Contingency fees provoke very different responses from lawyers, ranging from the view that they are the work of the devil, to them being the ultimate tool providing access to justice.
As usual, the truth lies somewhere in between, but the direction of travel of recent senior court decisions is definitely to endorse contingency fees, which are the ultimate form of proportionality.
Speaking at the Cyprus Judicial Conference on 10 March 2021, Lord Briggs, Justice of the Supreme Court, described disproportionate cost as the “implacable enemy of access to justice”.
Rather than being some United States inspired unprofessional concept, contingency fees have been allowed since at least the passage of the Attorneys and Solicitors Act 1728, and possibly earlier, and the current governing legislation is Section 57 of the Solicitors Act 1974.
True it is that that only covers non-contentious work, including pre-issue work in litigation, and Employment Tribunal and other Tribunal work.
Damages-based agreements (DBAs) have been allowed in issued work, that is contentious business, since 2013 and they do allow a contingency fee in all work except family and criminal.
However, DBAs, like conditional fee agreements (CFAs), another form of contingent fee, are hedged around with statutory and regulatory restrictions.
In contentious work, it is still unlawful simply to agree to charge a percentage of damages. However, the courts are endorsing, arguably enforcing, contingency fees.
In Belsner v Cam Legal Services Limited, the High Court took the boldest step yet by declaring that a CFA that did not cap all costs actually payable by the client, by reference to damages, was a breach of the solicitor’s fiduciary duty to the client and was thus unlawful and unenforceable.
The CFA in question was the Law Society one. The method endorsed by the High Court was the Underwoods Method. Capping all costs by reference to damages creates, for all intents and purposes, a Contingency Fee Agreement.
The irony is not lost on me. The Underwoods Method has been attacked regularly, although never by the senior judiciary, as being a de facto contingency fee agreement. Now, the High Court has made it mandatory.
Percentage-based litigation funding agreements are not DBAs and are lawful
In DAF Trucks Deutschland GmbH v Road Haulage Association Limited (RH) and UK Trucks Claim Limited, the Court of Appeal, sitting as the Divisional Court, upheld the decision of the Competition Appeal Tribunal that the litigation funding agreements here, whereby the litigation funder’s fee was determined by reference to a share of the damages recovered, were not covered by the Damages-Based Agreements Regulations 2013.
Third party litigation funding does not constitute “claims management services” within the Compensation Act 2006, which was aimed at protecting consumers in cases where claims intermediaries had been causing public concerns.
The Act was not designed to regulate the non-champertous funding of litigation by professional third-party funders in return for a reasonable share of the client’s recovery, as compared with pro-active claims-farming.
Parliament had already enacted section 58B of the Courts and Legal Services Act 1990, inserted by section 28 of the Access to Justice Act 1999, to regulate litigation funders. This provision has not been brought into force, but neither has it been repealed.
A litigation funding agreement whereby the funder gets a percentage of damages, is a contingency fee agreement by any other name.
DBAs, subject to the indemnity principle and the Ontario principle, whereby credit has to be given for all costs received from the other side, are virtually useless.
The significance of this decision is the lengths that the Court of Appeal went to, in order to uphold a litigation funder’s contingency fee agreement.
Termination provision in DBA
In Zuberi v Lexlaw Limited, the Court of Appeal held that a termination clause, allowing the solicitors to charge more than the maximum allowed in relation to a DBA, was lawful.
This clears up one potential problem with such agreements, and again, the significance is the fact that the Court of Appeal worked hard, not only to uphold the termination clause, but, by a majority, potentially to make DBAs much more flexible and useful.
Contingency fee agreement fairer to client
In Bolt Burdon Solicitors v Tariq and others, the High Court set out counsel’s submission, with which it agreed, demonstrating the advantage to a client of a contingency fee agreement over a conditional fee agreement.
“156. Mr Mallalieu submitted strongly that the questions of fairness and reasonableness were not to be tested by the outcome, but by reference to the reasonable perception at the time the agreement was entered into. He submits that any analogy or comparison with a conditional fee agreement is wholly inappropriate. By way of illustration, assume a conditional fee agreement with an uplift of 100%. Solicitors incur costs of £200,000, which with the mark up of 100%, entitles them to £400,000. If the sum recovered in the proceedings is £1million, this may be a satisfactory outcome for the client. But if instead, after the same amount of work, the recovery in the proceedings is only £50,000, there would still be the same liability to pay costs of £400,000. This is because in a conditional fee agreement costs are always tied to the work done, whereas in a contingency fee agreement costs are always proportionate to recovery. Mr Mallalieu submits that to grant the relief sought in this case would be to destroy the commerciality of contingency fee agreements of this kind.“
This decision foreshadows that in Belsner, and makes the same point, that is that a client with a conditional fee agreement can be better off losing. That can never happen with a contingency fee agreement.