A Conditional Fee Agreement, or CFA, is currently the most popular way of funding a legal case on a ‘No Win – No Fee’ basis.
With CFAs, and more recently DBAs (Damages Based Agreements), on offer the No Win, No Fee landscape can appear complex and it is no surprise that people sometimes struggle to understand how these schemes operate.
To help clarify how a CFA works we have put together this brief guide to CFAs as they apply to two of our main areas of practice: professional negligence claims and inheritance disputes. Please note that the system operates slightly differently for other areas of law, such as personal injury and clinical negligence and we shall be producing a separate guide for those areas of law shortly. Please note too that the government is for ever modifying the rules that govern No Win, No Fee agreements so this overview applies to the law as it stands in February 2016.
What do I pay if I lose a CFA No Win, No Fee case?
If its a full CFA you will not have to pay your basic legal costs ie the costs that relate to the time we have spent on your case. As the ‘No Win – No Fee’ title implies, if you haven’t won your case then you don’t pay our fees. However, the term ‘legal costs’ encompasses more than just our fees, so you need to consider the following:-
a) Barrister’s fees: If you have consulted a barrister and he or she has also entered into a full CFA then you will not have to pay their fees either. However if they didn’t enter into a CFA, you will be liable for their fees, unless those fees are covered by an After the Event Legal Expenses Insurance Policy (“ATEI”), see below.
b) Disbursements: Unless these are covered by ATEI, you will also be responsible for paying any disbursements such as expert’s fees and court fees
c) Your opponent’s legal costs: If court proceedings have been issued you may have to pay most, if not all, of your opponents legal costs. Again these may be covered by ATEI. We will discuss this liability with you in detail before court proceedings are commenced.
What do I pay if I win a CFA No Win, No Fee case?
You will have to pay our basic costs. Some or all of these may be recoverable from your opponent, but recovery cannot be guaranteed and ultimately they are your responsibility. Where recovery of costs is made it is rare for all of the costs to be recovered, so you need to budget for this shortfall. You will also have to pay:
a) Barrister’s fees and Disbursements: Again these may be recoverable from your opponent. However, there might be a shortfall between the fees incurred and what can be recovered. You will be responsible for the shortfall.
b) Any ATEI Premium: This is paid by you and cannot be recovered from your opponent. The amount varies from case to case.
c) The Success Fee: Because we have taken a commercial risk and effectively gambled on you winning the claim, we charge a success fee. This is calculated as a percentage uplift on our basic costs. It is not as many people assume a percentage of your award. The maximum percentage uplift that we can charge is 100%. So if our basic costs are, for example, £10,000 plus VAT and the success fee uplift is 100%, then the success fee will be £10,000 plus VAT. The success fee reflects the risk we take when pursuing your claim. We will carry out a risk assessment before we enter into the CFA and tell you what that percentage is. We cannot recover the Success Fee from your opponent, so it is your responsibility to pay it if you win your case.
Is there a cap on the CFA success fee?
Yes. The success fee cannot be greater than 50% of the sum you recover.
What is after the event insurance?
ATEI is a form of insurance specially created for litigation. Policies vary, but they cover certain liabilities that can arise when a legal case is lost. We usually try to obtain policies that have a “self-insured premium”. This means that you do not pay the premium up front. The premium only becomes payable by you if you win your case. We discuss with our clients on a case by case basis whether ATEI is desirable and available.
What happens if the CFA is terminated before the case is won or lost?
This depends on who terminates the CFA and why. The most common reasons for termination are:
(i) We decide that you no longer have a commercially viable case. If we will terminate the CFA on this basis you will not be liable for our basic costs. It will be considered a case that has been ‘lost’, so the above principles will apply.
(ii) We terminate the CFA because you fail to comply with your obligations, eg failing to give instructions or giving unreasonable instructions. While we always prefer to work with our clients to resolve difficulties, if we are forced to terminate a CFA on these grounds then you will be responsible for our basic costs, disbursements, Counsel’s fees and VAT. If you continue with your claim and are subsequently successful, you will also be liable for our Success Fee.
(iii) If you decide that you do not wish to continue the case for whatever reason, then you will be responsible for our basic costs, disbursements, Counsel’s fees and VAT. If you continue with your claim and are subsequently successful, you will also be liable for our Success Fee.
This is a very basic outline of how a CFA works in the areas of professional negligence and contentious probate. It does not replace or override the specific costs advice provided when you instruct us to deal with your case.
Please feel free to give us a call or send us an email if you need specific guidance on CFA No Win, No Fee funding for your case.