What Are Conditional Fee Agreements?
by Lucie-Anne Rhodes - Law Graduate
This guide explains what conditional fee agreements are and what to consider before entering into one with a Solicitor.
It is no secret that legal advice can be expensive, and often this can deter a person from seeking to enforce their rights. This article focuses on conditional fee agreements in the personal injury claims sector but conditional fee agreements are used across most legal sectors.
There are various funding options available to assist with the costs of legal work. In particular, when it comes to the cost of litigation or advocacy services it may be possible to enter into what is known as a conditional fee agreement and/or to take out some form of legal expenses insurance. These options are considered below.
It should be noted at the outset that not all firms offer conditional fee agreements and they are not applicable to certain types of cases (e.g. family proceedings and most criminal proceedings). If you are unsure, your legal adviser will be able to tell you whether they can offer a conditional fee agreement for your case.
What is a “conditional fee agreement”?
Essentially a conditional fee agreement (“CFA”) is a written agreement whereby legal fees and expenses only become payable in certain circumstances. The particular circumstances in question will depend on the type of CFA entered into.
The most common type of CFA is a “no win, no fee” agreement, which effectively provides that legal fees become payable only if the case is won. However it is important to note that out of pocket expenses paid for by the legal adviser will usually be payable in any event. These are likely to include costs such as Barristers’ fees and court fees, and will be referred to in the CFA as “disbursements”.
By entering into a CFA a legal adviser runs the risk of not being paid his or her fees. As a result of this a “success fee” will usually be charged in addition to the adviser’s standard fees if the case is won. If a success fee is payable it will be expressed as a percentage of the standard fees, although it cannot be more than 100% of those fees.
So, for example, a CFA might provide that no fee is payable if the case is lost, but that if it is won the legal adviser’s costs will be payable in full together with a percentage uplift on those fees (the success fee), the amount of which will be set out in the terms of the CFA.
In most cases involving a dispute, the general principle is that the loser will pay the winner’s costs. This will normally include any success fee or any disbursements payable. The award of costs is however entirely at the judge's discretion and so this principle will not always apply. As such you may win your case but still be liable to pay your own legal costs, together with the legal costs of the other party to the dispute, particularly if you are at fault in some way. Alternatively if your claim is lost at court, whilst you will not generally be liable to pay your own legal costs, the “loser pays” principle dictates that you are likely to be ordered to pay your opponent’s legal costs.
In any case where you are liable to pay your own legal costs under the terms of a CFA, it will be possible to apply to have these assessed by the court to determine whether they are reasonable and proportionate.
Legal Expenses Insurance and Conditional Fee Agreements
It is clear that CFAs are not without some element of risk. In most cases it is therefore prudent to take out some form of legal expenses insurance to limit that risk.
You may find that you are already covered for certain legal expenses by an existing insurance policy (e.g. home contents insurance or car insurance), which is known as “before the event insurance”. You should therefore check your existing insurance policies before considering alternative funding options.
If you are not covered under an existing policy it is usually possible to take out “after the event insurance”, which you may see referred to as “ATE insurance”. Put simply ATE insurance is an insurance policy which can be taken out after legal proceedings have been contemplated or commenced to cover losses which may be incurred as a result of the dispute.
Legal expenses insurance can be taken out independently of a CFA, and vice versa, although it is usual for both to be used in conjunction with one another. If used together with a CFA, the insurance policy will cover your own legal adviser’s disbursements, together with the other party’s legal costs if the case is lost. The full extent of the protection will of course depend on the particular policy.
Whilst the premium due for the insurance policy will be payable up front, it may be possible to recover this cost from the other side if the case is won.
The obvious advantage of entering into a CFA as a means of funding legal advice is that most of the costs involved in a dispute will only become payable if the case is won. However this is not always the case and in the majority of cases, the amount of any out of pocket expenses will be payable regardless of the outcome. Additionally, if the case is lost it is likely that you will be ordered to pay the other side’s legal costs, which will not be covered by the terms of the CFA.
As a result of these inherent risks it is always advisable to take out some form of legal expenses insurance to guard against any losses which may be incurred. This will usually take the form of “after the event insurance” unless you are already covered by an existing insurance policy.
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