» Introduction
» General Background
» Executive Summary
» A Scheme for Collective Conditional Fee Agreement
» Annex A - List of Respondents

Introduction

1. The consultation paper Collective Conditional Fees was published on 28 June 2000. It invited comment on proposals for the practical operation of measures to allow the use of collective agreements by bulk providers and purchasers of legal services. Annexed to the consultation paper was a set of draft regulations which provided an initial outline of the way in which a collective conditional fee scheme could be regulated. The Government recognised that the needs of different types of bulk purchasers and clients may be disparate. The paper therefore sought views on the shape of a scheme which could encompass a variety of users and also sought comments on whether additions to court rules or practice directions were desirable as a consequence of any collective fee regulations being made.
   
   
2. The consultation period closed on 28 July. 30 responses were received. They included responses from the legal professions, the trade unions and their legal representatives, individual practitioners and members of the insurance industry. In addition, a seminar on the issues raised by the consultation paper was held on 25 July. This was attended by a range of interested bodies and provided a forum to discuss the implications of the consultation paper.



3. This report summarises the views expressed on the issues raised in the consultation paper and at the seminar. Having considered the responses, the paper sets out the Government's conclusions on:



• the scheme of regulation required for collective conditional fee agreements: and



• its suggestions in respect of rules of court


4. A list of respondents is at Annex A.



5. The resulting policy on collective conditional fees will allow economies of scale, reduce regulatory burdens on business and membership organisations and will support its policy of enhancing the competitiveness of providers of legal services. It will provide a scheme which allows agreements to be made between bulk providers of legal services and bulk purchasers on behalf of themselves or others and will increase the avenues to the courts for thousands of citizens.



6. Copies of this report and the consultation paper can be obtained by writing to:
   Afolake Tojuola
   Lord Chancellor's Department
   3^rd Floor, Selborne House
   54/60 Victoria Street
   London SW1E 6QW.


7. Copies may also be requested by telephoning 0207-210 8774.

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•   Regulations

1. In the light of responses to the consultation paper, the Government will introduce new regulations for collective conditional fee agreements through secondary legislation. A more detail explanation of the policy decisions are set out in the following pages but in summary, the regulations will contain the following:




• a collective agreement will be defined as an agreement which provides common terms for pursuing cases under the agreement, but which specifies individual success fees for those cases;



• the collective elements of the agreement will form a distinct document (the agreement) which is signed and retained by the legal representative(s) and the funder of the services;



• where a success fee is contracted for, a separate risk assessment will be drawn up for each individual case. This shall be made available to the court where costs were challenged;



• there will be no prescription as to who can provide or use a collective conditional fee agreement;



• the collective element will: specify the conditions under which the legal representatives' fees are payable; the conditions concerning recovery of the success fee from the legal representative's own client and will provide for the disclosure, to the court, of the document setting out the reasons for setting the success fee at a given level;



• the fact that the case is funded by a collective cfa will not affect the duty of care owed by a legal representative to the client and there is therefore no need to set out detailed client care provisions in regulations;



• the client will be notified that their case is being taken forward and will be entitled to receive a copy of the risk assessment on request;



• the regulations governing collective conditional fee agreements will form a separate set of regulations;



• Section 31 of the Access to Justice Act 1999, which enables rules of court to modify the indemnity principle, will be commenced.

2. The Access to Justice Act 1999 places the recovery of costs in cases funded by conditional fees insurance policies or membership organisations within the courts' discretion, subject to Rules of Court. Rules of Court are, subject to the Lord Chancellor's agreement, made by the Civil Procedure Rules Committee. The Government's views on what provisions are needed are explained in further detail below, but in summary it is recommended that:



• rules should ensure that a success fee may be recovered as an item of costs irrespective of the fact that the case was funded by a collective conditional fee agreement rather than a conditional fee agreement;



• rules should ensure that the fact that the case was funded through a collective conditional fee agreement rather than a conditional fee agreements should not influence the level of the success fee recovered;



• rules should provide that the operation of the Indemnity Principle will no longer apply when assessing costs.

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1. The consultation paper comprised effectively two parts - the proposed scheme for collective conditional fee agreements (ccfas) and a number of questions on how the scheme would operate in practice. Responses were invited on both parts.



2. Very few respondents addressed or made comments on the general proposals set out in the consultation paper. Of those who responded the consensus was that the outline scheme was acceptable subject to changes to key elements and a redrafting of specific sections of the draft regulations which set out a scheme for collective conditional fee agreements. The majority of responses solely addressed the questions posed rather than the scheme proposed and a number of respondents addressed only specific areas, such as the indemnity principle. However, the detail of the responses to the questions posed provided an insight into views on the proposed scheme in general.

3. In the Government's view, the collective elements of the agreement should form a distinct document (the agreement) which is signed by the legal representative(s) and the funder of the services, who should retain copies. Where a success fee is claimed a separate risk assessment would be drawn up for each individual case, which would be made available to the court where costs were challenged. The regulations governing ccfas should form a separate set of regulations.


Explanation of policy


4. A collective conditional fee agreement (ccfa) is formed of two distinct elements, the terms and conditions under which the ccfa is run as a whole, and the risk assessment undertaken in and for each individual case taken under the ccfa. The former defines the way in which the collective element of the agreement operates and is of primary interest to the purchaser and provider of the legal services. The latter sets out the risk assessment used in setting the success fee for an individual case and is of interest to the user of the legal service and ultimately the unsuccessful opponent in any costs assessment. Where the client is not also the funder, he has little interest in the technical terms of the agreement. In contrast, the funder (if not also the client) has little interest in the risk assessment in individual cases but will have an interest in the terms and conditions of the agreement. Where the client retains personal liability for costs they will have an interest in both the agreement and the risk assessment.


Views expressed by respondents.


5. Respondents generally agreed with the proposal that the collective elements of the agreement should form a separate document and that the document should be signed by the provider and purchaser of the legal services. However, a number of respondents were concerned that to do so would leave the agreement open to a challenge, on the grounds that it was a breach of the Indemnity Principle, as the proceedings had been commenced in the name of an individual who was not a signatory to the agreement. Either the client would have to sign the agreement or the Indemnity Principle would have to be modified or excluded.

6. There would be no prescription as to who could provide or use a collective conditional fee agreement.


Explanation of policy


7. The changes proposed in the consultation paper spring from the Government's desire to ensure that providers and funders of large-scale legal services are not discouraged from using conditional fee agreement by administrative hurdles. Allied to this is the Government's wish to ensure that the public has a range of service providers from which to choose. The Conditional Fee Agreement Regulations 2000 have no prescription as to who can use a conditional fee agreement and bulk providers and funders can use cfas if they wish, although they are generally unattractive for most such users. Given that collective conditional fee agreements are a device to remove the administrative burden inherent in the use of cfas en masse, rather than a substantive change in this area of law, there is no reason why the regulations should impose restrictions on who can use ccfas that are not imposed in respect of cfas. Conditional cfas will be employed solely by legal representatives, whose sole responsibility will continue to be to their client, whose interests they are required to protect. The method of funding of a case does not affect that responsibility and those representatives will be subject to their professional practice rules whether the case is funded by a ccfa, a cfa or by more traditional methods. Where a client has entered into a contract with a funder or legal representative which does not comply with the regulations, or does not appear to be enforceable, the court will no doubt rule accordingly.


Views of respondents.


8. This area of the proposed scheme was one of the few which received particular consideration. Most respondents accepted the proposal that there should be no restriction in who could provide or use a ccfa whether as client or third party funding body. That said, a number, including insurance groups, solicitors' interest groups and an academic body, felt that consideration should be given to restricting who could provide them. It was argued that it was not in the interests of consumers to allow any organisation to fund ccfas although no-one seeking restrictions gave examples of the abuses they feared, or suggested a scheme of regulations or (with one exception) criteria for determining who or who should not be able to provide ccfas. That exception was some trade unions who argued that such unions alone should be able to provide ccfas to the members.



9. The Government accepts that the question of regulation is one that needs to be taken seriously even though the client is protected by the professional obligations owed to them by the lawyer handling the case. However, conceiving one and setting it in place would seriously delay the introduction of ccfas. That would hamper trade unions and membership and other organisations providing an improved service to their members and the public. Accordingly while the Government will remain open to further consideration of regulating who can provide ccfas and will welcome any evidence of abuse, on balance it believes it is in the public interest to introduce ccfas as quickly as possible.

10. The collective element will: specify the conditions under which the legal representatives' fees are payable; provide for the disclosure, to the court, of the document setting out the reasons for setting the success fee at a given level; will provide that any amount of the success fee disallowed on assessment as being unreasonable also ceases to be payable under the agreement, unless the court orders otherwise; specify that the legal representative cannot agree with the opponent to settle for a lower success fee and then seek to recover the difference from his client unless the court orders otherwise. These mirror the requirements in the cfa regulations.


Explanation of policy


11. The collective part of the ccfa will set out the terms which govern how the agreement operates for all actions taken under the agreement. Without being overly prescriptive, certain essential elements are required to formalise the agreement and there is no reason to depart from the conventional cfa requirements on this issue. The collective element must specify how the agreement is to operate in terms of how the solicitor is remunerated and where liability rests. The agreement must provide for the disclosure to the court of the risk assessment which was used to set the success fee at a given level.



12. It must also include those elements of consumer protection which were incorporated into the cfa regulations. The Government recognises that although ccfas will largely be employed by experienced purchasers of legal services such as commercial organisations, and funding bodies such as unions and insurers, this may not always hold true and a level of customer protection is therefore necessary. The Government wishes to ensure in particular that an inexperienced client is not faced with a unforeseen liability to their legal representative, which they had not anticipated. Therefore a legal representative who has entered into a ccfa will not be able to seek to recover from his client that element of the success fee which has been disallowed on assessment. Similarly, a solicitor will not be able to agree a settlement with the paying party for a lower success fee and seek to recover the difference from the client. These requirements already exist in respect of cfas and the Government sees no reason to retreat from this protection for the client where they are using a ccfa.


Views expressed by respondents.


13. The majority of responses agreed with the proposals set out in the consultation paper. However, a number of respondents questioned the need for the prohibition of the recovery of the excess of the success fee from the solicitor's own client. As in the earlier debate over cfas, it was argued that the ability to recover the disallowed element of the success fee was a matter of private contract not regulation and that only where the client himself is required to pay the disallowed element should the court intervene. It was argued that a sponsor may wish to pay the excess to their legal representative in recognition of a successful outcome and there should be no statutory reason why this should not occur. In contrast, other respondents felt that individuals entering into a ccfa should receive the same level of consumer protection as those entering into a cfa.

14. The client should receive confirmation that their case is proceeding under a ccfa. The legal representative will continue to comply with the professional duties owed to their client, irrespective of the fact that the case is funded by a collective cfa. Although there will be no automatic entitlement, the client will be entitled to receive a copy of the risk assessment on request.


Explanation of the policy


15. The client, whether as individual sponsor or member of a collective group, is receiving services which may have a significant impact on their future. As such, they have an interest in how their case will be pursued and by whom, irrespective of whether they have a liability for the way in which that case is funded. In the consultation paper the Government recognised that conditional fee agreements could be complex and that clients may not fully comprehend the way in which such agreements operate. However, it was also clear that not all potential users of collective agreements require or need the detailed information set out in the general regulations. Members of membership organisations largely have little or no personal liability for costs and as such have little interest in the availability of alternative methods of funding their cases, since the alternatives invariably require some outlay. In a similar vein, sophisticated commercial clients employing continuing contracts also have little interest in receiving an oral explanation each time a new proceeding is commenced under the contract.



16. That said, it is clear that where the client has a personal liability arising from the terms of the ccfa, it is only right that the liability is explained and the client is informed who is handling their case and how the case will progress. However, these are fundamental professional obligations which a lawyer owes to his client. As such there is no need to place such client care obligations within the regulations since the fact that the case is funded by a ccfa does not alter the legal representative's duty to his client. A client is also entitled to know the strengths and weaknesses of their case. However, it is recognised that not all clients will wish to automatically receive a copy of the risk assessment and a copy will therefore be made available on request.


Views expressed by respondents.


17. Responses on the information to be provided to the client/member were mixed. Many respondents felt that the level of information to be provided to the client should depend on the category of client. A client who was also the sponsor of the case was seen to require and comprehend more information than a client who was sponsored. In the latter category, many felt that client who was sponsored by a recognised organisation such as a Trade Union and had no personal liability had no need to be provided with information on their case. In particular, these respondents were concerned that sponsored clients would not understand, and may well be intimidated, were they to receive information on the case and its strengths. In contrast, a client who was sponsored by a claims management firm, or was likely to have a personal liability, required more detailed information.



18. A significant number of respondents felt that clients should have a realistic expectation of the case and should therefore be informed of the legal representative's view of the strengths of the case via the risk assessment. The client was the party to the proceedings and it was wrong to portray them as a passive third party because they were not necessarily involved in negotiating the detail of the agreement. They should receive objective advice on their cases and should be aware of any personal liability they may have. The legal representative was an agent of the client's and the client should be involved in the case management. It was also felt that private clients would require greater protection than commercial clients particularly in the area of the provision of information.



19. However, the majority of respondents felt that there was no reason why a sponsored client should receive a copy of the collective element of the ccfa since the information contained would only be of interest to the sponsor and legal representative.

20. The information set out at paragraph 14 above should be provided by the legal representative as part of their general client care. Where the client is also the sponsor they will automatically receive a copy of the collective part of the agreement under paragraph 3 above. Where the client is sponsored by a third party they should receive the full collective agreement if requested.


Explanation of Policy


21. The client is the party to the action and the legal representative acts for the client, not the sponsor. If the client has any queries regarding the way in which the case is progressing, the legal representative is in the best position to provide the information. The legal representative, as the point of contact in the case, should therefore provide the information set out at paragraph 14 as part of their professional duty to their client.

22. The success fee shall be recoverable only in cases where the collective conditional fee agreement is entered into after the introduction of the regulations.


Explanation of the policy


23. Until the regulations are brought into force, collective conditional fees agreements will not be available. It therefore follows that retrospection of the introduction of the collective regulations is not possible, since such agreements could not have been entered into prior to the coming into force of the regulations. Further, any agreements purporting to be ccfas which have been entered into before regulations are made are unlikely to have complied with the statutory requirements. While conditional fee agreements entered into post 1 April 2000 may be terminated and ccfas entered into in their place, users will need to ensure that they comply with the Rules of Court, in particular the need to notify opponents using form N251.


Views expressed by correspondents.


24. This topic was not addressed in the consultation paper and the comments received therefore present a partial view on the subject. Respondents argued that retrospectivity should be allowed as the bulk providers, unlike high street solicitors, have been prevented effectively from undertaking cfas by the administrative requirements in the cfa regulations. It is argued that this has put bulk providers, primarily Trade Unions, at a disadvantage.

25. Rules of Court should provide that a success fee may be recovered as an item of costs irrespective of the fact that the case was funded by a ccfa rather than a cfa. Rules should also ensure that the fact that the case was funded through a collective conditional fee agreement rather than a conditional fee agreements should not influence the level of the success fee recovered.


Explanation of Policy


26. A collective conditional fee agreement is an administrative device to enable purchasers and providers of cfas en masse to provide an efficient service to their client/members. The way in which the administrative aspects of the collective agreement operate does not alter the risk faced in an individual case. Each case taken under a collective agreement is a cfa and there is no reason why the rules relating to cfas should not apply equally to ccfas. Similarly, there is no reason why the level of success fee recovered in a ccfa should differ from one recovered in a cfa merely because the case was funded by a ccfa.



27. Recovery of costs in a case funded with a conditional fee agreement is within the court's discretion subject to rules of court which are made by the Civil Procedure Rule Committee, subject to the Lord Chancellor agreement. New rules came into force on 3 July which reflected the changes which have taken place in funding methods. These rules regulate proceedings and provide for the assessment of costs. The Rules are widely drawn and encompass any arrangement entered into which provides for a success fee under section 58(2) of the Courts and Legal Services Act 1990¹.



28. However, consequential amendments to the rules will be necessary to encompass the ccfa regulations. For example, Rule 44.16² refers directly to the Conditional Fee Agreements Regulations 2000 and will need to be amended to include the ccfa regulations.

29. Section 31 of the Access to Justice Act 1999 will be commenced. Rules of Court should provide that the Indemnity Principle will not apply when assessing costs. The Government recognises the heavy burden of current work on the Civil Procedure Rules Committee will dictate the date at which any rules can be made, but recommends that the Committee consider the early introduction of any necessary rules.


Explanation of Policy


30. The Government recognises that a constraint on an organisation or legal representative's ability to enter into a completely transparent relationship with their client concerning costs is the threat of the opponent arguing on assessment that the indemnity principle had been breached.



31. Although there have been many changes in law which have had the effect of diluting the impact of the indemnity principle, whether in terms of Legal Aid changes, the introduction of conditional fee agreements or the growing body of case law, the indemnity principle continues to exert a major influence on the assessment of costs. By invoking the indemnity principle, paying parties have argued against any liability for costs in cases where a client has entered into an agreement where a solicitor has agreed to waive any fees if the case is unsuccessful and, if successful, seek to recover what the court allows from the paying party, without setting out the charging rate they will seek to recover. This is a particular issue where the client is indemnified for their costs by a third party. In these cases it is argued by the paying party that the client has no actual obligation to his solicitor and therefore neither do they.



32. To ensure that they do not fall victim to the indemnity principle, providers enter into agreements which set out the charging rate to be applied in the event of a successful case, even though it is clear to the providers that the charging rate will rarely apply and should they win, and not recover the full amount billed, they will not recover the excess from their clients. In third party funded cases lawyers have drawn up agreements which regard both the organisation and client as being liable to pay, thereby avoiding the indemnity principle.



33. The Government recognises that clients are not always versed in legal proceedings and misconstrue the agreements they have entered into. The client having been told that they have no liability whatever the outcome of the case does not understand why the agreement states that there is a liability. This is a particular concern in cases funded by trade unions or membership organisations. The Government believes that it is in the interests of all concerned for there to be complete clarity in the provision of these services. The operation of the indemnity principle clearly inhibits clarity. Although the introduction of ccfa regulations under section 58 of the Courts and Legal Services Act 1990 (as amended) abrogates the indemnity principle for ccfas, the Government is persuaded that there is no longer any justification for the operation of the principle when assessing costs no matter how funded.



34. Section 31 of the Access to Justice Act (when commenced) amends section 51 of the Supreme Court Act 1981 (costs) to provide that the amount recovered by way of costs may not be limited to "what would have been payable by him (the client) to them (his lawyers³) if he had not been awarded costs".



35. The commencement of this section will allow rules of court to be drawn up which provide, beyond any doubt that the receiving party can receive reasonable and proportionate costs irrespective of the terms of the agreement, in cases where an additional liability is claimed.


Views expressed by respondents


36. Respondents commented overwhelmingly that the Indemnity Principle no longer served any useful purpose and should be abolished in full. The principle did not act in anyone's interest and had no impact on overall costs, given the introduction of proportionality. However, it was argued at the seminar on ccfa's that the use of the indemnity principle continued to serve a purpose, in that it provided a benchmark for recoverable costs.



37. It was argued that if abolition was not felt desirable the principle should not apply in cases involving conditional fee agreements. Although it was felt that S58 of the Courts and Legal Services Act 1990 (as amended) implicitly abrogated the indemnity principle for ccfas as well as cfas, respondents felt that a clear statutory abrogation was necessary to place the position beyond doubt. Respondents felt that many lawyers would wish to reassure their clients that they would have to pay them nothing win or lose, but at present could not do so openly. The abolition of the indemnity principle was also necessary where an insurance premium was claimed as many premiums only became payable if the case was successful. Paying parties would use the indemnity principle against this partial liability for costs to argue that no liability existed for them.

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Annex A - List of Respondents

• Amalgamated Engineering and Electrical Union
• Amery Parkes
• Anglia Polytechnic University
• ASLEF
• Association of British Insurers
• Association of District Judges
• Association of Personal Injury Lawyers
• Bar Council
• Birmingham Law Society
• Bond Pearce
• Browne Jacobson
• Cameron McKenna
• DAS
• Eastgate Assistance
• Forum of Insurance Lawyers
• General Municipal and Boilermakers Union
• Irwin Mitchell
• Law Society
• Lawclub Legal Protection
• Motor Accident Solicitor's Society
• National Union of Knitwear Footwear and Apparel Trades
• Pattinson & Brewer
• Personal Injuries Bar Association
• Police Federation
• Rowley Ashworth
• Russell Jones & Walker
• Simpson Millar
• Thompsons
• Unison
• Walker Smith & Way

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