Legal Cost Specialists

Law Society CFA unenforceable?

By on Mar 21, 2022 | 1 comment

Recent posts have looked at some of the drafting problems with the Law Society’s (old) model conditional fee agreement.

I am grateful to loyal reader of the Legal Costs Blog, Jacques Hughes, for pointing out the rather more significant problem in that all these agreements are probably unenforceable.

s58(1) of the Courts and Legal Services Act 1990 provides that:

“A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.”

By virtue of s58(4A) of the Courts and Legal Services Act 1990, additional conditions are applicable where the CFA includes a success fee and relates to proceedings of a description specified by order made by the Lord Chancellor for the purposes of the subsection.

The Conditional Fee Agreements Order 2013 specifies personal injury claims as being subject to those additional conditions.

s58(4B) of the Courts and Legal Services Act 1990 sets out those additional conditions:

“(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified, and

(d) those descriptions of damages may only include descriptions of damages specified by order made by the Lord Chancellor in relation to the proceedings.”

The Conditional Fee Agreements Order 2013 sets out the description of damages at s5(2):

“(a) general damages for pain, suffering, and loss of amenity; and

(b) damages for pecuniary loss, other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.”

s5(1) of the Conditional Fee Agreements Order 2013 sets out maximum percentage:

“(a) in proceedings at first instance, 25%; and

(b) in all other proceedings, 100%.”

Personal injury solicitors should be familiar with all of the above. In simple terms, where there is a personal injury claim, the maximum success that may be applied to a CFA is capped by reference to certain elements of the damages awarded (basically general damages and past losses).  That cap is 25% of the relevant damages for claims at first instance.

So, how does the old model Law Society CFA deal with this:

Cap on the amount of Success Fee which you will pay us in the event of Success in proceedings at first instance

There is a maximum limit on the amount of the success fee which we can recover from you.

That maximum limit is 25% of the total amount of any:

(i)            general damages for pain suffering and loss of amenity; and

(ii)           damages for pecuniary loss, other than future pecuniary loss;

which are awarded to you in the proceedings covered by this agreement. The maximum limit is applicable to these damages net of any sums recoverable by the Compensation Recovery Unit of the Department of Work and Pensions. The maximum limit is inclusive of any VAT which is chargeable.

[The maximum limit includes any success fee payable to a barrister who has a CFA with us.]

However, this maximum limit applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings (such as, for example, an appeal against a final judgment or order).”

In relation to proceedings at first instance, there is no problem with the wording. It clearly sets out the cap and that cap is consistent with the maximum percentage allowed by the Conditional Fee Agreements Order 2013.

Where does the problem arise then? This is in relation to “other proceedings”, most likely an appeal.

The model agreement expressly states that it covers:

“• Any appeal by your opponent.

• Any appeal you make against an interim order or an assessment of costs.”

It is therefore clear that the model CFA covers certain potential appeals (ie matters that will not be proceedings at first instance).

The wording of the model CFA simply states that the maximum limit (ie the 25% cap) “applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings”. No alternative cap is provided for in the event the matter proceeds to an appeal covered by the CFA.

However, it is clear beyond doubt that the Conditional Fee Agreements Order 2013 does not simply set a cap in relation to proceedings at first instance.  It provides for a further cap of 100% “in all other proceedings”. Unfortunately, this further cap is completely omitted from the Law Society model CFA.

Does this matter if the claim does not proceed past proceedings at first instance? Most definitely. It was established long ago, back in the days of the Costs Wars, that the enforceability of a CFA was to be determined at the time it was entered into (see Garrett v Halton Borough Council [2006] EWCA Civ 1017).  The fact that the case in question may not have proceeded to an appeal does not alter the non-compliance with the relevant provision in the Conditional Fee Agreements Order 2013.

It is difficult to understand how this drafting error was originally made. I speculate, but it can be no more than that, that the drafter/s confused two different 100% caps.  The model agreement correctly set out the maximum amount of the success fee as a percentage of the basic charges:

“The Success Fee cannot be more than 100% of the basic charges in total.”

Did the drafter/s confuse that maximum amount (governed s58(4)(c) of the Courts and Legal Services Act 1990 and s3 of the Conditional Fee Agreements Order 2013) with the 100% cap on the amount of the success fee (calculated by reference to damages) which can be charged under the Conditional Fee Agreements Order 2013?  Did the drafter/s believe that specifying the 100% cap on the maximum amount of the success fee as a percentage of the basic charges amounted to compliance (as required by s5(1) of the Conditional Fee Agreements Order 2013) to specify the 100% cap on the success fee as a percentage of the damages for the purposes of “other proceedings”?

So far as I am aware, there is no reported (or even anecdotal) case where a challenge has been made to the enforceability of the Law Society model CFA agreement based on this potential challenge. This is surprising given how long the Conditional Fee Agreements Order 2013 has been in place.

I would estimate that approximately 80% of CFAs in personal injury matters are based on the Law Society model agreement or a slight variation thereof. In relation to the remaining 20%, I suspect that 90% of those have simply lifted the offending wording from the Law Society CFA and incorporated them into those agreements.

Remember, you read it here first.

    1 Comment

  1. I have been advising clients on this issue since 2013 (starting the very day that the post Jackson Law Soc CFA was published), and have re-drafted hundreds of Law Soc CFAs to address it. It seems strange that paying parties have missed this fairly obvious point for almost a decade. I imagine that many have taken the deliberate decision not to raise it, given the Court of Appeal’s obvious determination to find the Law Soc CFA enforceable how ever bad its drafting (see Hollins v Russell and then Tankard v John Fredericks Plastic for previous examples).

    I always assumed that the explaination for the bad drafting was that the Law Soc had misunderstood the concept of a 100% cap on deductions, and though that meant there was no cap for appeals. But your suggestion that they were confused by the need for two 100% caps rather than one is also a contender.

    The ultimate irony is that whenever I have pointed out the problem with the Law Soc CFA to a claimant firm they have – absolutely without exception – all said that they would never dream of taking 100% of damages anyway, and have simply agreed that the 25% cap should be extended to appeals.

    If paying parties do take this point after a 9 year hiatus, it will be interesting to see how the Court of Appeal bails out the Law Soc this time. I imagine that in the light of Zuberi v Lexlaw that severance issues will be prominent.

    Jacques Hughes

    21st March 2022

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