SUMMARY
Conditional Fee Regulations
Conditional Fees and Litigation Funding
PART ONE
Conditional Fee Agreements
Background
History
Speculative Agreements
Access to Justice Act
Recovering the Success Fee
Recovery of Costs
The Success Fee
Recovery of the Insurance Premium
PART TWO
New Regulations
Current Regulations
New Regulations
CFAs for Children and Patients
CFAs where no uplift will be charged.
Litigation Funding Agreements
and Membership Organisations
CONCLUSION - comments are requested on:
Conditional Fee Agreements
Insurance premiums
New Regulations
Comments on the paper should be sent to the following address by 26 November 1999:
Unless you ask the Department to keep your name or the contents of your response confidential, your name and the general contents of your response may be made public, in response to questions under the Open Government initiative. Please ensure your response is marked clearly, if you wish your response or your name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Additional copies of this paper are available from Melissa Rippin at the above address (0171-210 8774).
1. In the Government's consultation paper 'Access to Justice with Conditional Fees', issued in March 1998, it was proposed that, as part of the Government’s commitment to making conditional fee agreements (CFAs) work, the success fee in a CFA, and any insurance premium paid to protect against meeting a party's own and their opponent's costs, should be recoverable from the losing opponent. Responses to the consultation paper informed the Government’s decision to accept these proposals and the Access to Justice Act 1999 (the Act) has provided, amongst other things, the vehicle to do so.
2. However, the Act only provides the legislative framework. The detail of the changes to conditional fees will be provided through secondary legislation, while the operation of the recoverability of the success fee and insurance premium will be informed by Rules of Court and Practice Directions. Both elements require consultation with affected parties.
3. The aim of this paper is twofold: to seek views on the practical operation of recoverability; and to seek views on the contents of the statutory instruments, and any Rules of Court, which are a necessary consequence of the changes to conditional fee agreements brought about by the Act.
4. It is proposed that:
Success Fee
The other party should receive immediate notification of the existence of the CFA and whether a success fee is being claimed, but not the level of that fee.
Both the client and the losing opponent should be able to challenge the success fee through an assessment by the courts.
The recoverability of the success fee should not be retrospective but should apply only to CFAs which are entered into, and/or in respect of proceedings commenced, after the relevant section of the Act comes into force.
Insurance premium
The other party should receive immediate notification of the existence of the policy.
Both the client and the losing opponent should be able to challenge the level of the insurance premium through an assessment by the courts.
The recoverability of the insurance premium should not be retrospective but should apply only to policies signed after the coming into force of the relevant section of the Act.
what (if any) sanctions would be appropriate if a party failed to disclose that they were funding their case under a CFA;
whether the legal representative should be required to produce written reasons for the level of uplift charged when the terms of the CFA are agreed;
the stage at which these reasons should be disclosed to the court;
what form that mechanism should take;
the stage at which the court should receive information about the existence of an insurance policy.
6. The paper also addresses the question of whether the rules which have governed conditional fee agreements to date require amendment in the light of the experience of operating CFAs, and the consequence of the changes brought about by the Act. In particular the paper questions whether greater clarification is required in the area of the information provided to, and knowledge required of, litigation friends when entering into a CFA on behalf of a child or patient.
7. Comments are therefore particularly requested on:
whether the solicitor should be under an obligation to explain the agreement to the client in addition to providing written information.
whether the solicitor should be required to discuss with the client the desirability of insurance cover in a CFA, to cover the client's own costs liability and their potential liability for their opponent's costs.
whether the solicitor should be under an obligation to advise on the relative advantages and disadvantages of the available insurance funding products and to explain in detail what cover, etc. the recommended products provide.
whether the maximum % allowable as a success fee should remain at 100%.
whether there should be provision that, where the court considered the success fee to be excessive and not to be met in whole by the unsuccessful opponent, the client should not be responsible for meeting the difference between the success fee claimed and the amount recovered.
whether additional information should be provided to the litigation friend.
whether that information should be in writing and supplemented by an oral explanation of the consequences.
whether the current regulations are sufficient to ensure clarity in the operation of CFAs.
whether the proceedings in which no success fee can be claimed should be limited to proceedings under s.82 of the Environmental Protection Act 1990 (as proposed).
what factors should inform the Lord Chancellor when prescribing membership organisations for the purposes of s.30 of the Access to Justice Act 1999.
the mechanism for determining the level of the 'self insurance' premium under s.30 of the Access to Justice Act 1999.
8. Given the likely impact of the proposals on the solicitor and client relationship, the Lord Chancellor will wish to consider all relevant issues before coming to a conclusion on their implementation.
9. The Legal Aid Board's consultation paper on the Funding Code ( end note 1 ) introduced the concept of litigation funding, whereby the Legal Services Commission would provide a partial funding of proceedings in cases which are otherwise funded through private arrangements such as CFAs. The partial funding would be of particular relevance where the investigative or overall costs stretched a firm's resources. Responses to that consultation indicated support for the concept of litigation support and the Board has been developing proposals for the way in which litigation funding will interact with CFAs. The Board will publish its Report and revised Code later this Autumn which will include proposals for litigation funding.
1. Conditional fees are defined in s.58 of the Courts and Legal Services Act 1990 as amended by s.27(1) of the Access to Justice Act 1999. A conditional fee agreement is 'an agreement …… which provides for … fees and expenses, or any part of them, to be payable only in specified circumstances'.
2. Traditionally CFAs, also known as 'no win no fee', have allowed solicitors to agree to take a case in the understanding that, if the case is lost, they will not charge their clients for all or any of the work undertaken. In agreeing to this the client also agrees that if the case is successful, the solicitor can charge a success fee on top of the normal fees, to compensate for the risk the solicitor has run of not being paid all or some of the fees. That success fee is calculated as a percentage of the normal fees and the level at which the success fee is set will reflect the risk involved. That said, it is not a requirement of a CFA that a success fee must be charged.
3. The no fee element relates to the solicitor's fees alone and does not cover the ancillary expenses of the case, such as expert reports, and may not cover counsel's fees. However, the solicitor may agree to fund these costs as part of the agreement or may arrange financial cover for his client. Alternatively, a CFA can be entered into between a solicitor and counsel or, in very limited circumstances, between client and counsel. Insurance policies are also available which provide cover for the solicitor's fee and/or for the opponent's costs should the case be unsuccessful. The premium paid for insurance cover is determined by the provider and will be dependent on a number of factors, including the strength of the case, the likely quantum, and the legal representative's experience of undertaking such cases. Premiums may range from £100 to many millions depending on the case insured.
4. Conditional fee agreements were introduced by the Courts and Legal Services Act 1990 ( end note 2 ) which made provision for agreements in which it was explicit that part or all of the legal representative’s fees were payable only in the event of success. The definition of CFAs in s.58 of that Act excludes criminal and most family proceedings and is limited to agreements specified by Order by the Lord Chancellor, which comply with requirements prescribed by the Lord Chancellor in regulations. The Order also specifies the maximum percentage by which normal fees may be increased in the event of a successful outcome.
5. The first Order was brought into force on 5 July 1995 ( end note 3 ). This limited conditional fee agreements to personal injury cases, insolvency cases and cases before the European Court of Human Rights. From that date it was lawful, in those limited cases, for a legal representative to enter into an agreement with his client whereby costs would be recoverable from the client only in certain circumstances and where the normal costs could be increased by a percentage uplift of not more than 100% should those circumstances occur. Regulations specifying the information which a conditional fee agreement must contain and which must be brought to the client's attention were also brought into force at that time ( end note 4 ). In July 1998 the range of proceedings was extended as far as possible under the 1990 Act to all civil proceedings, other than family cases ( end note 5 ). There has been an increasing use of conditional fee agreements with very few complaints about the way in which they have operated. The evidence also points to the increasing use of CFAs in areas such as defamation. Many of these cases would probably not have been brought but for the existence of conditional fees.
6. Since their introduction in 1995, the Law Society has produced guidance for solicitors about the use of conditional fee agreements and a model agreement for use between clients and solicitors. It has also advised solicitors to apply a voluntary limit of 25% on the proportion of damages which a success fee should represent. The guidance and model agreement are currently under review.
7. While the extension of conditional fee agreements to all civil business has provided access to justice for individuals who may not have otherwise litigated, the definition of a conditional fee agreement is limited and does not encompass all situations where a legal representative agrees to act for his client at different rates to that which he will seek to recover from his client's opponent.
8. Two recent decisions have tested the way in which alternative agreements for funding cases are viewed, Thai Trading Co. (A Firm) v Taylor (1998) 3 All ER 65 and Bevan Ashford v Geoff Yeandle (Contractors) Ltd (1998) 3 All ER 238. In the former case the Court of Appeal held that there were no longer public policy grounds to prevent legal representatives agreeing to work for less than their normal fees in the event that they were unsuccessful, provided they did not seek to recover more than their normal fees if they were successful. In Bevan Ashford the Vice Chancellor held that where a person uses an alternative remedy to court proceedings in a class of proceedings where conditional fee agreements are lawful in the courts, and that all the relevant provisions relating to the form and content of the agreement as prescribed by the relevant regulations (the Conditional Fees Regulations 1995) were complied with, there were no public policy grounds for holding the agreement unlawful. On the contrary, it would be of benefit for clients to have access to these agreements to enable them to use alternative dispute mechanisms.
9. The Lord Chancellor considered that it was in the public interest that the position regarding Thai Trading and Bevan Ashford type agreements should be clear. He therefore took the opportunity of the Access to Justice Bill to take these judgments into statute law rather than leaving the matter to the common law. This has been done by making all agreements to work for less than normal fees subject to s.58 of the Courts and Legal Services Act. This will secure the greater certainty that statute law provides, and will ensure that such agreements can be properly regulated, for example by requiring solicitors to give relevant information to potential clients.
10. The Access to Justice Act received Royal Assent on 27 July 1999. The relevant sections relating to conditional fee agreements and insurance premiums are sections 27 to 31 (annex C). Section 27 replaces s.58 of the Courts and Legal Services Act 1990 and provides a clearer definition of conditional fee agreements. It also makes the winning party's success fee potentially recoverable from the other side. Section 27 also amends s. 58 of the Courts and Legal Services Act to allow cases to be brought using a CFA under s.82 of the Environmental Protection Act, although these are criminal cases. Section 28 allows a party to be funded by a Trade Union, or other prescribed group, and Section 30 provides for such a group which took responsibility for a party’s liabilities to recover from the opponent a sum in recognition of this liability. Section 29 makes the costs of the winning party's after the event insurance premium recoverable from the other side. Section 31 is the enabling provision which provides the Lord Chancellor with the power to amend the indemnity principle which underlies costs. Any amendment of the indemnity principle will be effected through Rules of Court, on which consultation has recently taken place.
11. Regulations will prescribe the requirements with which all CFAs must comply. In addition, the powers in s.27 of the Act will allow the Lord Chancellor to prescribe different requirements for different types of agreement or classes of case and to define which CFAs will be eligible to incur a success fee and which will not. The power to specify proceedings by order is not confined to court proceedings, but extends to other methods of dispute resolution, thereby incorporating the result of Bevan Ashford into proceedings. A CFA which complies with these requirements shall not be unenforceable by reason of its being a CFA, unless it relates to criminal proceedings, family proceedings, or proceedings which have not been specified. Where the CFA relates to such proceedings, or does not comply with the requirements in the regulations, the Act explicitly provides that the agreement is unenforceable. The success fee is enforceable only where the agreement complies with the prescribed requirements; relates to specified proceedings; and the percentage increase does not exceed that set out in the order specifying the proceedings.
12. The liability for meeting the costs of a solicitor in an action rests with the solicitor’s client. The giving of instructions by a client to a solicitor constitutes the creation of a contract between that client and solicitor, and creates the solicitor’s right to be paid his costs for pursuing a case, together with any disbursements incurred.
13. Where a party is successful in an action, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. The level of those costs, and the extent to which all or part of the costs are to be met by the unsuccessful party, will be assessed (formerly taxed) by the court. This is known as the assessment of costs between the parties. In assessing the costs payable, the court will allow a reasonable amount in respect of all costs reasonably incurred and any doubts about those costs will be resolved in the favour of the unsuccessful party. From 26 April, the court has had to consider whether the costs being claimed are proportionate, amongst other things, to the issues at stake and the complexity of the case (see Rules 1.1(2)(c) and 44.5(1) of the Civil Procedure Rules 1998).
14. The courts have the discretion to disallow all or part of the costs incurred by the successful party, dependent on the circumstances of the case and its conduct. This may occur where a solicitor or client undertakes steps in proceedings which are not reasonable. In such circumstances the court will not order the unsuccessful party to meet those costs and hence the costs allowed 'between the parties' will be lower than the amount for which the successful party is liable to his solicitor. Any difference between a 'between the parties' costs order and the clients' liability to their own solicitor must be resolved between them, either through the solicitor reducing the costs claimed, or through the client agreeing to meet the difference. Where they cannot agree, an assessment of the solicitor's own client costs will take place.
15. Currently any success fee in a CFA is not recoverable. Section 27 of the Act amends s. 58 of the Courts and Legal Services Act to provide that a success fee due under a CFA is to be treated as part of the costs recoverable under an order for costs. The change ensures that there will be no ambiguity about whether the costs are recoverable, while retaining the courts' general discretion as to the award of costs and determination of the amount of costs.
16. The earlier consultation attracted mixed views about the disclosure of the level of the success fee to the other side. Some consultees felt that early disclosure of the existence of a CFA and the level of success fee could lead to an early settlement, and would give the opponent some certainty about their potential liability for costs. However, concern was also expressed that disclosure of the success fee could put the opponent at an advantage, since the level of the success fee claimed might divulge too much information about the relative strength of case. The Government accepts these concerns, but believes that, on balance, the opponent should have some indication that they may be liable to pay an uplift on the other party’s costs. It is therefore proposed that:
17. This requirement could be included in the relevant protocol. Views are invited as to what sanctions might be appropriate if a party did not abide by the terms of that protocol, and failed to inform the other side of the existence of the CFA.
18. Section 48.9(5) of the Civil Procedure Rules provides that the court may reduce the amount of success fee claimed, where it considers it to be disproportionate, having regard to all relevant factors as they reasonably appeared to the solicitor or counsel when the CFA was entered into. Some respondents to the earlier consultation were concerned that the opponent, with the benefit of hindsight, could argue that the level of the success fee was disproportionate to the risk of the case, and that this would encourage satellite litigation as to the appropriateness of the level of the fee. The nature of a conditional fee is such that the legal representative may well have set the success fee at the beginning of the cases when the information is necessarily incomplete. One option to resolve this would be to require the legal representative to set down in writing the risk analysis and reasons for the uplift claimed when the terms of the CFA are agreed, and to produce further written reasons if the uplift claimed was changed during the course of the case. This document could then be disclosed to the court at the end of the case, or at any prior stage, if the level of success fee was in dispute. This would provide the court with information with which to judge whether the success fee was fair and reasonable, while reducing the negative effect of hindsight.
Q.3 At what stage should this be disclosed to the court?
19. A corollary of the ability to recover the success fee is the ability of the paying party to object to the level of that fee. The current costs rules provide that where a party does not agree with all or part of the costs being claimed, a detailed assessment of those costs will take place. This applies to both the costs to be met by the unsuccessful opponent and the costs for which the solicitor's own client is liable. Just as a court may conclude that it is not reasonable for the unsuccessful party to meet all of the cost claimed, so might a court conclude that it is not reasonable that a client should meet all of his solicitor's costs.
20. The level of the success fee will be open to assessment, and where a court concludes that the level of the fee is unreasonable, then the fee may be reduced accordingly. This will ensure that the unsuccessful opponent is protected from unrealistic success fees. However, the Government recognises that a significant proportion of litigants have little or no experience of litigation with which to judge whether the success fee proposed is reasonable and an equivalent protection from unreasonable success fees is desirable. It is therefore proposed that:
21. In making the success fee recoverable, consideration has to be given to the effective date from which a paying party will be liable to pay the success fee. Consideration was given to making the success fee recoverable for all those CFAs in place on the day on which the relevant section of the Act comes into force. However, this would place an undue burden on the unsuccessful opponent, who would be faced with a liability which was not anticipated and which may, in differing circumstances, have acted as a factor in determining how the case was conducted. An alternative is to make the success fee recoverable for that portion of the costs which relate to the period after the relevant section comes into effect. However, this would require the parties and the court to make additional detailed financial calculations. It would also introduce the possibility of rear loading of costs in the run up to the implementation date to ensure that the maximum possible success fee was allowed. To ensure a clear commencement date from the introduction of recoverability of the success fee, it is proposed that:
22. The Government recognises that the proposals set out above relate solely to those cases which proceed to trial. The new Civil Procedure Rules relating to the Fast Track and the use of pre-action protocols in personal injury cases will increase the number of cases settling before the issue of proceedings. All settlements, whether reached through the Part 36 mechanism or otherwise, are made with an eye to what a court would order. However, the extent to which a particular settlement or offer does so is for the parties and will depend on the strength of the case and the parties' desire to avoid litigation.
23. Nothing in the Act or the Civil Procedure Rules prevents a party from offering an amount which reflects a success fee (if it is known), or the recipient of the offer from stipulating for it to be covered. That said, there is concern that the inability to compel the inclusion of the success fee element will result in parties being discouraged from accepting offers and instead proceeding to trial, with the unstated sole aim of recovering the success fee as part of the costs order. However, this is a risk with all cases where the parties cannot agree on the level of costs to be paid, and it is questionable whether it would be right to develop a special mechanism for CFAs which does not apply to other costs. In this context, views are invited on the following:
Q.5 What form should that mechanism take?
24. Section 29 of the Act provides that any insurance premium paid to insure against the risk of incurring a liability in those proceedings may be claimed as a disbursement on taxation. While this clause ensures that this disbursement may be claimed, the court retains the discretion whether to allow the disbursement and at what level, applying the normal tests on assessment.
25. The proposal to make clear that the insurance premium is recoverable attracted considerable support although there were concerns that this might lead to an overall increase in premiums. There were similar concerns that, although an opponent should be aware of their potential liability for an insurance premium, information about the amount of premium could disclose views on the strength of the case. It is therefore proposed that:
26. As with success fees, the Government is concerned to ensure that the assessment of whether an insurance premium is reasonable should not be distorted by hindsight. The court will need to decide whether the level of cover was fair and reasonable when the policy was taken up, and may therefore need information about the level of the insurance premium, the extent of cover and the date when the policy was signed.
27. It is not proposed that solicitors are required to seek the cheapest insurance policies, since this is not a requirement when procuring other forms of disbursement, such as expert reports. However, the court will wish to consider whether the cover purchased was appropriate and proportionate to the case being assessed. Where the court is of the opinion that it is not, it will be free to assess the premium accordingly, whether in the context of 'own client' assessment or 'between the parties' assessment. If it is reasonable that the unsuccessful opponent is protected from unreasonable insurance premiums, then it is also reasonable that the solicitor's own client should receive this protection. It is therefore proposed that:
28. It is also proposed that:
• Current Regulations
29. Section 58 of the Courts and Legal Services Act defines a CFA as an agreement which provides for the payment of a legal representative's fees and expenses conditional upon a specified event occurring. A CFA must comply with any requirements prescribed by the Lord Chancellor in regulations, and the Lord Chancellor may prescribe different requirements in respect of particular agreements or classes of case. The Conditional Fee Agreements Order 1998 (which revoked the 1995 Order) specifies the proceedings in which a CFA can be made and the maximum permitted percentage by which fees may be increased (100%). The Conditional Fee Agreements Regulations 1995 prescribe the requirements with which an agreement between a client and his legal representative must comply.
30. A conditional fee agreement must be in writing and must:
describe the particular proceedings to which it relates;
the circumstances in which the fees and expenses are payable;
the circumstances for payment should other circumstances occur.
31. The Regulations also require that the legal representative draw the client's attention to the matters below:
whether the client might instead be entitled to legal aid and the conditions which apply to legal aid;
the circumstances in which the client may be liable to pay the fees and expenses of the legal representative;
the liability for the costs of the other party;
the operation of the assessment of costs.
32. The conditional fee Regulations have now been in place for four years, albeit initially to a restricted extent, and practitioners will have experienced their operation at a practical level. Since the Access to Justice Act has introduced new provisions on CFAs, it is an opportune time to consider whether the existing Regulations would benefit from amendment.
33. The Regulations governing CFAs seek to ensure that the client is given sufficient information to understand what a CFA is; what the implications are for the client in entering into a CFA, both if they are successful or unsuccessful; the alternatives ways of financing the action other than through a CFA; and the client's ability to seek an assessment of their solicitor's fees. These requirements remain valid.
34. However, the preliminary results of independent research into clients' experience of conditional fees indicates that although clients are provided with information on the way in which CFAs operate, that information is not necessarily understood. To some extent this lack of understanding may be a result of the trust placed members of a profession which underlies the solicitor/client relationship and the consequent lack of a desire on the client's part to question the solicitor's recommendation. However, it may also be true that, to an extent, this lack of knowledge results from the way in which the information is provided and the client's inexperience of the legal process. Solicitors may well provide written information on CFAs, but this is not necessarily supplemented by an explanation of their effect, with the opportunity to ask questions of the solicitor. This problem is not novel in that it must be open to question how far, for example, clients have ever understood the operation of the indemnity principle and its implication for costs liability or other technical aspects of the rules governing litigation. Nonetheless, transparency is highly desirable in all aspects of litigation and should be addressed whenever it arises.
35. The Solicitors' Costs Information and Client Care Code 1999 regulates the information solicitors provide to their clients. Parts 4(ii) and (iii) of that code relate to the discussions which should take place on the use of insurance to cover the client's own costs liability and their liability for their opponent's costs. Whilst anecdotal evidence suggests that solicitors are discussing the use of insurance cover in CFAs, there is no requirement in the CFA regulations that such information should be provided.
36. It is also clear that clients can be confused by the way in which the CFA and any insurance and/or funding products interact and about the relative advantages and disadvantages of such products. In particular a client may be unsure about the role of the insurance policy and the extent to which it protects against the liability for those costs not covered by the CFA.
37. Comments are also requested on the continuing suitability of the 100% cap on the success fee. It could be argued that the cap is unnecessary since the opponent will be able to challenge the level of the success fee. Given that many opponents, particularly in personal injury cases, will be repeat players such as insurance companies, they can be expected to be active in challenging unreasonable success fees. The operation of the 100% cap places a limit on what risks solicitors may feel able to accept and removal of the cap should see an increase in the availability of CFAs.
38. That said, it is arguable that the cap does offer protection to clients who technically may be liable for the difference between the amount of any success fee recovered from unsuccessful opponents and that agreed with their solicitors, if higher. However, it is doubtful whether a court would order a client to pay such an excess having decided that it was unreasonable to order the losing opponent to do so on the basis it was excessive.
• CFAs for Children and Patients
39. The Government believes that, in principle, children or patients ( end note 6 ) should be able to use conditional fee agreements. Litigation friends or guardians ad litem currently need to consider how best to retain the services of a legal representative to represent the child, whether a case is funded through private resources or legal aid. The Government does recognise, however, that it is important that the person who, on behalf of the child, enters into an agreement about the way legal representatives are paid and opponent’s costs, is fully informed about all options for funding cases and the consequences of particular options, not least the success fee.
40. Whilst the Government believes this can be provided for by effective regulations, any regulations should ensure that clients are given the information they need to understand what is happening generally and what the implications are for entering into the agreement. The provisions of the current regulations are set out at paragraphs 30 and 31.
Q.13 Are the circumstances of litigation friends such that specific regulations are necessary?
Q.14 Should the information be provided in writing and supplemented by an oral explanation of the consequences?
41. In posing these questions the Government is aware of the detail of the Solicitor's Costs Information and Client Care Code 1999.
• CFAs where no uplift will be charged.
42. The decision in Thai Trading (c.f. paragraph 8) had the effect that housing disrepair cases under s.82 of the Environmental Protection Act 1990 (EPA) could be brought on a speculative basis. Section 82 allows people aggrieved by a statutory nuisance to seek an order for that nuisance to be put right. These cases are heard in a magistrates' court and are technically criminal cases, but they are brought to enforce a civil right. In the light of representations from Housing support groups, the Government agreed to maintain the present position whereby Thai Trading style agreements are available for proceedings under s.82 of the EPA. Currently, proceedings brought under s.82 of the EPA do not attract a success fee. The Government does not intend that this position should change. It is therefore proposed that:
43. The ability to specify in regulations whether a success fee is allowable or not in specific categories of case is not limited to proceedings under s.82 of the EPA.
• Litigation Funding Agreements and Membership Organisations
44. The consultation paper Access to Justice with Conditional Fees, recognised and welcomed the fact that there are many membership organisations, such as Trade Unions, which provide legal services to their members as a benefit of membership. Members who have a sufficiently strong case may use legal representatives retained by the membership organisation, often at no cost additional to their membership subscription. In addition, the organisations usually undertake to indemnify their members against any liability for their opponents' costs, should their claims be unsuccessful. More recently, Trade Unions have begun opening up their legal services to wider groups, such as families of members. The Government has welcomed these developments and was aware of the concerns of membership organisations that they should not be prevented from providing the fullest legal assistance to their members and families because the nature of their schemes did not sit easily with the legislative constraints of conditional fees.
45. For example, a current obstacle in developing these arrangements more fully lies in an organisation's ability to recover any success fee or insurance element in the cost of funding cases. Whilst any membership organisation can take out insurance policies for each member assisted, and, if successful, recover the premium in costs from the other side, in practice this does not occur. Membership organisations are nearly always sufficiently large that, rather than incurring the costs of commercial insurance premiums (which includes the administrative costs of the insurer in providing the policy and an element of profit), they meet the costs directly in the cases that their members lose. In essence, they 'self insure'.
46. To allow membership organisations to recover that element of 'self insurance' in successful cases, the Act provides that regulated prescribed bodies can recover a sum towards the provision made to protect the member against the risk of having to meet an opponent’s costs and their own disbursements. The section also allows for regulations prescribing the maximum amount that can be recovered in this way. In particular it provides that the way the recoverable sum is to be determined may be prescribed so that it may take into account the costs of commercial insurance.
47. The detail of the provisions in the Act applies to bodies of a prescribed description who undertake to meet liabilities of members or other persons who are parties to proceedings. Although most organisations which use this provision will be membership organisations, it is recognised that other organisations or bodies may offer similar services without requiring those they assist to be members of the organisation. Moreover, if membership organisations make their legal services available to non-members (such as the case of Unions extending services to member’s families) it is important that those individuals are included in the new arrangements. The Act therefore states that such funding bodies are of a description "prescribed by regulations made by the Lord Chancellor…".
48. In addition to the mechanism for authorising funders, the Act provides that regulations may prescribe the maximum amount which can be recovered as a 'self insurance' element and may also prescribe the way that sum is to be determined. Whilst the Government does not seek to impose a fixed sum for the 'self insurance' element, it does wish to ensure that all parties to proceedings are clear how any sum for self insurance has been calculated. It also wishes to ensure that those who are liable to pay the sum do not find themselves facing a sum which is greater than the costs of a commercial insurance policy. One solution could be to prescribe that:
(a) The level of the 'self insurance' premium should be
no more than an equivalent commercial premium minus a fixed % to represent
a commercial firm's profit level; and
(b) The organisation must demonstrate that the level of the
'self insurance' premium has been calculated with reference to the above,
to the satisfaction of the court.
Q.18 At what level should the % reduction be set?
49. These changes will allow membership organisations to continue to offer their services as effectively as possible without requiring them to develop artificial mechanisms to take full advantage of the changes made to the CFA legislation. It should also protect the unsuccessful opponent from unreasonable levels of 'self insurance'.
Comments are requested on:
The proposals that:
The other party should receive immediate notification of the existence of the CFA and whether a success fee is being claimed, but not the level of that fee.
Both the client and the losing opponent should be able to challenge the success fee through an assessment by the courts.
The recoverability of the success fee should not be retrospective but should apply only to CFAs which are entered into, and/or in respect of proceedings commenced, after the relevant section of the Act comes into force.
And on the following Questions:
Q.2 Should the legal representative be required to produce written reasons for the level of uplift charged when the terms of the CFA are agreed?
Q.3 At what stage should this be disclosed to the court?
Q.4 Should a mechanism be developed for settling disputes over the assessment of success fees in cases settled pre issue?
Q.5 What form should that mechanism take?
The proposals that:
The other party should receive immediate notification that an insurance policy covers the CFA but not the costs of that policy, or its coverage.
The recoverability of the insurance premium will not be retrospective but will date from the point at which the policy was entered into, after the commencement of the relevant section of the Act.
Both the client and the losing opponent should be able to challenge the level of the insurance premium through an assessment by the courts.
And on the following Question:
The proposal that:
The current requirements relating to the detail to be included in a CFA should be replicated, as should the requirements relating to the information to be provided to the client.
And on the following Questions:
Q.8 Should the solicitor be required to discuss with the client the desirability of insurance cover in a CFA, to cover the client's own costs liability and their potential liability for their opponent's costs?
Q.9 Should the solicitor be under an obligation to advise on the relative advantages and disadvantages of the available insurance funding products and to explain in detail what cover, etc. the recommended products provide?
Q.10 Should the maximum success fee remain at 100%?
Q.11 Should there be provision that, where the court considered the success fee to be excessive and not to be met in whole by the unsuccessful opponent, the client should not be responsible for meeting the difference between the success fee claimed and the amount recovered?
Q.12 To what extent are the current regulations sufficient to ensure that litigation friends are fully informed of the implications of CFAs?
Q.13 Are the circumstances of litigation friends such that specific regulations are necessary?
Q.14 Should the information be provided in writing and supplemented by an oral explanation of the consequences?
Q.15 Are there other specific categories of case where the charging of a success fee is unacceptable and a success fee should not be allowed?
Q.16 What factors should inform the Lord Chancellor in prescribing a funder?
Q.17 Is the mechanism for assessing the 'self insurance' element sufficient?
Q.18 At what level should the % reduction be set?
The Lord Chancellor believes that the approach canvassed above would offer a procedure which provides the court with sufficient information to assess whether the conditional fee and insurance premium was reasonable, without providing the opposing party with any privileged information, and would remove the distorting influence of hindsight.
However, the Lord Chancellor is aware that the approach canvassed may
bring with it difficult issues which will requires resolution. In particular
he recognises that issues raised may have consequences for the practitioner
in the field and therefore welcomes comments on the issues raised in this
paper.
The Funding Code, a new approach to funding civil cases. LAB 1999
Section 58 of the Courts and Legal Services Act 1990
The Conditional Fee Agreements Order 1995
The Conditional Fee Agreements Regulations 1995 (Annex A)
The Conditional Fee Agreements Order 1998 (Annex B)
Part 21.1(2) of the Civil Practice Rules states
" 'child' means a person under 18; and
'patient' means a person who by reason of metal disorder within the
meaning of the Mental Health Act 1983 is incapable of managing his own
affairs."