Part 36 clauses in CFAs

The Law Society Model Conditional Fee Agreement contains the following clause:

“It may be that your opponent makes a formal offer to settle your claim which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are less than that offer. If this happens, we will [not add our success fee to the basic charges] [not claim any costs] for the work done after we received notice of the offer or payment.”

The section in bold gives an either/or option as to the relevant consequence if the offer is not beaten.  The vast majority of claimant solicitors’ CFAs that I have seen have a similar clause.

This clause is contractual in nature and therefore, if the “not claim any costs” option is taken, also impacts on the indemnity principle.

This would not be a problem, subject to what I say below, for claimant lawyers if the normal costs consequences of CPR 36.17 were automatic (ie the claimant cannot recover costs from the date on which the relevant period expired if an offer is not beaten).  But CPR 36.17 simply sets out the default position.  The consequences of failure to beat a defendant’s offer are not automatic as the court may order otherwise if “it considers it unjust” to apply the default position.  However, if this standard clause is used, the solicitors are unable to charge their client a success fee (at best, if the first option is chosen) or recover any costs from the client or the opponent (at worst, if the second option is chosen) from the date of receipt of the offer or payment, regardless of whether the court limits the period for which costs are recoverable.

In any event, the wording of the clause itself is somewhat strange:

1. It refers to “the work done after we received notice of the offer or payment”. CPR 36.17 anticipates that the trigger point will be “from the date on which the relevant period expired”.  The clause therefore also prevents recovery of either any costs or the success fee at least 21 days earlier than CPR 36.17 anticipates.
2. It refers to “formal offer”, not “Part 36 offer”. It is therefore arguable that the clause applies whenever a “Calderbank” style offer is made, in addition to an offer than complies with the formalities of a Part 36 offer, and regardless of what costs order is made as a consequence of the offer.

It is strange that this clause remains so popular in CFAs.

Our sister company GWS Costs offers a full CFA drafting service for solicitors and can advise on the most suitable CFA for your firm’s requirements.

If a matter is funded by way of a CFA and the case goes to trial where the claimant recovers damages that are less than an earlier offer, defendant paying parties should always question the entitlement to recover any costs from the date of receipt by the claimant’s solicitors of that offer