Entering a joint venture into the unknown

Shaun Pye looks at the Biddle report on conditional fee arrangements and the Bar

It is the end of the Bar as we know it. So says the report prepared by City firm Biddle on the effect of government plans to extend conditional fee arrangements (CFAs).

The hefty 150-page and 13-appendix report was prepared by David Lancaster, head of litigation at Biddle, and Susan Biddle over the past two months. Lancaster, who claims intimate knowledge of the Bar's workings through acting for the Bar Mutual over many years, is a self-proclaimed "passionate" supporter of the Bar.

But for barristers who cherish the independent life of a sole practitioner his report will read like an obituary. Presented to the Bar Council last week and currently being sent out to 400 heads of chambers, it concludes that "it is not commercially realistic for barristers doing substantial amounts of CFA work to do so while practising as sole practitioners".

CFAs are sustainable only if you can do enough cases, thereby spreading the risk of losing. By definition a single barrister has a limited case load. The Biddle report also supports the oft-touted view that solicitors will keep the majority of "dead cert" cases to themselves leaving barristers to fire off only the long shots.

Barristers will be forced either to refuse work on a CFA basis – and it remains unclear whether counsel's fees could be paid as disbursements in CFA cases – or they will have to revolutionise the Bar structure.

The Biddle report gives three alternatives. The favoured plan, involving the "least alteration to the current structure", is "contractual joint ventures" where barristers in chambers doing CFA work put a proportion of win fees into a common fund, which is from time to time divided among the group. Lancaster says it would offer chambers the greatest flexibility.

Another possibility is the formation of "private limited liability companies" with barristers in a CFA group holding shares. The company would deal with the instructing solicitor, and receive counsel's fees and distribute them, minus expenses, as remuneration and/ or dividends. It would be an extension of "management companies" currently used by some chambers.

A further option would be to allow the formation of partnerships. The Bar has always eyed partnership with hostility; partnerships between barristers are banned by the Bar Code of Conduct and, where chambers have more than 20 tenants, by the 1985 Companies Act.

Lancaster's original instructions from Jonathan Hirst QC, chair of the Professional Standards Committee, state: "It by no means follows that those who are presently willing to be members of chambers together would be willing to be partners, given the different rights and liabilities they would be assuming."

The report does advise that any group risk-sharing structure should be permitted rather than made mandatory, to retain maximum flexibility. But all the new structures share common problems, most notably over conflicts of interest. The Bar considers it "inconceivable" that a barrister from any of the above structures could act on the other side of a case in which a colleague was involved.

However, the Biddle report does not foresee conflicts of interest arising where chambers have a shared structure for CFA work and a sole practitioner arrangement for ordinary work, as long as it is made clear which structure is operative for any given case.

This begs certain questions. How will chambers reconcile the arrangements for CFA practitioners with non-CFA barristers? Is it possible that a cap might have to be imposed on CFA work to protect the non-CFA barristers from the risks of the other group?

Lancaster concedes that the tensions and subsequent divisions in chambers could lead to CFA practitioners quitting. In the long term two Bars – a CFA and non-CFA – could exist side by side.

The final decision on structure must take account of various technical issues. Significant chunks of the report outline very complicated tax questions.

At the time of the report's publication Lancaster says there were no insurance products specifically aimed at barristers undertaking CFA work. In addition, the report says: "If and when such insurance becomes available, we anticipate that premiums will be very high."

Details must be hammered out: How will risk assessment be conducted? Who will pay? What about returned briefs? What about block contracts?

Initial reaction to the report is positive. It is rumoured a meeting is planned for representatives of all chambers in July.