The decision of the Court of Appeal in the case of Geraghty v Awwad ([2000] 1 All ER 608) has created confusion in over enforceability of 'Thai Trading'-style litigation funding arrangements (see Thai Trading v Taylor [1998] 3 Al l ER 65) entered into prior to April 2000.For practitioners who have entered such agreements it is unclear whether or not they can be enforced against their clients, and in the event of the case being successful, against the other side owing to the continued presence of the indemnity principle.

There is no simple solution to this conundrum, but the Law Society civil litigation committee can point to a number of indicators as to the likely position.Historic developmentBefore analysing the current state of play it is as well to remember the nature of 'Thai Trading' arrangements and their legal status.

Both Thai Trading and Geraghty involve situations where solicitors agreed to act on the basis of receiving their normal fee/rate if the case was successful but either nothing (Thai Trading) or a reduced amount (Geraghty) if they lost.The Thai Trading case came before the Court of Appeal in February 1998 and at the time appeared to determine that what was referred to as a 'conditional normal fee arrangement' (that is to say, a normal fee if successful, a reduced fee if not successful) was not unlawful at common law.

Lord Justice Millet held that just because the Law Society practice rules prohibited a particular practice did not of itself render that practice illegal.

At that time, practice rule 8 banned such arrangements for solicitors in contentious proceedings.

Following Thai Trading, in January 1999, rule 8 of the Solicitors Practice Rules 1990 was amended to allow any arrangement permitted under statute or common law.

At the time t his seemed to remove any obstacle to solicitors entering Thai Trading agreements.While some doubt was cast on the Thai Trading judgment by the Divisional Court in Hughes v Kingston-upon-Hull City Council in 1999, it was still generally thought that 'conditional normal fee arrangements' were legally enforceable.

This seemed to accord with the spirit of the times and the policy of a government which was keen to foster alternative funding arrangements for litigation.

The decision in Geraghty changed that perception.Geraghty involved an oral arrangement only partly reflected in writing, entered into in 1993 concerning a libel action, which allowed for a normal fee to be charged in the event the case was successful, with a lesser fee if it was unsuccessful.

The practice rules in force at the time did not allow for such arrangements.

The court made it quite clear that it was assessing the situation as at the date of the agreement in 1993, and not at the time of the judgment.The court considered itself bound by the House of Lords decision in Swain v Law Society [1983] 1 AC 598 which had not been considered in the Thai Trading judgement and held that the Practice Rules had the effect of statute.

The argument that by 1993 the common law allowed for conditional normal fee agreements was also rejected.

Accordingly, the agreement was unenforceable as being both contrary to legislation and common law.Agreements entered into after the Conditional Fees Agreement Regulations 2000, which came into force on 1 April, are enforceable, provided they comply with the new regulations.

Uncertainty remains for agreements signed between 1 January 1999 and 1 April 2000.Thai Trading agreements after GeraghtyGeraghty is a Court of Appeal decision, and the Law Society took advice from Richard Drabble QC on the issues.

The civil litigation committee considers the following approach can be taken to the post-January 1999 agreements, in the light of counsel's advice:-- The agreements are lawful and enforceable, as they were entered into on the basis of the change in the practice rules in the light of Thai Trading.-- If enforceability is challenged either by a client or a paying party it should be contended that: these changes were made with the approval of the Master of the Rolls, and given the rule change, the common law as at 1999 should be taken to permit conditional normal fee agreements; the decision in Thai Trading can be argued to be a general reflection of public policy and the common law, and was only wrong insofar as the judgment in that case missed the significance of the practice rules; once the practice rule had been changed to allow for 'conditional normal fee agreements' this obstacle is removed.