In part 1 of this article, we will explain CFAs and in part 2, DBAs.
What is a conditional fee arrangement (CFA)?
A CFA is an agreement whereby a solicitor and a client agree to share the risk of the litigation by coming to a financial arrangement whereby part or sometimes all of the solicitors’ fees will only be payable by the client in the event of success.
If any of the defined success criteria agreed when the CFA is entered into is achieved (i.e. the case is won) a success fee will be payable by the client in addition to the normal fees.
If none of the defined success criteria is achieved (i.e. the case is lost or an agreed level of damages is not awarded) a client will only pay reduced solicitors' fees, or no solicitors' fees, subject to the terms of the CFA.
With most CFAs for commercial disputes, all disbursements (including counsel fees and expert fees) and expenses are payable by the client in any event.
Can a CFA cover counsel (barrister) fees?
For some matters counsel may be willing to enter into a CFA for payment of part or all of their fees being subject to achieving defined success criteria. Individual counsel may be reluctant to enter into CFAs for commercial dispute resolution work, or may only be willing to put a relatively small percentage of their fees at risk.
What level of CFA success fee may be payable?
In commercial cases (not personal injury CFAs entered into from 1 April 2013), the success fee can be up to a maximum of 100% of normal fees.
The level of success fee is based upon the solicitors’ assessment of the risk of not achieving the predetermined defined success criteria. The solicitors will include considering all relevant factors, including the merits and value of the claim; the likelihood of settlement; the level of costs likely to be incurred; whether the case is heavily dependent upon factual or uncertain expert evidence, and the information and documentation available when the CFA is entered into.
A CFA success fee cannot be a percentage of the level of damages awarded or agreed by the client.
Who pays the CFA success fee?
The client is primarily liable for the payment of all CFA fees, including the success fee.
What is payable if the case is lost or the predetermined success criteria are not achieved?
The client will pay reduced solicitors’ fees or no solicitors’ fees (subject to the terms of the CFA), plus all disbursements and expenses.
If the case is lost, there is a distinct probability that the client (the losing party) will be required to pay a contribution to the winning party’s reasonable and proportionate costs.
Part 2 follows next month.