Any personal injury practitioner will be familiar with the concept of a success fee. It is the percentage by which a solicitor’s profit costs are increased under a Conditional Fee Agreement (CFA) when the case is won. It is also universally known that the success fee percentage cannot exceed 100%. However, whilst this is a very simple concept in the context of a simple ‘no win, no fee’ agreement, ie. If you lose, the solicitor charges nothing, if they win they charge there normal fee plus 100%, what is the position where the CFA is more complicated? In the recent Court of Appeal case of Gloucestershire County Council v Evans (2008), the CFA (in fact a Collective Conditional Fee Agreement or CCFA) specified that whilst a win allowed the solicitor to charge their basic charges and a success fee, in the event of a loss, rather than charging nothing, their fees would be based upon a discounted hourly rate. Whilst this may not appear to be very important difference, the outcome of this decision had potentially very far reaching consequences.
The solicitors in Evans acted on behalf of a Claimant local authority in bringing proceedings in relation to undertakings given by the Defendants as part of an agreement for the purchase of land by the local authority. They were originally instructed in May 1998 under the terms of a traditional retainer. However, in April 2002, the retainer was changed to a CCFA. The claim was settled with the Defendants to pay the Claimant damages of £135,000 together with costs.
The costs could not be agreed and the matter came before Deputy Costs Judge Lightman for assessment. The paying party’s argument was that the CCFA was invalid such that no costs were payable under the same. The paying party’s argument was based on the terms of the CCFA in relation to the costs payable in the event of a win and the success fee thereon. The CCFA set out the hourly rates chargeable:
The paying party’s argument was that:
The Deputy District Judge rejected the paying party’s argument. He held that the amount of the percentage increase was 100% of the basic charges and therefore the CCFA was valid. The paying party appealed and the matter cam before the Court of Appeal in January 2008.
The relevant statutory provision to be considered by the Court was section 58(2)(b) of the Courts and Legal Services Act 1990 (as amended by the Access to Justice Act 1999):
‘A conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.’
The paying party invited the Court do adopt the following purposive interpretation of the statute:
’ A conditional fee agreement provides for a success fee if it (being the CFA) provides for the amount of any fees to which it (the CFA) applies to be increased, in specified circumstances, above the amount which would be payable if it (the fees covered by the CFA to which the success fee is applied) were not payable only in specified circumstances.’
The fees covered by the CFA, it was submitted, were that part of the fees that were conditional on the outcome of the case, £50 in this case. This, it was argued, was necessary to avoid potentially absurd results occurring. What, for example, if a CFA allowed an hourly rate of £200 in the event of a win, together with a 100% success fee and £199 in the event of a loss. The solicitor is only at risk for a nominal £1 per hour but, for assuming this risk, they are entitled to a success fee of £200 per hour. This, argued the paying party, could not have been the intention of parliament when the legislation was enacted and therefore a purposive interpretation in the manner outlined above was necessary.
Lord Justice Dyson, giving the judgment of the Court, opened his judgment with:
‘Yet again, this court is concerned with an issue arising from the conditional fee agreement legislation.’ (at paragraph 1)
Having described section 58(2) as ‘not happily drafted’, he acknowledged the importance of the issue to be determined:
‘The issue is one of considerable importance to the solicitors’ profession. That is why the Law Society was given permission to intervene in this appeal. We have been assisted by written submissions made on its behalf. The Law Society supports Mr Hutton’s submissions (on behalf of the Claimant).’ (at paragraph 9)
Having considered the Defendant’s submissions, he rejected them:
‘I cannot accept the submission that the amount of the fee that would be payable
were not a CFA is £50. The agreement provides that the basic charges are £145
per hour. If it were not a CFA, it would not have provided for payment of the
success fee on the basic charges if the client won. It would simply have provided
for payment of basic charges at £145 per hour. There is no basis for saying that it
would have provided for payment of charges at the rate of £50 per hour.’ (at
paragraph 25)
‘In my judgement, it is clear that the lawfulness of the percentage increase is
measured not by reference to the costs at risk, but by reference to the fees that
would have been payable if the CFA were not a CFA. The concept of ‘costs at
risk’ cannot be extracted from the statute and cannot be invoked to place upon it
a meaning that it cannot bear.’ (at paragraph 27)
Dealing with the potential absurdity argument put forward by the Defendant:
‘In the real world, however, a solicitor would surely not offer such terms to his or her client. Quite apart from the question whether such conduct would be regarded as unprofessional by the Law Society, it is most unlikely that the client would agree to retain a solicitor on such a basis.’ (at paragraph 28)
He concluded:
‘For all the reasons, I am in no doubt that the Agreement which provided for a success fee of 100% on the basic charges of £145 per hour was not in breach of section 58(4)(c).’ (at paragraph 31)
The only positive aspect of the judgment for paying parties was the Court’s comments in relation to the amount of the success fee:
‘In the case of a discounted fee CFA, the court could, and usually should, also have regard to the fact that a reduced level of fees would have been recoverable even if the case has been lost. (at paragraph 28)
This is uncontroversial. For example, if a standard ‘no win, no fee’ agreement has an hourly rate of £100 and a 100% success fee, it would not be reasonable for a CFA with a discounted hourly rate of £50 to have the same 100% success fee. Assuming the case is a 50/50 case, a reasonable success fee in the case of the discounted CFA would be only 50%. This was the conclusion reached in the earlier case of Kuwait Airways Corporation v Iraqi Airways (2003). In that case, Counsel’s CFA specified an hourly rate of £350 in the event of a win and £175 in the event of a loss. The prospects of success were put at 50/50 and Counsel was held to be entitled to a success fee of 50% to reflect the risk in relation to half of his fees in the event of a loss.
This was a very important decision. The form of CFA used in this case is not at all uncommon, particularly for Defendant organisations and in commercial litigation. If the Defendant’s argument had been upheld, it would have resulted in many existing retainers being potentially invalid. However, the spectre of solicitors being faced with such technical arguments against the validity of their CFAs is still very real and practitioners need to remain aware of this important area.
Case Cited
Gloucestershire County Council v Evans [2008] EWCA Civ 21
Kuwait Airways Corporation v Iraqi Airways [2003] 2 Costs LR 204
Paul Jones
Technical Director
LCN