What is a Conditional Fee Agreement?

Conditional Fee Agreements, or CFA for short, are a type of retainer which are entered into between a Solicitor and their client in respect of paying legal costs. It must be a written agreement and it is a legally binding contract to pay costs. Usually when this type of agreement is entered into, the Solicitor agrees to act on a ‘no win no fee’ basis which means that you do not usually have to pay the Solicitor’s fees if you are the losing party. A CFA is most commonly used for personal injury matters or other civil cases which are regulated by the Civil Procedure Rules, and they can also supplement other funding agreements, such as where legal aid no longer remains adequate.  More often than note, a CFA allows for a success fee to be recovered (usually payable from damages), to compensate the Solicitor for the risk in taking on the case.

A Conditional Fee Agreement termination can be undertaken by either party however, dependant upon the party terminating the CFA, different consequences could apply.  These are set out in the CFA itself.

Typically, if a Solicitor terminates the CFA, they forego their entitlement to be paid their costs, save in exceptional circumstances.  Such exceptions may include when the client has failed to provide instructions, ignores advice to accept a Part 36 Offer, or has been dishonest.  If the client cancels the CFA (for instance by instructing another Solicitor), typically they are required to pay the previous Solicitor’s costs under the CFA, or to ensure such fees are to be recovered on success by the new Solicitor.

The implications of termination by either party are agreement specific, and one should always read the CFA carefully to ensure unilateral termination does not lead to undesirable costs consequences.

Common Law on Conditional Fee Agreement Termination

In the matter of Butler v Bankside Commercial Ltd [2020] EWCA Civ 203, the Court of Appeal upheld the decision of the lower Courts, that in respect of the terms set out in the standard Law Society CFA, the client was liable for the Solicitor’s costs of the agreement.  This was following the Solicitor cancelling the agreement, due to the client having failed to follow their advice in respect of an offer of settlement received.

A more recent common law decision to consider the issue of Conditional Fee Agreement Termination was the matter of Toms v Brannan [2020] Costs LR 1497.

In this case, the Claimant was a firm of Solicitors who had entered a Conditional Fee Agreement with the Defendant, a former client of the Solicitors firm. The claim for which the Conditional Fee Agreement was entered into did not proceed. The Claimant terminated the agreement as they could not obtain instructions to issue proceedings from the Defendant. They then initiated proceedings for their fees of the action. They were not successful at Trial which led to an appeal being lodged by the Claimant on the grounds that the Judge at Trial had erred in finding that the Defendant was not bound to the Conditional Fee Agreement signed. The Appeal was dismissed at the High Court of Justice, where the case was heard before Mr Justice Griffiths. Griffiths J held that the findings of the initial Trial were not that the Defendant was not bound by the agreement, but rather that the agreement itself did not allow for recovery of the Claimant’s costs.

The facts of the case were that the Claimant met with the Defendant on 27 March 2015 to discuss a claim against the Defendant’s broker. The Defendant instructed the Claimant as his Solicitors and the parties entered into a Conditional Fee Agreement dated 31 March 2015. A disbursement was incurred by way of an expert report which was paid by the Defendant.

The limitation period expired on 12 July 2017, and the Claimant had failed to issue proceedings on the case before the expiry of limitation, making the claim redundant. The Claimant then went on to terminate the CFA on 18 July 2017 stating that the Defendant had failed to provide instructions to issue proceedings in time.  Owing to the lack of instructions, it was averred by the Claimant that the Defendant had breached the terms of the CFA, and thus the wasted costs of the agreement were payable.

Liability had been denied in the initial action, and the Claimant had promised the Defendant they would provide further advice following the denial. However, the Claimant simply told the Defendant that the prospects of the case had not changed. Counsel was instructed for advice, but the advice was not received. The Claimant then sought 5% of the Court fee to issue proceedings from the Defendant. At this point, the Defendant decided not to pursue the claim any further, which the Claimant argued was a breach of the Conditional Fee Agreement.

At the initial Trial assessing the Conditional Fee Agreement termination, the case was dismissed, and the Judge held that the Defendant had been put in an ‘invidious position’. There had been no proper analysis of the case for the Defendant to be able to make an informed decision on whether to proceed with the matter. The Judge held that the Claimant had failed to act in the Defendant’s best interest, failing to advise him properly and in a timely manner on the risks of pursuing the case. The Judge therefore held that the Defendant was not in breach of the Conditional Fee Agreement.

The Claimant appealed the decision, which was also unsuccessful. The grounds of appeal were prepared on the basis that the Judge had found that the CFA was not binding. Griffiths J held that this was not the case. The Judge at Appeal quoted two terms of the CFA:

“(i) We can end this agreement if you do not keep to your responsibilities. We then have the right to decide whether you must:

• pay our basic charges and our expenses and disbursements including barristers’ fees…

(ii) We can end this agreement if we believe you are unlikely to win. If this happens, you will only have to pay our expenses and disbursements. These will include barristers’ fees if the barrister does not have a conditional fee agreement with us.”

The agreement also explained the definitions of basic charges (based on an hourly rate), success fee, expenses and disbursements.

The question was, had the Defendant actually failed to keep to his responsibilities? The Judge stated the following:

“The Defendant didn’t pursue the claim, and the Claimant alleges that he failed to cooperate and was accordingly in breach of the Agreement.

It is my view that the Defendant was not in breach of the Agreement given the circumstances.

The Claimant failed to act in the Defendant’s best interests, or to explain properly and in a timely fashion, and that is why matters got to that stage at limitation. 

I do not find that the Defendant was in breach of the Conditional Fee Agreement and, as such, the Claimant’s claim is dismissed.”

It was therefore concluded that since the Defendant was not found to be in breach of the CFA, the Claimant was entitled to only expenses and disbursements as per paragraph (ii) of the CFA. The proceedings which the Claimant issued in this case were for the Claimant’s charges, or Solicitor’s costs.  These are treated separately to disbursements and expenses, and thus the Claimant was not entitled to the same.

Griffiths J on Appeal concluded when dismissing the Appeal:

“Indeed, it does not appear to me that the decision was based on a finding that the CFA was not binding, which is the basis of the Grounds of Appeal. Rather, it is a finding that the professional fees claimed were not recoverable under the terms of the CFA.”

How Can ARC Costs Assist?

ARC Costs are a team of Costs Draftsmen and Costs Lawyers who can assist in the recovery of your legal costs. We can ensure that all CFAs and retainers are compliant and drafted appropriately.

Our team of costs experts also regularly assist in the preparation of Costs Budgets and Bill of Costs, and facilitate negotiation of the same. Should a settlement not be reached on costs, as Costs Lawyers, we are able to assist and represent you throughout detailed assessment proceedings.

We hold extensive experience in acting for both receiving and paying parties, and act as an independent party to provide legal services to either maximise costs or minimise your legal costs exposure. We can assist you in disputing costs which have been brought against you, namely by way of negotiations and settling Points of Dispute.

Should you wish to discuss your query with us, please contact us using the contact forms on our website, by calling us on 01204 397302 or by emailing one of the team at info@arccosts.co.uk.

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