Conditional fee agreements – cap on success fee where terminated early
Recent posts have looked at the problems that arise when a Law Society model CFA is terminated early.
A linked problem (though not specific to the Law Society agreement) is where the client moves to new solicitors part way through the claim.
A combination of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the Conditional Fee Agreements Order 2013 means that where “a conditional fee agreement” in a personal injury case provides for a success fee, that success fee must not exceed 25% of the damages (limited to general damages and past pecuniary loss). It is important to note that the rule relates to an individual (“a”) CFA.
The rule is clearly designed to protect the client from having too much of their damages taken by way of the success fee.
However, if a client moves firm part way through the case, and both firms act under their own CFAs with success fees, there appears to be nothing to prevent each firm from recovering up to 25% of the relevant damages. It is therefore crucial that a new firm of solicitors taking over a case from another firm fully advises the client that they are losing the benefit of the cap by moving firm. Although the exact scope of a solicitor’s duties when advising a client before a CFA is entered into currently remains a grey area, the courts are likely to look to see whether there has been informed consent in this situation.
This problem of the 25% cap applying to the individual CFA, rather than the overall costs of the client, is not unique to this situation. It would equally apply where a solicitor enters into a CFA with a success fee and counsel is then instructed to act under a separate CFA with a success fee. I understand that, in reality, counsel is often expected to forgo any success fee in this situation.
It does raise the interesting prospect that a solicitor could choose to act under more than one CFA with the client to avoid the CFA cap. For example, CFA 1 covers work up until track allocation and CFA 2 covers work thereafter. There appears to be nothing within the legislation/statutory instrument to prevent the 25% cap being recovered under each CFA. Needless to say, you are likely to be in a world of trouble if you try this without the client giving informed consent. However, in a risky case it may be perfectly justifiable if the single 25% cap is inadequate to reflect the risk to the solicitor.