The general principles in relation to conditional fee agreements (CFAs) were set out in Part 1, where I considered “no win no fee” agreements in detail. The same principles apply to “no win lower fee” agreements.
It is important to note that, as with a no win no fee agreement, in a no win lower fee agreement you must have a full hourly rate as the main, standard rate in the CFA, just as you would if you were acting on an old-fashioned hourly rate basis, win or lose. It is that full rate which is then discounted, in the event of defeat, to nothing in the case of a no win no fee agreement, and to a lower fee in relation to a no win lower fee agreement.
So if, for example, the main full rate is £400 an hour, with a 100% success fee, but discounted to £200 an hour in the event of defeat, then that is fine.
Very obviously, you are getting four times the fee for winning as compared with losing (£800 an hour and not £200 an hour), but because the success fee is based on the standard full rate of £400 an hour, you are not falling foul of the rule that the success fee cannot exceed 100% of ordinary solicitor and own client costs. However, if the agreement was expressed as £200 an hour, but increased to £400 an hour in the event of a win, then that is the 100% already used up and there could be no further success fee. There is no problem at all, provided that the CFA is drafted properly.
The full standard rate is the rate that the client will never pay; in the event of defeat they pay the discounted hourly rate, and in the event of success there is a success fee added to that full hourly rate. The benefit to the solicitor of a discounted CFA is that the solicitor is guaranteed a fee, win or lose. In the event of defeat, the fee will be lower than normal, but in the event of victory it will be higher than normal, and therefore it is not all or nothing.
In the scenario mentioned above, the discounted fee is simply a lower hourly rate, but a solicitor and client are free to agree anything by way of discounted rate, as long as the winning rate is the full hourly rate, so as to justify recovery from the other side under the indemnity principle.
An option that can be attractive to solicitor and client is to have the discounted fee being a fixed fee, for example “£400 an hour discounted to a fixed sum of £50,000 in the event of there being no success”. The parties are free to define “success”, but for claimants a common definition is that there is a settlement or court award for damages or costs in the claimant’s favour.
The advantage of a fixed sum as the discounted fee is that the client has the benefit of certainty, unlike with a lower hourly rate, as the fee will still depend upon the number of hours worked and the case’s duration. From the solicitor’s viewpoint, as it is a fixed fee payable in any event, the full discounted sum can be charged immediately and thus there are cashflow benefits.
If charging by the hour, the discounted fee can be charged each month in the usual way, as that fee will be payable in any event. Care should be taken not to deliver a statute bill for the work done to date, as that potentially prevents a further charge to the client for that work if the case is won; there are conflicting authorities on this point, and it is not worth taking the risk.
Let us look at the example considered in Part 1, but on the basis that if the case is lost, the client pays 50% of the normal charges, rather than nothing.
In return, the solicitor charges a success fee of 50%, rather than 100%. It then looks like this:
- Solicitor and own client costs: £300,000.
- Less recovered from other side: £200,000.
- Balance: £100,000.
- Add success fee of 50%: £150,000.
- Total: £250,000.
Thus, in this example, the solicitor will earn £450,000, as follows:
- Recovered from other side: £200,000.
- Paid by client as above: £250,000.
- Total: £450,000.
It will be seen that, in fact, the solicitor is earning exactly the same on this no win lower fee agreement, as on the no win no fee agreement, due to choosing to cap the charge to the client on the no win no fee agreement at 50% of damages.
I have made the example work like this, but it will in fact often be the case in practice and, in the market, it is attractive to cap the total charge to the client at a percentage of damages; otherwise the client can end up with nothing even in the event of a win. Thus, in both examples, the solicitor paid £450,000 for winning, with the big difference that with the no win lower fee agreement, the solicitor would receive £150,000 in the event of failure.
Thought through, and discussed in detail with the client, discounted CFAs can therefore be a very attractive option for both the solicitor and the client.
There is now no need to inform the other side that you are acting under a CFA, as no element of the success fee is recoverable, except in the very limited case of mesothelioma claims. Tactically, it is a good idea to notify the other side, as it shows that the solicitor is sharing the risk, and believes in the strength of the case. There is no need to inform the other side that it is a no win lower fee agreement, as opposed to a no win no fee agreement, and as many people in civil litigation and commercial work have little knowledge of CFAs, it is often assumed that the solicitor is acting on a no win no fee basis.
Indeed, in a claim where a solicitor feels the prospects of success are not great, you can enter into a CFA for, say, £400 per hour in the event of a win and £350 an hour in the event of a defeat. The solicitor is risking just 12.5% of the fees, but tactically it puts pressure on the other side.
There are almost endless alternatives to the old-fashioned hourly rate win or lose and, at the conclusion of this blog, I provide a checklist of alternative funding methods (see “Checklist of charging options in civil litigation” below).
List of “no win lower fee” CFAs suitable for general civil or commercial litigation
At the conclusion of Part 1, I provided a list of “no win no fee” CFAs. Below is a list of all the types of “no win lower fee” civil litigation CFAs that I have written:
- No win lower fee: without success fee (no charge to winning client beyond recovered costs).
- No win lower fee: without success fee (charge to winning client capped at x% of damages including ATE insurance premium).
- No win lower fee: without success fee (charge to winning client capped at x% of damages excluding ATE insurance premium).
- No win lower fee: with success fee.
- No win lower fee: with success fee (all charges to winning client capped at x% of damages including ATE insurance premium).
- No win lower fee: with success fee (all charges to winning client capped at x% of damages excluding ATE insurance premium).
Checklist of charging options in civil litigation
- Hourly rate: uncapped.
- Hourly rate: total capped at fixed sum.
- Hourly rate: total capped by reference to damages.
- CFA (no win no fee) with success fee: fee not capped by reference to damages (cannot be used in personal injury work).
- CFA (no win no fee) with success fee: fee capped by reference to damages.
- CFA (no win no fee) with success fee: fee capped at fixed sum.
- CFA (no win no fee) without success fee: costs not capped.
- CFA (no win no fee) without success fee: costs capped at fixed sum.
- CFA (no win no fee) without success fee: costs capped by reference to damages.
- CFA (no win no fee) without success fee: recovered costs plus percentage of damages.
- CFA Lite: costs limited to those recovered from the other side.
- Fixed fee.
- Fixed initial fee: then hourly rate with all above combinations.
- Fixed initial fee: then CFA with all above combinations.
- CFA (no win lower fee) with all above combinations.
- CFA (no win lower fee): lower fee capped at fixed sum.
- Credit (or not) for fixed initial fee in the event of success.
- Contingency fee agreement under section 57, Solicitors Act 1974 (pre-issue work only).
- Damages-based agreement (not recommended).
- Underwoods method: contingency fee agreement/bridging agreement/CFA.
Other important factors to bear in mind include:
- Who is paying disbursements?
- After the event (ATE) insurance.
- Are counsel’s fees included in deal, or payable on top?
- Who gets interest?
- Higher hourly rate to reflect solicitor funding case.
- Part 36: who is taking the risk?
- The retainer.
- Right to interim bill.
- Solicitors Act 1974 explanation.
- Getting the Solicitors Act 1974 bill right.