 April and 3 July they have 28 days in which to bring the arrangement into line with the new rules.

The rule does not specifically deal with CFAs entered into during this period where proceedings are commenced afterwards, and we will have to await the practice direction in order to assess the precise requirements.

The most important practical aspect to be dealt with under the transitional provisions is likely to be notification.There are two areas with which the rules do not deal which are worthy of mention.

Firstly, no express exception is made to the principle of proportionality in the case of success fees.

However, that will not mean that courts use hindsight to assess the reasonableness of success fees.

It is stated in the regulations that reasonableness is to be assessed in the light of knowledge at the time of signing the CFA.It is intended that the practice direction will reflect that approach.

Secondly, nothing appears in the rules limiting recoverable additional liabilities to those in the first CFA signed in any matter.

Consequently it seems possible that a number of CFAs could be entered into in any single claim, possibly dealing with different stages of proceedings.

Again, we will need to see the final practice direction before this can be confirmed.Gareth Phillips is a member of the Law Society's policy directorate