Putting conditional fees in to a different pair of hands

Lord Woolf's interim report arrives in the midst of the debate about implementation of conditional fees in limited areas of practice. A major thrust of his reforms is a shift in responsibility for proceedings from lawyers to judges. Will this set the scene for further relaxation of the rules restricting the ways in which we can charge for litigation?

In transaction work, commercial clients are used to negotiating “no hay no pay” costs deals with lawyers. They are sophisticated purchasers able to look after their own interests in such negotiations.

Where is the difficulty in allowing similar deals with these clients in relation to litigation costs?

Conflict of interest is often cited but is there much difference between the pressures imposed by conditional fee arrangements and the pressure to achieve a successful result?

Although the draft Conditional Fee Agreements Order has been hotly debated, conditional fees have had institutional approval for some time. Since 25 February 1994 litigating under Legal Aid Certificate has meant £65 an hour from the fund unless you win and recover party costs.

Presumably it was decided that this would not give rise to any risk of conflict of interest even though legally aided clients are not usually sophisticated purchasers of legal services and frequently have little experience of using lawyers.

Consider the position of the lawyer advising the legally aided client on a finely balanced payment into court. If accepted, the solicitor recovers costs. If the case continues the solicitor risks recovering only £65 an hour. Advice to accept is likely to be endorsed by the Legal Aid Board discharging the certificate if the client has the temerity to fight on. There is no suggestion that the board should check that the advice is not coloured in any way in these circumstances.

Contrast the situation where damages are recovered: there will be no claim against the fund; the statutory charge applies; and the legally aided client expressly approves the amount of costs to be deducted from the damages. Bizarrely, the legal aid system still requires taxation causing delay and cost to lawyer, client and the public purse. It is not uncommon, despite the clients' approval, for the taxing master to reduce the costs allowed.

This is compulsory solicitor/client taxation based on the assumption that the solicitor will be trying to take advantage of the unsophisticated legally aided client.

Conditional fees have long been allowed in tribunal cases as these do not count as “contentious business” under s.59 Solicitors Act 1974.

Given these inconsistencies in approach it is hard to explain to Plc clients why I cannot agree to charge at one rate if the case fails, but another rate if we win, although such an arrangement would be permissible if they qualified for legal aid.

Lord Woolf does not advocate conditional fees but he is critical of hourly charges and favours a move towards fixed fees. This will be facilitated by greater certainty as to the form litigation will take, particularly cases suitable for the fast-track procedure. We will be able to tell clients precisely what their costs exposure will be in taking a case to trial. This is very attractive particularly to those of us already operating fixed fee agreements from time to time.

The extension of fixed fees may have to wait for a more certain litigation process but there is no reason to wait for the conclusion of Lord Woolf's review before extending the circumstances in which conditional fees are allowed.

That means some progress can be made now towards realisation of Lord Woolf's aims.

It is regrettable that s.2 of the Conditional Fee Agreements Order 1995 was not more widely drawn in specifying the types of business in which conditional fees are allowed. The opportunity has been missed to permit conditional fees on a wider front, particularly in commercial disputes. Follow-up legislation should extend the categories as soon as possible.

Peter Wylde is a commercial litigation partner at Irwin Mitchell, Sheffield.