Conditional fees - your questions answered

Gareth Phillips of the Law Society Policy Directorate looks at some frequently raised questions regarding the new funding arrangements

The Conditional Fee Agreement (CFA) regulations came into effect on 1 April 2000, enabling practitioners to enter agreements under the regime from that date.

The amendments to the Civil Procedure Rules were recently discussed in the Gazette and published on the Lord Chancellor's Department Web site (see [2000] Gazette, 8 June, 48), and will take effect from 3 July.A new practice direction will also take effect on that day, but has only recently been finalised.

The net effect is that a new system of funding cases, which in itself would lead to queries has been accompanied by legislative and administrative confusion.

The Law Society's practice advice service has had to deal with a rush of questions on the subject, and the following represent some of the most frequently asked.

Q When will the new Law Society model agreement for personal injury casesbe ready?A The Society had been holding off from publishing a new model agreement until the content of the rules and practice direction were known.

The rules and practice direction have now been published.

The Society has prepared a revised model agreement for which they are currently seeking plain English accreditation.

It is hoped that this version will be published in printed form in mid-July.

In the meantime it is intended that a copy of the latest draft will appear on both the Law Society Web site, and in the next issue of the Gazette, which will enable practitioners to move forward.

Q Why is there a delay?A The delay has been down to those drafting the rules and practice direction, who in turn were given little time by the government.

The model agreement could not be finalised until the content of the rules and practice direction was settled.

The Law Society is aware of the problems this has caused to practitioners, but had also been involved in lobbying to try to ensure that the content of the rules/practice direction is as favourable as possible, bearing in mind that practitioners will be left with this in the long term.

Q Will there be model agreements for non-personal injury cases?A The Law Society currently has a task force on the subject of CFAs chaired by Michael Napier.

The priority has been to settle a model personal injury agreement due to the withdrawal of legal aid for these cases.

Consideration will then be given to other situations where such agreements may be popular.

Q Do I have to disclose the CFA to the other side or the court, and if so, when?A Amended rule 44.15 states that a party who seeks to recover an 'additional liability' (including success fee, insurance premium or membership organisation equivalent) must provide information about the CFA to the court and the other party.

Any changes should also be notified within seven days.

The precise details and time limits will be set out in the practice direction.

Rule 44.3.B means that any required information relating to a CFA which is not notified will lead to the related sum not being recoverable.

On the basis of the last draft of the practice direction which was provided to the Society, the notice will need to be in a prescribed form which will normally be filed at court and served on the other side upon the commencement of proceedings.

Otherwise, notice must be given within seven days.

practitioners should check the final form of the practice direction for precise details.

Practitioners should not disclose any more than the practice direction requires, and never disclose the level of the success fee or size of premium.Q If the court reduces the success fee payable under the agreement, or it is reduced on negotiation with the other side, can I ask my client to pay the balance?A Under reg.3(2)(b), where the court disallows part or all of a success fee as unreasonable it ceases to be payable unless the court states otherwise.

Similarly, under reg.3(2)(c), where a legal representative agrees a reduced success fee with the paying party, the shortfall ceases to be payable unless ordered by the court.

If a practitioner thinks any disallowed success fee should continue to be payable by the client he can apply to court under rule 44.16.

Remember, that part of the success fee which relates to the cost to the practitioner of postponing payment cannot be recovered against the other side and practitioners may wish to make specific provision for this when reaching agreement with clients.

Q Is the 25% cap on the success fee going to be retained?A The Law Society view is that as the success fee is now recoverable from the other side, the need for the cap is removed in most cases.

However, there may be smaller claims where there is a doubt about recovery of the entire success fee against the other side where it may be appropriate.

This is a matter for the commercial judgement of practitioners.

Q If practitioners have had to use the 'running repair' agreement (see [2000] Gazette, 6 April, 45) will they receive any favourable treatment over enforceability due to the period of uncertainty?A The rules and practice direction contain transitional provisions for proceedings entered into under CFAs in the period since 1 April.

Practitioners have 28 days to bring the agreements into line (amendments should be notified to the court and to the other side).

Where no proceedings have been commenced, it is a matter between practitioner and client to amend, although uncertainty remains regarding notification pending the final draft of the practice direction.

Q If I enter into a CFA now, can I tear it up and enter a new agreement when the revised model is available?A The question is whether 'success' would have been achieved under the old agreement when the case has not been concluded.

A challenge from the other side can be anticipated, leaving a doubt as to whether costs for this period will be recoverable.

A better course would be to amend the original agreement with the client's consent, using the transitional provisions where appropriate.

Q Will there be a new 'Conditional Fees Explained' leaflet?A Yes, the Law Society is currently liaising with a consumer organisation to produce a leaflet which will aim to explain what has become a complex subject area.

In the meantime, old stocks should not be used and it is advisable to delete reference to the leaflet in any conditional fee agreement for the time being.

Q Will I be able to recover the entire insurance premium?A On the face of it, all reasonable insurance premiums will be recovered.

However, it is anticipated that defendant's solicitors will be increasingly hostile to certain premiums which are thought to contain elements going beyond the insurance of risk and include marketing costs, commissions and other factors.

The draft practice direction sets out the factors a court will take into account in determining whether the cost of the insurance premium is reasonable.

Gareth Phillips is a policy adviser in the Law Society's policy directorate

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