10 October 2005
The technical requirements of the Conditional Fee Agreements (CFA) Regulations are so demanding, it is no surprise that defendant insurers have begun to take a tough stance on the legality of such agreements since their introduction. The benefits of doing so are very lucrative - if successful, insurers pay no costs as, effectively, there is no retainer between the claimant and their solicitor. This tactic became even more popular when the CFA Regulations 2000 allowed the claimant to recover success fees from the defendants.
The resulting satellite litigation has meant sleepless nights for many a claimant lawyer. Since the comforting decision in Hollins v Russell (2003), which intended to quash such actions, unbelievably the courts have upheld that a CFA agreement is unenforcable in the following circumstances:
- Where the claimant's solicitor failed to properly 'consider' whether there was a legal expenses policy available. In Culshaw v Goodliffe  the solicitor had asked the client who had said no, but later such a policy was found.
- In similar circumstances to Culshaw where no such policy existed (for example, Samonini ). The regulations require the solicitor "to carry out a careful investigation of alternative sources of insurance".
- Where the CFA failed to specify how much of the success fee related to the postponement of fees (Spencer ).
- Where the solicitor failed to advise on the availability of public funding (Hughes ).
The Government introduced CFAs in 1995 as a counter-balance to the abolition of legal aid in personal injury cases. The 'new horizon' was that claimants would be free to litigate no matter how rich or how poor they were, providing their lawyer agreed they had reasonable prospects of winning the case. So, armed with a cheap insurance policy to cover disbursements and defendant's legal costs, in the unlikely event of a loss, justice would be done and be seen to be done. The mantra of 'access to justice' would be fulfilled.
The new regulations led immediately to the growth of a host of organisations outside of the profession, its regulations and rules of conduct. The consequential mushrooming of small claims, where the cost of insurance in relation to the level of damages was disproportionate, began. There was a welter of discontent from consumers, the courts, claimant lawyers and insurance organisations.
The first step towards control came from the Department for Constitutional Affairs (DCA) in response to complaints of excess profiteering from the insurance industry. The spiralling costs of success fees, which were effectively underwritten by the insurance industry, were halted by the imposition of fixed success fees in negotiations chaired by the Master of the Rolls himself. The first casualty was road traffic accident claims where, except in exceptional cases, success fees were limited to 12.5 per cent of the 'basic costs'. Subsequently, limits on success fees have been imposed in workplace accident claims.
The continued clamour for change, this time by consumers and claimant lawyers, resulted in the DCA issuing a consultation paper 'Making Simple CFAs a Reality' in June 2004. The intended purpose was to increase stability and transparency and to provide better consumer protection. It was widely acknowledged that the existing regime failed to ensure reasonableness and proportionality in relation to damages or costs and encouraged technical challenges between claimants and defendants. This had led, in itself, to unnecessary expense and court time.
The resulting proposals for change have been a breath of fresh air. The DCA has accepted that the CFA Regulations are to be revoked because they are not necessary and are, in any event, ineffective. Primary responsibility for standards is now to rest with the Law Society's professional rules of conduct. The avowed intention is to ensure that no win, no fee agreements are to be straightforward and accessible to the ordinary claimant injured in an accident.
In conjunction with the Law Society, a new model standard agreement has been drafted. It still requires signature by both the solicitor and the client, but the agreement itself will probably not exceed two pages. In addition, the client will be given a document containing an explanation of the terms of the CFA in simple, straightforward language.
By this reform the Government hopes to improve consumer confidence and understanding and to abolish the technical challenges that are the bane of the claimant solicitor. It will lead to a saving of costs - all those hours taking time to explain to the client the possibilities. And, theoretically, it will give access to justice to those consumers who had not pursued claims because they did not understand the complicated agreements.
Nevertheless, the new regime will still involve the solicitor explaining some of the terms, such as success fee, basic costs, win, lose and so on.
The success fee is still to be paid by the defendant, but many of the arguments in relation to the levels have dissipated because of the fixed success level agreements. It will still be necessary for the claimant lawyer to perform a risk assessment in relation to the level of success fee, as some cases will fall outside the agreements, particularly cases that go to trial, road traffic cases worth more than £500,000 and clinical negligence cases. Undoubtedly these are cases in which the defendant will seek to minimise outlay by continuing to challenge success fee levels.
The intention is that CFAs are still to be governed by Conduct Rule 15, which is, as yet, undesigned for the purpose. Transparency is the watchword. Clients must be informed in writing of the overall likely levels of fees, the hourly rate and when this is likely to be increased, likely disbursements and who is to pay them and liability for the defendant's costs. New rules will be drafted to ensure that clients are advised about the availability of public funding, before the event insurance and other methods of funding.
It is intended that technical challenges will become a thing of the past. However, it remains to be seen whether the defendants will continue to take issue on the basis that the claimant was not given proper advice by their solicitor about funding. If past experience is a guide, 'no win, no fee made easy' will soon become a myth. Certainly, the demands of the solicitor for client care remain complex and onerous.
And finally, we still have the indemnity principle, although this is long overdue for reform, as evidenced by responses to the DCA's consultation paper. Therefore, even with a no win, no fee agreement, the client is ultimately responsible for their legal costs, including the success fee. This is a conundrum that is not understood by many lawyers (including this one), but that requires explanation to injured clients of all abilities.
Paul McNeil is a partner and head of clinical negligence department at Field Fisher Waterhouse