On 10 August 2005, the Department for Constitutional Affairs (DCA) published its response to the consultation paper ‘Making Simple CFAs a Reality’, outlining a radical overhaul of the conditional fee arrangement (CFA) regime. The existing regulations will be revoked. From 1 November 2005 all CFAs will be governed primarily by the Law Society, with revised rules of conduct and guidance. There will be minimum legislative input via Section 27 of the Access to Justice Act 1999, which provides the basic requirements for a CFA: it must be in writing, state the percentage success fee applied and not relate to proceedings which cannot be the subject of a CFA. Minor changes will be made to the Civil Procedure Rules (CPR).

The DCA says that revoking the existing regulations will help make CFAs a simpler product and in particular will help consumers understand better the agreements they enter into and the risks they could face in contemplating litigation.

The new Law Society model CFA should be used from 1 November. It is expressly for personal injury and clinical negligence, but is likely to be adapted for commercial claims. The CFA must be read in conjunction with the Law Society document ‘What You Need to Know About a CFA’, which gives a short explanation of what the client pays if they win or lose, what happens if the agreement ends and basic charges and how they are calculated.

The new CFA is considerably shorter and simpler than its predecessor. For example, the new ‘Paying Us’ section does not state that the amounts of basic costs, disbursements and success fees are not based on, or limited by, the damages. There is no provision dealing with interim hearings or ending the agreement and no reference to how fees are calculated.

The ‘Success Fee’ section now provides for two success fees, one if the case concludes before trial and another if it concludes at trial. It also provides for the client to pay an additional percentage for delayed payment. The success fee, including the additional percentage, cannot exceed 100 per cent of the basic charges. Providing for two success fees is clearly intended to reflect the fixed success fees for CFAs falling within Part 45 of the CPR, but it could be adapted for cases where a higher success fee is to apply if the claim does not settle at an identified early stage. The Court of Appeal has made it clear that two-stage success fees should be adopted.

Clients are less likely to feel overwhelmed by the new CFA, but solicitors will still need to explain CFAs properly to comply with professional conduct requirements.

It is intended that, by placing CFA governance predominantly in the conduct rules, compliance will be a matter for solicitors and their clients, and technical challenges by losing parties will be reduced. However, given the costs war era we live in, there is concern that losing parties may still bring technical challenges for failure to comply with the conduct rules. The Court of Appeal in Awwad v Geraghty (2001) upheld the paying party’s argument that no costs should be paid under a CFA as it was prohibited by Rule 8 of the Solicitors’ Practice Rules, which had statutory force under Section 31 of the Solicitors Act 1974.

Although it is no longer necessary to give reasons for the success fee level in the CFA, this does not mean, contrary to some suggestions, that risk assessments will no longer be necessary. They will be required to justify the success fee to the client and losing party.

It was thought that, under the new CFA, solicitors would be able to charge clients any shortfall in success fee recovered from the losing party without the court’s permission. However, the Law Society conditions make it clear that this is not the case.

The overhaul of the existing regime and emphasis on professional regulation is welcome, although concern over further technical challenges remains.

Edwina Rawson, clinical negligence associate, Charles Russell