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293
Jane Hickman, a partner in a leading defence solicitors™ ¬rm, warned that it would mean that
obstructive police could choose to keep the solicitor waiting for hours knowing his fee was
slipping away. (Law Society™s Gazette, 20 July 2006, p. 3.)
294
LAG (August 2006, p. 3) commented that this would be bad news for NFPs. (˜It will change
the way they work, forcing them to spend less time on their most vulnerable and needy clients
in order to improve “e¬ciency”™.)
295
Law Society™s Gazette, 20 July 2006, p. 3. However, at the Law Society™s annual conference in
October the Lord Chancellor admitted that the Government had gone ˜back to the drawing
board™ on ¬xed fees for legally aided family and civil work, that the introduction of ¬xed fees
might be put back a year and competitive tendering for contracts brought forward a year, so
that both would begin in 2008. (Law Society™s Gazette, 19 October 2006, p. 1.)
622 Costs and the funding of legal proceedings


Mr Kevin Martin, was less welcoming: ˜Lord Carter is proposing a system with
fewer, larger legal aid ¬rms. We are not convinced that this will provide access
to justice™.296

The DCA/LSC™s consultation paper
The consultation period was three months to 12 October 2006. Consultation
was on the basis of a 102 page paper issued jointly by the DCA and the LSC
(Legal Aid: A sustainable future) published on the same day as the Carter
Review.297 This began with twenty-one questions arising from Carter, but most
of the consultation paper (pp. 21“88) dealt with Civil, Family and Immigration
legal aid and posed a further ¬fty-eight questions regarding those topics.298
The proposals in the consultation paper included:
• Providers who do not have a minimum income (£25,000 or perhaps £50,000)
would probably not get a contract. (The LSC ˜believe that it is uneconomic
for both the LSC and the provider to deliver this small amount of legal aid
work, and this is consistent with our proposals for preferred supplier of
moving towards fewer and larger contracts™.299)
• A move from paying for services that providers choose to deliver to paying for
services the LSC wishes to purchase. Licensed work (p. 589 above) to cease.
• Instead of the LSC and providers having contracts for di¬erent categories of
work, there would be one uni¬ed contract for all categories.
• Di¬erent contracts and di¬erent payments for solicitors and NFPs to cease.
All providers to have the same contract.
• By April 2009 all contracting bodies to meet a high peer review quality rating
(level 1 or 2) “ to be managed by the Institute of Advanced Legal Studies at
London University.
• All the new remuneration schemes to come into operation in April 2007.
• Hourly rates and tailored ¬xed fees (p. 565 above) in Civil, Family and
Immigration and Asylum work to be replaced by ¬xed and graduated fee
schemes.300
• The statutory charge (p. 593 above) will longer apply to Legal Help work.
• The proposals to be cost neutral though ¬xed fees would reduce the in¬‚ation-
ary pressure on the legal aid budget caused by the rise in the average case costs.

296
Ibid.
297
Consultation paper 13/06, July 2006 “ www.dca.gov.uk and www.legalservices.gov.uk. The
Director of the Legal Aid Practitioner™s Group (LAPG) complained: ˜The LSC™s consultation
paper came like a bolt from the blue. We had no prior warning that it even existed, let alone of
what it would contain™. LAPG had fundamental objections to both the content and the
timetable ˜and to the way in which this consultation was sprung on the profession without
prior discussion and without warning™. It was counterproductive and ˜seriously damages the
attempt to ¬nd a more co-operative way of working between the Commission and the
profession™. (14 Legal Aid Review, October 2006, p. 4.)
298
The consultation paper included a summary of the Carter recommendations (Appendix A,
299
pp. 89“99). Consultation paper, para. 2.24.
300
On graduated fee schemes see p. 569 above.
623 The legal aid system


On 25 July 2006 the House of Commons Constitutional A¬airs Committee
announced that it was setting up an inquiry into the implementation of Carter.
The announcement301 stated that concerns had been expressed that the pro-
posed reforms might have an adverse e¬ect on the provision of legal services
since smaller ¬rms were unlikely to be awarded contracts. This was expected to
have a disproportionate e¬ect on rural ¬rms and ¬rms owned by ethnic minor-
ity practitioners. It was also possible that the quality of provision could su¬er
˜since lawyers would be encouraged to spend less time on cases if they were only
receiving ¬xed fees™.
The Committee called for evidence (not more than 3,000 words long) to be
submitted by 2 October.302 It proposed to take oral evidence in the new year with
a report envisaged at the earliest in the spring. It was clear that its report would
not be completed in time to in¬‚uence Government decisions following the con-
sultation started in July 2006.

The Bar™s reaction
The Bar was on the whole quite pleased with the Carter Review. It welcomed
in particular the proposed aggregate increase of 16 per cent in the graduated
fee schemes which would restore the e¬ect of in¬‚ation over the years when
there had been no increase. Also, cash cuts to the old scheme made in July 2005
would be reversed through the new graduated fee scheme. It accepted as fair
the proposed redistribution of funds from the small number of vastly expen-
sive long cases to the large number of one-to-ten day cases. There was to be
no change to the rate or to the way that barristers were paid for civil legal aid
or under the barristers™ family graduated fees scheme. The Bar™s main regret
was that the increases in fees to junior barristers were to be delayed until April
2007.
On 12 October 2006, the closing date, the Bar Council submitted a 140 page
response to the joint DCA/LSC consultation paper.303

The Law Society™s reaction
The Law Society, understandably, was much more critical of the Carter
Review since the proposed savings of some £100 million on criminal legal


301 302
Press Notice No. 35 of session 2005“6. It received over 250 submissions.
303
www.barcouncil.org.uk (thirty-four pages plus over a hundred pages of appendices). The
response dealt with: (1) the diversity implications of Carter; (2) the quality assurance
proposals for advocates; (3) payment of the fee to the ¬rst advocate instructed; (4) the revised
advocacy graduated fee scheme; (5) the new scheme for very high cost cases; (6) the proposal
that barrister and solicitor advocates might be paid under the same scheme; (7) price-
competitive tendering for Crown Court advocates; (8) payment of assigned advocates in the
magistrates™ courts; (9) the proposals for family legal aid; (10) the proposals for civil legal aid;
and (11) the proposals for a Review Panel. The twelve appendices mainly set out Bar Council
proposals. The response urged, inter alia, that the proposed harmonisation of barristers™ and
solicitors™ graduated fees and competitive tendering should both await full appraisal of the
new scheme.
624 Costs and the funding of legal proceedings


aid would mainly a¬ect solicitors.304 On 2 October the Law Society sub-
mitted a memorandum to the Constitutional A¬airs Committee inquiry
into the implementation of the Carter Review. On 12 October, again the
closing date, it submitted its 125-page response to the DCA/LSC consultation
paper.305
The Law Society said it did not object in principle to market principles being
applied but warned that it would not guarantee access to justice in some cate-
gories of law and in some geographical areas. Nor did it oppose graduated fees,
but current fees and those proposed threatened the viability of law ¬rms
˜thereby posing a serious risk to the legal aid system™.306
Carter recommended that legal aid work should be concentrated in fewer
and larger ¬rms and reckoned that as a result some 400 ¬rms would have to
close or merge. The independent economic analysis conducted for the Law
Society by LECG307 put the number of criminal legal aid ¬rms that would have
to close or merge at double that number.308 LECG also warned that, apart from
the impact on solicitor ¬rms, ˜a real risk is that supply might be disrupted . . .
making it unclear at this point whether there will be enough capacity to
provide services in all areas™.309 Flexibility in contract caseloads, scheduling of
the implementation plan and fee levels might be needed to ensure continued
coverage.310
Lord Carter envisaged that the saving of £100 million on the criminal legal
aid budget would be achieved by way of e¬ciencies ˜without compromising
quality and access to services for clients™.311 In the Law Society™s view, legal aid
suppliers working on tight margins312 were already operating on a highly
e¬cient basis. ˜It is di¬cult to envisage how further e¬ciencies can be made
without quality being compromised™.313 It was unreasonable to expect them to
absorb the cost of ine¬ciences in the police station and court systems, the
e¬ect of which would be greatly exacerbated by ¬xed fees.314 The LECG report
warned that ˜a major risk for the reforms is that following a long history of
limited ¬rm pro¬ts and related problems, the transition to a new structure may
be disruptive . . . Many experienced practitioners and ¬rms may leave legal aid


304
Carter Review, p. 3, para. 8. This would include a £10 million cut in both police station and
305
magistrates™ court fees. www.lawsociety.org.uk.
306
Law Society™s submission to the Constitutional A¬airs Committee, 2 October 2006, para. 5.
307
LECG Ltd, Legal Aid Reforms Proposed by the Carter Review “ Analysis and Commentary,
September 2006 “ accessible on www.lawsociety.org.uk.
308
There were some 2,200 ¬rms performing lower criminal defence (CDS) work. 58 per cent of
the ¬rms were doing under the 200 case target proposed by Carter. That represented 1,300
¬rms performing 17 per cent of total CDS work. ˜To meet the 200 case target a minimum of
about 800 of these small ¬rms would need to merge into larger ¬rms™ (n. 307 above, Executive
309 310 311
Summary, para. 1.5a). Ibid. Ibid. Carter Review, p. 3, para. 8.
312
LECG estimated that the pro¬t margins of criminal legal aid practices ranged from minus 6
per cent to 2 per cent depending on ¬rm size. These, it said, ˜compare unfavourably with
typical market-determined pro¬t rates in broadly equivalent service industries™ (n. 307 above,
313 314
para. 1.5e). Note 307 above, para. 10. See to the same e¬ect n. 307 above.
625 The legal aid system


work and prospects for long term performance may not be attractive enough
to attract new recruits. This could do lasting damage to sustainability and leave
the system in little better condition than at present™.315 There would be a need
for sensitive implementation and adequate ¬nancial returns in the longer
term.316
Fixed fees worked on the ˜swings and roundabouts™ principle. On simple
matters the ¬xed fee would be higher than a fee calculated on the basis of hourly
rates, but for more complex matters the fee would be lower. Clients with more
complex cases would ¬nd it more di¬cult to get representation. Suppliers who
specialised in more complex areas of work would be at a particular disadvan-
tage. The proposals had an escape clause for matters where costs exceed the ¬xed
fee by a factor of four but this multiplier was set too high. Specialists would be
compelled to take on more standard cases to remain viable. For the more
general suppliers there would be no incentive to take on more specialist cases.
The Law Society warned that this would cause a ˜lowest common denominator™
approach.317
The new fee structures would favour volume suppliers. Firms in rural areas
or small towns would be likely not to have the volume of legal aid work to
qualify for the new contracts. (˜They may abandon legal aid work altogether in
favour of private paying clients or simply close down, hastening the steady
exodus from legal aid work™.318)
Carter™s ¬nal report rejected the suggestion that his proposals would impact
adversely and disproportionately on black and minority ethnic (BME) com-
munities and suppliers. Citing the report by MDA commissioned by the LSC,319
the Law Society disagreed. Most BME ¬rms were small and were therefore at
risk under the Carter reforms. (˜The Carter proposals pose similar risks to those
identi¬ed by the MDA research as they envisage a signi¬cant contraction in
the supplier base through the setting of minimum contract sizes and price-
competitive tendering. The proposals represent the greatest challenge to small
¬rms in respect of which BME suppliers are disproportionately represented™.320)
Since BME clients appeared to be more likely to instruct a solicitor from a BME
managed ¬rm, the disappearance of such ¬rms would have an adverse impact
on BME communities.321

315
Note 307 above, para. 1.5e.
316
Ibid. ˜After years of restricted rates and low pro¬ts much of the supplier base is fragile and
susceptible to lasting harm if the transition is not carefully implemented and evaluated™ (ibid,
317
para. 1.5i). Note 306 above, para. 15.
318
Ibid, para. 20. In 2001 there were 3,500 solicitors™ o¬ces providing criminal legal aid; in
September 2005 the number had reduced to 2,651 (ibid, para. 8).
319
MDA, Research on Ethnic Diversity amongst Suppliers of Legal Aid Services, April 2006. See Law
320
Society™s Gazette, 21 April 2006, p. 1. Note 306 above, para. 17.
321
Ibid, para. 18. The MDA study (p. 5) made such a ¬nding with regard to civil legal aid
and the Law Society considered the same was probably the case for criminal work:
˜This is because BME clients™ choice of solicitor is often in¬‚uenced by the need for a
representative with a shared racial, religious or cultural identity, or linguistic ability™
(n. 306 above, para. 18).
626 Costs and the funding of legal proceedings


A considerable head of steam was building up in opposition to the Carter
proposals.322 This included threats of strike action by solicitors.323 A letter
addressed to the Lord Chancellor from 28 leading City ¬rms, including Cli¬ord
Chance, Herbert Smith and Eversheds, said:
The current proposals mean that it simply will not make commercial sense for
solicitors to take on legal aid. Committed as our legal aid colleagues are to public
service, they will be forced to leave the public sector. We urge you to reconsider
your plans and safeguard the future of this vital public service.324
In all, the DCA received no fewer than 2,372 responses to its consultation over
Carter and the joint DCA/LSC consultation paper. On 28 November they pub-
lished a summary of the responses.325 This reported that points raised regard-
ing criminal legal aid included:
• a general agreement that there was a need for modernisation in the procure-
ment of legal aid;
• a concern that ¬xed fees could favour larger ¬rms and be more di¬cult for
smaller ¬rms, including BME ¬rms;
• that the inclusion of travel and waiting within a ¬xed fee could adversely a¬ect
rural ¬rms;
• the potential impact on both ¬rms and clients of any limits to own client
work;
• the tension between ensuring quality whilst achieving a sustainable level of
pro¬t under ¬xed fees;
• the need for su¬cient ¬‚exibility to re¬‚ect the complexities of preparing
defence cases in the revised litigators fees;
• agreement in principle with the tendering of VHCC work but balanced with
the need to ensure panel areas are large enough to secure national coverage;
and
• the bene¬ts of increased remuneration for the junior Bar and the anticipated
positive e¬ect this could have on wider diversity objectives.
Points raised in respect of the proposals for Civil, Family and Immigration Legal
Aid, it said, included:
• a widespread concern that the proposed fee schemes were set at levels that are
too low;


322
For the views of the Legal Aid Practitioners Group see 13 Legal Aid Review, July 2006,
pp. 11“12; and 14 Legal Aid Review, October 2006, pp. 8“13. For the views of the Legal Action
Group see LAG, March 2006, p. 3; and November 2006, pp. 3 and 6“9.
323
Law Society™s Gazette, 16 November 2006, p 3. In January 2007, at a Special Law Society
meeting, more than 400 criminal law practitioners voted overwhelmingly to reject Carter™s
competitive tendering proposals (Law Society™s Gazette, 25 January 2007, pp. 1, 16).
324
156 New Law Journal, 24 November, 2006, p. 1779; The Lawyer, 27 November 2006, p. 3.
325
DCA/LSC, Legal Aid: a sustainable future “ analysis of responses, November 2006 “
www.dca.gov.uk or www.legalservices.gov.uk, 71pp.
627 The legal aid system


• a widespread concern about the concept of ¬xed fees that are based on an
average with some cases costing more and some less;
• a widespread concern that the proposals will drive ¬rms out of legal aid and
this will a¬ect access to justice for vulnerable clients;
• respondents in all categories consider that the proposed exceptional rate is set
too high at four times the fee; and
• there was little consensus as to whether regional or national rates would be
the preferred option across any categories.

The Government™s decision
The Lord Chancellor announced his decisions on 28 November 2006.326 In
essence, the Government was standing ¬rm on the Carter proposals but it was
making some conciliatory minor adjustments:

Criminal legal aid
Police station work
• The move to ¬xed fees was con¬rmed but the date of implementation would
be put back six months from April to October 2007.327
• The inclusion of travel and waiting in police station fees was con¬rmed but
the fees would be recon¬gured according to new boundary areas to take
account of local sensitivities. 328
• Best value competitive tendering for police station work was not only con-
¬rmed but would be brought in a year earlier by October 2008 instead of
2009-10.

Magistrates™ courts
• Revised standard fees including travel and waiting time would be introduced
from April 2007 in urban but not in rural areas.
• ThefeasibilityofintroducinggraduatedfeesinApril2008wouldbe˜carefullycon-
sidered™given the introduction of price competitive tendering that October.329
• Best value competitive tendering to be introduced in October 2008 instead of
2009“10.

Crown Court
• Revised graduated fees for advocates would be introduced as promised in
April 2007.

326
For his Ministerial statement see House of Lords, Hansard, 28 November 2006, WS col.? The
DCA/LSC put out a joint document Legal Aid Reform: the Way Ahead, November 2006, Cm
6993, 66pp.
327
Fixed fees for police station work and graduated fees for solicitors in the Crown Court would
be introduced in October rather than April 2007.
328
The Consultation document had proposed that the fees would be set by the Criminal Justice
System areas.
329
The Consultation document had said that graduated fees would be introduced in April
2008.
628 Costs and the funding of legal proceedings


• The litigators graduated fees scheme would be introduced in October rather
than in April 2007.
• A single graduated fees scheme for advocates and litigators subject to best
value competitive tendering to be introduced by October 2008.330

Minimum contract size for criminal work
• To be decided early in 2007.

Very high cost cases in the Crown Court
• A panel of suppliers for these cases would be introduced in October 2007.
Detailed proposals on quali¬cation and selection for the panel to be the
subject of further consultation.331

Civil Legal Aid
Uni¬ed contract
• Standard terms to be introduced in April 2007 “ minimum income level to be
¬xed later.332

Tailored ¬xed fee replacement scheme
• New ¬xed fees to be implemented for solicitors and the not-for-pro¬t sector
in October rather than April 2007.
• Travel and waiting time to be included but disbursements to be paid in addi-
tion to the ¬xed fees.
• Payment on an hourly basis “ the escape threshold “ where the fee is three
(rather than four) times the ¬xed fee.
• Not-for-pro¬t sector to be paid the same fees as solicitors from October
2007.
It was obvious that the Government™s announcement would provoke a strong
reaction from the legal profession “ especially from solicitors.333

Amending the duty solicitor arrangements
On the same day as the Government unveiled its decisions on the Carter pro-
posals, the LSC issued yet another new consultation paper334 “ this time on the
way that duty solicitor slots are allocated and on the rules as to what work can
be undertaken by di¬erent categories of fee earners.

330
The Consultation document had merely said it should be considered.
331
The Consultation document had said a best value tendering panel of suppliers for VHCCCs
would be established by October 2007.
332
The Consultation document proposed a minimum income level of £25,000 or £50,000.
333
Senior judges weighed in too. See the strong criticisms of the Master of the Rolls and the
President of the Family Division to the Commons Constitutional Affairs Committee inquiry
into the Carter proposals on 23 January 2007 “ www.parliament.uk “ Committees “
Constitutional Affairs Commitee (HC 223-iii).
334
LSC, Market Stability Measures, November 2006, 59pp.
629 The legal aid system


International comparisons
Given the depth and breadth of criticism of the English system, it is strik-
ing that the UK has by far the highest per capita expenditure on legal aid
of any country in the world. The subject was explored by Professor John
Flood and Ms Avis Whyte of Westminster University.335 As to comparative
expenditure they cited a report by the European Commission for the
E¬ciency of Justice.336 This showed criminal and civil legal aid expenditure
in England and Wales at £1.9 billion. The next highest total was Germany
with £319 million.337 A table showing the expenditure of ten jurisdictions338
showed that England and Wales was seventeen times that of the United
States and four times that of the Netherlands.339 No other jurisdiction came
close:
In the global picture, the United Kingdom is an odd, outlying case radically
di¬erent from every other country: it spends far more on legal aid in total
and greater amounts per capita. It also appears to generate huge numbers of
cases . . . From one perspective it may appear that the United Kingdom cel-
ebrates the virtues of access to justice for all above most others; from
another it may seem that the United Kingdom is acutely pro¬‚igate in its
spending on legal aid, not necessarily achieving value or satisfaction for
money.340

Other recent publications on legal aid
R. Moorhead and P. Pleasence, After Universalism “ Re-engineering Access to
Justice (Oxford University Press, 2003).
Legal and Advice Services: A Pathway to Regeneration, DCA and Law Centres
Federation, February 2004 “ www.dca.gov.uk.
Independent Review of the Community Legal Services by Matrix Research and
Consultancy Ltd with She¬eld University, April 2004341 “ www.dca.gov.uk/
pubs/reports/clsreview.pdf.
Geography of Advice, National Association of Citizens™ Advice Bureaux,
2004.342
House of Commons, Constitutional A¬airs Committee, Fourth Report
of the 2003“4 session, Civil Legal Aid “ Adequacy of Provision, HC 391, July
2004.


335
J. Flood and A. White, ˜What™s Wrong with Legal Aid? Lessons from Outside the UK™, 25 Civil
336
Justice Quarterly, 2006, pp. 80“98. Ibid at p. 83.
337
R. Esthuis, European Judicial Systems 2002: Report on the CEPJ Evaluation Scheme (CEPE,
2004) p. 15 at 83.
338
In order from the lowest to the highest: United States, Germany, France, New South Wales,
Quebec, Ontario, British Columbia, Netherlands, New Zealand, England and Wales.
339 340
Flood and White, n. 335 above at p. 84. Ibid at p. 97.
341
For a summary and comments see Legal Aid Review, July 2004, pp. 8“14.
342
For a summary and comments from the chief executive of the Citizens™ Advice Bureaux see D.
Harker, ˜The Geography of Advice™, Legal Aid Review, July 2004, pp. 17“18.
630 Costs and the funding of legal proceedings


Making Legal Rights a Reality “ the Legal Services Commission™s Strategy for the
Community Legal Service, Vol. 1: A Consultation Paper, Vol. 2: An Overview, LSC,
July 2005 “ www.legalservices.gov.uk “ search.343
A Fairer Deal for Legal Aid, DCA, July 2005 “ www.dca.gov.uk/laid/laidfull
paper.pdf.344
For a major research report on civil justice related problems see P. Pleasence,
A. Buck, N. Balmer, A. O™Grady, H. Genn and M. Smith, Causes of Action: Civil
Law and Social Justice (Legal Services Research Centre, 2004).345


6. Conditional fees and contingency fees
The English system traditionally rejected contingent fees as a method of ¬nanc-
ing litigation.346 Under the contingency fee system, a client typically pays
nothing if he loses, whereas if he wins, the lawyer takes his fee out of the
damages. The fee charged by the lawyer in the event of a win is normally assessed
on a percentage basis. In the United States contingency fees are the normal
method of ¬nancing personal injury litigation. What is less well known is that
they are also now permitted in every Canadian province.347
From the client™s point of view the great attraction of a contingency fee is that
he normally pays nothing unless and until the case is won “ and that the amount
paid to the lawyers is then directly related to the amount obtained by way of
damages. In the USA the usual percentage, save in very high recoveries, is one
third. The cost of losing is wholly, or at worst, mainly, borne by the lawyer. Norm-
ally the client is not even required to put up any money to cover disbursements.
The original objection to contingency fees in England was that they are main-
tenance (the ¬nancial support of someone else™s litigation) and champerty (the
taking of a ¬nancial interest in the outcome of someone else™s litigation).348

343
For a summary by the CLS™ director see Legal Action, August 2005, p. 6. For a discussion of
responses see J. Robins, ˜ Where Next for Civil Legal Aid?™, 18 Independent Lawyer, December
2005, pp. 6“7. For critical comment see ˜Substance or Spin?™, Legal Action, May 2006, p. 3.
344
For comments see Legal Aid Review, October 2005, pp. 4“6.
345
For a brief account of the research ¬ndings by its lead author see P. Pleasence, ˜Furthering
Social Justice™, Legal Aid Review, July 2004, p. 19. A summary is available at www.legalservices.
gov.uk/docs/news/Summary-Main-Findings-revised-Mar05.pdf.
346
The prohibition of contingency fees applies only to contentious work as de¬ned by the
Solicitors Act 1974. Contingency fees are permitted in non-contentious work. This includes
Employment Tribunal cases.
347
See M. Zander, ˜Contingency Fees “ the Canadian Experience™, Litigation Funding, June 2002,
p. 12; and ˜Green Light for Contingency Fees™, December 2002, p. 16. The leading Ontario
case is McIntyre Estate v. Ontario [2002] 61 OR (3d) 257, CA holding that a contingency fee
was not champertous or maintenance and was recoverable. The decision led to amendment of
the Solicitors Act to permit Ontario lawyers to enter into contingency fee agreements. In 2006
the court held that this ruling only extended, however, to quali¬ed lawyers and did not apply
to others such as paralegals “ Tri Level Claims Consultants Ltd v. Kolionitis (2006) 15 CPC
(6th) 1241.
348
For a recent review of the history and rationale of maintenance and champerty see Giles v.
Thompson [1993] 3 All ER 321 at 328 per Lord Justice Steyn.
631 Conditional fees and contingency fees


Maintenance and champerty were illegal until the Criminal Law Act 1967, but
in abolishing the criminal o¬ences of maintenance and champerty the 1967 Act
expressly preserved the rules making such arrangements improper for solici-
tors.349 The concern was that a lawyer who has a ¬nancial stake in the outcome
of the litigation may be tempted into unethical conduct.350 Given this opposi-
tion, it may be thought to have been illogical that, as will be seen, the system
does now allow ˜conditional fees™ which are another form of payment by results.
In fact the opposition to contingency fees is weakening and there are even signs
that they may be allowed, at least in some circumstances.


CFAs “ the history (1989“1995)
Conditional fee agreements (CFAs) came out of the 1989 Green Papers on
reform of the legal profession (p. 778 below). One of the three Green Papers351
asked whether contingent fees should be permitted. It suggested that possible
reform might take three di¬erent forms. One option was to allow unrestricted
contingency fees. (The Green Paper said: ˜It is considered that this would not be
in the public interest™.352) A second option was to have contingency fees but to
control the percentage of the damages that could be taken by the lawyers
(˜restricted contingency fees™). A third option was to adopt the Scottish system
of ˜speculative fees™ under which the solicitor agreed that he would only be paid
if he won the case.353 A possible variant would be to agree that if the case was
won, the lawyer would get an agreed success fee based on a percentage of his
costs.
The White Paper issued in July 1989 stated that there had been a clear con-
sensus in favour of the third option.354 The Courts and Legal Services Act 1990,
s. 58 gave e¬ect to this by legitimising ˜conditional fee agreements™ (an improve-
ment on the racy sounding ˜speculative™ fees). The permissible level of success
fee (then called ˜uplift™) was to be set by statutory instrument.
The Lord Chancellor™s Department™s subsequent consultation paper sug-
gested that, at least in the ¬rst instance, the maximum uplift might be set at 10
per cent and that this would not be part of any costs order payable by the oppo-
nent. It also suggested that conditional fees be restricted for the time being to
personal injury cases.
Responding to the consultation paper both the Law Society and the Con-
sumers™ Association argued that an uplift of 10 per cent was too low to lure


349
Wallersteiner v. Moir (No 2) [1975] 1 All ER 849, Denning MR dissenting.
350
For the unenforceability of a champertous agreement see Aratra Potato Co Ltd v. Taylor
351
Joynson Garrett [1995] 4 All ER 695, Div Court. Contingency Fees, Cm. 571, 1989.
352
Paragraph 4.9.
353
The Scottish system was later regulated in the case of barristers by the Act of Sederunt (Fees of
Advocates in Speculative Actions) 1992, SI 1992/1897 and in the case of solicitors by the
equivalent SI 1992/1879.
354
Legal Services: A Framework for the Future, 1989, Cm. 740, p. 41.
632 Costs and the funding of legal proceedings


lawyers into taking on potentially di¬cult and complex cases. The Law Society
said it hoped the maximum would be raised to 20 per cent, though there could
be an argument for 100 per cent “ on the basis that this would enable the lawyer
to break even if half the cases taken on a conditional fee basis were successful.355
In the event, the Lord Chancellor agreed on a maximum uplift of 100 per
cent.356 So, what had been previously discussed as a modest charge to the client
of 10“15 per cent of the fees was at the last moment changed to the very di¬erent
proposition that, in the event of winning the case, the lawyer might receive
double his fee. Moreover whereas the basic fee is made up of overheads and
pro¬t, the success fee would be pure pro¬t “ though pro¬t that would have to
fund the cost of cases that were lost where no fee was earned.


CFAs “ the start
It took another ¬ve years before CFAs became operational. The ¬rst rules for
the new system were the Conditional Fees Agreements Regulations 1995 which
came into force in July 1995.357 The rules were very strict. There had to be a
legally binding contract between the client and the solicitor setting out the
details of the arrangement. There were extensive technical requirements “
which later proved to be a serious matter. The Law Society™s model agreement
to be entered into between the solicitor and the client recommended that solic-
itors™ success fees should never take more than 25 per cent of the client™s
damages.358
The Law Society™s model agreement provided that if the case was won, the
client was liable to pay disbursements, basic costs and a ˜success fee™, plus VAT,
though it also explained that normally disbursements and basic costs would be
recovered from the other side.359 If the case was lost, the client was liable to pay
the solicitor™s disbursements (which might or might not include barristers™
fees “ see below) and the other side™s costs and disbursements.
The model agreement recited that the solicitor had explained to the client
whether he was eligible for legal aid, the situation as regards liability for costs
and disbursements and the right to have the solicitor™s bill vetted by a solicitor
and own client taxation (p. 563 above).
Where the barrister in the case has a conditional fee agreement with the solic-
itors, his fee is a disbursement recoverable from the other side, but if he wins,
the client has to pay the barrister™s success fee in addition to the solicitors™
success fee. If he loses, the client pays nothing in respect of the barrister™s fee.

355
Law Society™s Gazette, 1 May 1991, p. 10.
356
In Scotland, the Lord President of the Court of Session had agreed in 1992 that the
permissible uplift in ˜speculative actions™ could be 100 per cent “ see the speech of Lord Hope
of Craighead in Campbell v. MGN (No 2) [2005] UKHL 61, [2005] 4 All ER 793 at [41].
357
SI 1995/1674.
358
For a guide to the topic see M. Napier and G. Wignall (eds.), A Guide to Funding Litigation
359
(Law Society, 2006). Law Society™s Gazette, 28 June 1995, p. 30.
633 Conditional fees and contingency fees


The client who lost was still at risk of having to pay the other side™s costs. This
risk could be covered by insurance and a great variety of insurance products
have developed. As will be seen, legal expenses insurance (LEI) was already quite
well established (p. 648 below), but that is insurance taken out before the event
(BTE). The product now developed was insurance taken out after the event
(ATE).


Recoverability of success fees and insurance premiums
In October 1997, Lord Irvine, then the new Lord Chancellor, provoked uproar
when he announced that conditional fee agreements would replace legal aid for
all damages and money claims. The threat was subsequently somewhat modi-
¬ed, but essentially the Lord Chancellor stuck to his basic policy. In March 1998
he published a consultation paper.360 This stated that the Government wished
to extend CFAs to any proceedings other than family and criminal cases. More
signi¬cantly, the consultation paper also asked for views as to whether the losing
defendant should pay the ATE insurance premium payable by the plainti¬ to
cover against the risk of losing and/or the success fee payable by the plainti¬.
The Government said that it was minded to make these changes but was ˜keen
to learn whether they would be welcomed in making conditional fees more
useful and attractive™.
As was to be expected, there were a variety of reactions. The Legal Aid
Board361 said it could see no objection to the general availability of CFAs for
money claims. Making insurance premiums recoverable had the disadvantage
that defendants with the strongest case would end up paying the highest
amount as the success fee would be highest in such cases. If the success fee were
recoverable, solicitors would have an incentive to charge an excessive uplift even
on claims with a low risk. ˜There would be a danger of lawyer-driven litigation
as lawyers would have an incentive to pursue claims regardless of whether the
damages claimed were small or trivial™. It might be so attractive to lawyers that
litigation might be encouraged even between wealthy or corporate litigants who
might otherwise settle without going to court.
Both the Bar Council and the Law Society said that they agreed with the
Government that the success fee and the premium should be recoverable. The
Legal Action Group agreed that the success fee and the insurance premium
should be recoverable but the proposed 25 per cent cap on damages should be
made statutory to prevent solicitors and their clients agreeing an unreasonably
high success fees.
The Government moved swiftly. The ¬rst step was to extend the scope of con-
ditional fees. Under s. 58 of the Courts and Legal Services Act 1990 CFAs
had originally been limited to three categories of litigation “ personal injury,

360
Access to Justice with Conditional Fees.
361
The Legal Aid Board™s response to the Lord Chancellor™s consultation paper, May 1998.
634 Costs and the funding of legal proceedings


insolvency and cases brought in Strasbourg under the European Convention on
Human Rights. In July 1998, under the Conditional Fee Agreements Order
1998, they were extended to cover all civil cases other than family work.362
This policy of expanding the role of CFAs was further elaborated in the pro-
visions of the Access to Justice Act 1999. There were several developments. One
was to extend CFAs to family ancillary work solely relating to ¬nancial matters
and property.363 (All cases involving the welfare of children as well as criminal
proceedings remain outside the scope of conditional fees.) A second develop-
ment was to extend CFAs to proceedings other than court proceedings, such as
arbitrations.364 The third development was to make a premium payable for an
ATE insurance policy against the risk of having to pay costs recoverable from the
losing defendant. The insurance policy need not be one associated with a CFA.365
The fourth, and perhaps the most important, development was that a success fee
payable by the client was also recoverable from the losing defendant.366
It was suggested that the recoverable success fee element in CFAs was in
breach of the ECHR Article 6 right to a fair trial or the Article 10 right to
freedom of expression in that it imposed on defendants a liability in costs that
was not reasonable and proportionate.367 In King v. Telegraph Group Ltd the
Court of Appeal rejected the argument.368 The defendants sought cost-capping
orders against an impecunious CFA claimant with no insurance cover. Lord
Justice Brooke conceded that the fact that publishers were at risk of having to
pay up to twice the reasonable costs of the claimant was bound to have a chill-
ing e¬ect on the publisher™s freedom of expression rights under ECHR Article
10. But it was not for the courts to thwart the intention of Parliament that a
claimant be able to bring a defamation action with a CFA and without insur-
ance. The following year the House of Lords took the same view. Whether one
thought the policy was wise or not, it was proportionate and therefore permis-
sible for Parliament to impose on unsuccessful defendants in defamation
actions the burden of paying costs that re¬‚ected not only the costs of that case
but also of other cases where the claimant lost.369

362
See now the Conditional Fee Agreements Order 2000, SI 2000/823.
363
Access to Justice Act 1999, s. 27 inserting a new s. 58A into the 1990 Act: see subsection(1).
364
Section 58 of the CLSA 1990 did not cover arbitrations. It was held in Bevan Ashford v. Geo¬
Yeandle (Contractors) Ltd [1998] 3 All ER 238 that CFAs in arbitration cases were nevertheless
lawful because of the policy implicit in s. 58. As has been seen, this decision was con¬rmed by
s. 27 of the Access to Justice Act 1999 inserting a new s. 58A into the Courts and Legal Services
Act 1990. Section 58A(4) applies CFAs to ˜any sort of proceedings for resolving disputes (and
365
not just proceedings in a court)™. Access to Justice Act 1999, s. 29.
366
New s. 58A(6) in the CLSA 1990 inserted by s. 31 of the Access to Justice Act 1999 states that a
costs order against someone who has a CFA can include any ˜success fees™ payable under the
CFA. The same is not the case in Scotland. The success fee there must be paid by the successful
claimant out of his damages.
367
K. Ashby and C. Glasser, ˜The Legality of Conditional Fee Uplifts™, 24 Civil Justice Quarterly,
368
2005, pp. 130“5. [2004] EWCA Civ 613, [2005] 1 WLR 2282.
369
Campbell v. MGN (No 2) [2005] UKHL 61, [2005] 4 All ER 793. The well-known model,
Naomi Campbell, won modest damages of £3,500 for publication of an article about her drug
635 Conditional fees and contingency fees


The recoverability of the ATE insurance premium and of the success fee had
dramatic and far-reaching e¬ects. It obviously made CFAs much more attrac-
tive to claimants. Now a client with a ˜no win, no fee™ CFA and an ATE policy
could litigate e¬ectively free from ¬nancial risk. He was in an even better posi-
tion than a legally aided litigant on a nil contribution since there was no ˜statu-
tory charge™ to deprive him of part of his damages. Claimants™ lawyers were also
well satis¬ed. Instead of looking to their own clients for payment of the success
fee out of the damages, they could now collect it from the losers (or rather their
insurers). The Law Society™s recommendation that the success fee should not
result in taking more than 25 per cent of the damages was no longer necessary
and was dropped. Claimants™ insurers had a booming business.


Claims management companies
There was a new phenomenon of ˜claims management companies™ o¬ering
various forms of ˜no win, no fee™ deals through mass marketing on television
and in the press. For a time these ¬rms prospered extraordinarily. In 2000,
Claims Direct, the market leader, which spent up to £1.5 million per month on
advertising, announced a pre-tax pro¬t of £10.1 million on a turnover of £39.6
million. The Accident Group (TAG) with some 700 solicitor ¬rms on its panel
had a turnover in 2002 of £243 million. But both went bust, respectively in 2002
and 2003. Partly this was the result of press criticism based on the experience of
disgruntled clients. Also, the courts held that the premiums charged to clients
and the fees charged to panel solicitors were wholly or in part irrecoverable.370
The resulting litigation, which threatens the very existence of many of the ¬rms
of solicitors that were taking referrals from the claims management companies,
has been going on ever since.371 (The Compensation Act 2006 was passed

addiction. The appeal to the House of Lords was on a CFA. The pro¬t costs claimed by the
lawyers on the CFA came to £288,468. The amount claimed in respect of the success fee was
£279,981.35! (ibid at [5]). (The bill of costs served by Ms Campbell™s solicitors in respect of
the trial and of the proceedings in the Court of Appeal, which were not on a CFA, were for
£377,070 and £114,755 respectively (ibid at [2]).) For the suggestion that a CFA with 100 per
cent uplift could contravene the EC doctrine of e¬ective enforcement of Art 81 and/or Art 82
by discouraging a defendant from asserting his rights for fear of having to pay exorbitant costs
see G. Cumming, ˜Conditional Fees and Enforcement of EC Competition Law: England and
Scotland; Ordinary Civil Courts and the Competition Tribunal™, 25 Civil Justice Quarterly,
2006, pp. 529“45.
370
Notably Sharrat v. London Central Bus Co (No 2) [2004] EWCA Civ 575, [2004] 3 All ER 325 “
known as the TAG case. For re¬‚ections by the lawyer for the successful defendant insurers see
A. Parker, ˜Where there™s blame . . .™, 154 New Law Journal, 18 June 2004, pp. 914“15. See
further n. 371 below.
371
The Law Society advised solicitors to reimburse their clients. (Law Society™s Gazette, 2
September 2004, p. 39.) Worse for the solicitors was that the ATE insurer who paid an average
of £1,700 per lost case sued some 700 ¬rms for negligently taking on ˜bogus or unwinnable™
claims. It was said that these claims involved aggregate sums of £100 million. (See Law
Society™s Gazette, 13 January 2005, p. 1; 13 April 2006, p. 1; 11 May 2006, p. 14.) For an
overview of the battle for this market between solicitors and claims management companies
see N. Hanson, ˜Staking claims™, Law Society™s Gazette, 24 June 2004, pp. 22“5.
636 Costs and the funding of legal proceedings


mainly in order to introduce a regulatory system for claims management com-
panies.372 The system went into operation as from November 2006. The head of
claims management regulation predicted that regulation would reduce the
number of claims management companies from about 200 to half that number.
Many of the existing ¬rms would cease business rather than apply for the nec-
essary authorisation to act as claims managers.373)


˜Costs wars™
From the point of view of the defence insurance industry these developments
were most unwelcome. Instead of having to pay just the winner™s damages and
costs, it now also had to ¬nance the ATE premium and the success fee.
Moreover, the television and press advertising by the claims management com-
panies was resulting in signi¬cant growth in the number of claims.
This led to two developments. One was ˜costs negotiators™, employed by
insurance companies to negotiate settlements with claimants™ lawyers, paid on
a commission basis by reference to their success in reducing the bill.374 The
second was a wave of satellite litigation with insurers taking every conceivable
point (and some inconceivable ones) to try to avoid, or at least delay, having to
shoulder these new and unexpected liabilities for which they had not budgeted.
As each point was litigated there were thousands or tens of thousands of other
cases awaiting the outcome. Commonly there was no dispute between the
parties as to liability or damages. The dispute was purely as to the costs “ fought
out under the new procedure introduced in 1999 by the Civil Procedure Rules
for Part 8, costs-only proceedings. (Some felt that the introduction of costs-only
proceedings had proved to be one of the less helpful features of the Woolf
reforms of civil procedure.375)
Insurers said, for instance, that they would not reimburse the success fee and
ATE insurance premium where the case settled without legal proceedings being
issued “ on the ground that until proceedings were issued there was no insur-
able risk. The point was rejected by the Court of Appeal in Callery v. Gray.376

372
On the problems of regulating the claims management companies see J. Robins, ˜Too Hot to
Handle™, Law Society™s Gazette, 4 May 2006, pp. 18“20.
373
Law Society™s Gazette, 21 September 2006, p. 5.
374
In Ahmed v. Powell [2003] EWHC 9011 (Costs) Chief Costs Judge Master Hurst held that
employees of costs negotiators did not have rights of audience in detailed assessments and
that the fees they charged insurers were irrecoverable as champertous. See M. Bacon, ˜No
Right of Audience™, 147 Solicitors™ Journal, 28 February 2003, p. 215. (In the judgment it was
stated that in a period of two years one such ¬rm, acting on behalf of an insurer in some
27,700 claims, had achieved reductions in costs of £20.8 million. For a defence of costs
negotiators see G. Cooke, ˜The Case for Defence™, Litigation Funding, August 2005, p. 7.
Surprisingly, costs negotiators have their uses even in ¬xed costs regimes. Cooke stated that
his ¬rm had clocked up savings over £1 million in a year in supposedly ¬xed costs cases.)
375
For an account of progress in the costs war see J. Robins, ˜Figuring out a Truce™, Law Society™s
Gazette, 14 July 2005, pp. 20“2.
376
[2001] EWCA Civ 117, [2001] 3 All ER 833, [2001] 1 WLR 2112.
637 Conditional fees and contingency fees


The chief reason was the practical consideration that that was the result
required if CFAs were to survive as a viable marketable proposition. (˜There is
overwhelming evidence from those engaged in the provision of ATE insurance
that unless the policy is taken out before it is known whether a defendant is
going to contest liability, the premium is going to rise substantially. Indeed the
evidence suggests that cover may not be available in such circumstances™.377)
The court held that the claimant could recover a reasonable success fee and a
reasonable ATE insurance premium for cover against the risk of losing arranged
when the solicitor was ¬rst instructed. In Callery v. Gray (No 2)378 the Court of
Appeal held that the premium of £350 that had been charged was reasonable
and therefore recoverable in full. It also held that in modest and straightforward
claims for compensation arising from road tra¬c accidents it was reasonable for
a success fee of a maximum of 20 per cent to be agreed at the outset.
It posited, obiter, that it might be appropriate for there to be a two-stage
success fee “ initially of 100 per cent, but reducing to as little as 5 per cent if the
claim settled before the end of the protocol period. That would encourage
defendants and their insurers to settle early. (The suggestion of a two-stage
success fee proved to be of great signi¬cance.)
On appeal, the House of Lords unanimously dismissed the appeal on the
recoverability of the success fee and by four to one dismissed the appeal on the
recoverability of the ATE insurance premium. (The Law Lords were told there
were 150,000 cases awaiting the outcome of the case.) It in e¬ect washed its hands
of the whole business saying that regulation of CFAs was a matter for the Court
of Appeal. (None of the ¬ve judgments mentioned the two-stage success fee.379)
In September 2002 the Court of Appeal in Halloran v. Delaney380 dropped a
bombshell by holding that in simple cases that are settled without the need to
start proceedings the recoverable success fee should normally be 5 per cent,
unless the court was persuaded that a higher uplift was appropriate. (It added
for good measure that the 5 per cent normal success fee should apply retro-
spectively to any case decided since August 2001 when both Callery decisions
were available.381)
In KU v. Liverpool City Council 382 the Court of Appeal said the success fee
must be considered on the basis of the facts that were known, or that should


377 378
Ibid at [99]. [2001] EWCA Civ 1246, [2001] 4 All ER 1, [2001] 1 WLR 2142.
379
[2002] UKHL 28, [2002] 3 All ER 417, [2002] 1 WLR 2000. For a critical review of these
judicial decisions see M. Zander, ˜Where are we now on Conditional Fees? “ Or Why This
Emperor is Wearing Few, if Any, Clothes™, 65 Modern Law Review, 2002, pp. 919“30. This
Case Note said that Lord Ho¬man™s speech had ripped to pieces the theoretical basis of the
Court of Appeal™s approach to the issue.
380
[2002] EWCA Civ 1258, [2003] 1 All ER 775, [2003] 1 WLR 28.
381
For critical comment see M. Zander, ˜Where are we Heading with the Funding of Civil
Litigation?™, 22 Civil Justice Quarterly, 2003, pp. 23 and 29“32. For the history of success fees
see 155 New Law Journal, 11 February 2005, pp. 214“15.
382
[2005] EWCA Civ 475. For a discussion see ˜Restricting the Scope of Split Success Fees™, 155
New Law Journal, 20 May 2005, p. 765.
638 Costs and the funding of legal proceedings


have been known, to the solicitor at the time the CFA was entered. Where
according to that test the success fee was reasonable, the court could not decide
on a di¬erent, much lower, success fee because at a later stage the risks became
lower. If the solicitor wished to claim a high success fee for a risk that might
come about in the future, the CFA should provide for a two-stage success fee.
However, the court does have power to change the success fee if it considers
it was unreasonably high and increasingly the Court of Appeal is exerting pres-
sure to reduce success fees. In KU v. Liverpool City Council it reduced the single-
stage success fee of 100 per cent to 50 per cent. (The Court of Appeal in that case
said that Costs Judges should be more willing to approve high success fees in
cases that have gone a long way towards trial if the claimant solicitor has agreed
a much lower success fee for early settlement.) In Begum v. Klarit383 in a case
which it described as a ˜stone-cold certainty™ it reduced a success fee of 100 per
cent for counsel and 70 per cent for the solicitors to 15 per cent.384
The costs war between insurers and claimants involved many cases that raised
only pure technicalities. The CFA regulations which had been drafted to protect
clients proved to be a mine¬eld to be exploited by lawyers for the insurers whose
objective was to discover some failure by the claimant™s lawyers to comply with
the regulations which would make the CFA unenforceable so that they could
avoid having to pay up.385
In May 2003 the Court of Appeal gave a judgment that was clearly intended
to put an end to the extraordinary wave of satellite litigation in which insurers
challenged CFAs on minor technicalities. Six consolidated appeals were heard
together in Hollins v. Russell.386 Lord Justice Brooke giving the judgment of the
court, said that a CFA would only be unenforceable if in the circumstances of
the particular case the conditions applicable to it by virtue of s. 58 of the Courts


383
[2005] EWCA Civ 210.
384
Lord Justice Brooke said: ˜We ¬nd it hard to understand how responsible counsel could have
agreed with responsible solicitors a success fee of 100 per cent in respect of this appeal, or how
responsible solicitors could have agreed with their clients a success fee of 70 per cent. Success
fees negotiated, if that is the right word, at that level discredit and devalue the whole of the
arrangements for conditional fee agreements™.
385
For articles examining a slew of such cases see G. Wignall, 152 New Law Journal, 16 August
2002, p. 1268; 6 December 2002, p. 1836; 2 May 2003, p. 676; G. Exall, ˜Civil Litigation Brief ™,
146 Solicitors™ Journal, 28 June 2002, p. 582 and 20 December 2002, p. 1160; S.J. Brown, ˜CFAs
“ Privilege, Disclosure and Non-compliance™, 152 New Law Journal, p. 1812; A. Dennison,
˜Muddy Waters™, 153 New Law Journal, 17 January 2003, p. 49. The last of these concerned the
˜TAG Test Case, Tranche 1™ which was said to a¬ect almost 250,000 cases and 700 ¬rms of
solicitors. The Senior Costs Judge held that it was not a breach of the CFA Regulations for the
¬rms to delegate the function of explaining and agreeing the funding arrangements to non-
solicitor agents. It was a victory for the claimants, but in May 2003 the same Costs Judge,
deciding the second Tranche of the TAG Test Case, held that a large part of the moneys (close
to £1,000 per case) paid in respect of the funding arrangements were not genuine ATE
insurance premiums and were therefore not recoverable under the 1999 Act. The Court of
Appeal upheld the decision: Sharratt v. London Central Bus Co Ltd [2003] EWCA Civ 7128,
[2003] 1 WLR 2487, [2003] 4 All ER 590. The ¬nancial consequences for the 700 solicitors™
386
¬rms concerned were extremely serious. [2003] EWCA Civ 718, [2003] 4 All ER 590.
639 Conditional fees and contingency fees


and Legal Services Act 1990 had not been complied with in light of their statu-
tory purposes. Costs Judges should consider whether the particular departure
from a regulation or statutory requirement, either on its own or together with
any other such departure, had had a materially adverse e¬ect on the protection
a¬orded to the client or upon the proper administration of justice. If the answer
was no, then the departure was immaterial and the statutory conditions were
satis¬ed. The parliamentary purpose was to enhance access to justice, not to
impede it, and to create better ways of delivering litigation services, not worse
ones. These purposes would be thwarted if those who rendered good service to
their clients under CFAs were at risk of going unremunerated at the culmina-
tion of the bitter trench warfare which had been such an unhappy feature of the
recent litigation scene. Satellite litigation about costs had become a growth
industry that was a blot on the civil justice system. CFAs should only be declared
unenforceable if the breach mattered and if the client could have relied on it suc-
cessfully against his own solicitor.
In 2006 the Court of Appeal™s decision in Rogers v. Merthyr Tyd¬l County
Borough Council regarding challenges by insurers to ATE premiums was clearly
aimed, like that in Hollins v. Russell, at reducing satellite litigation.387
New rules introduced as from 2 June 2003 created what has been called a
˜CFA Lite™ or ˜CFA Simple™ under which many of the troublesome consumer
protection rules introduced to safeguard the CFA client were swept away.388 Also
in June 2003 the DCA issued a consultation paper entitled Simplifying
Conditional Fee Agreements and a year later in June 2004 it published a further
consultation paper Making Simple CFAs a Reality in response to the earlier con-
sultation exercise. The 2004 paper proposed further simplifying the regulations
for CFAs. In its response to that consultation published in August 2005, the
Government said it had concluded that there was no need for any regulations.
The responsibility for policing the whole area should fall on the Law Society.389
In pursuit of this, the Law Society produced a shorter, model CFA.390
The new regime was implemented as from 1 November 2005. Under new
professional conduct requirements, solicitors came under a duty to make clear
to clients the terms of the agreement, in what circumstances, if any, the client

387
[2006] EWCA Civ 1134. The court upheld a claim for recovery of a premium of £4,860 on the
ATE policy in respect of an action with agreed damages of £3,105. For a discussion of the
implications see 156 New Law Journal, 29 September 2006, pp. 1471“2; and 27 October 2006,
p. 1639.
388
See the Conditional Fee Agreements (Miscellaneous Amendments) Regulations 2003, SI
2003/1240 and D. Marshall, ˜The New CFA Regulations™, 153 New Law Journal, 30 May 2003,
pp. 833 and 837.
389
The DCA™s paper New Regulation for Conditional Fee Agreements (August 2005, CP (R) 22/04)
stated: ˜We will rely on the primary legislation to provide the minimum Government
legislative framework for the use of CFAs by legal representatives and professional regulation
to provide the practical governance of the use of CFAs. This would very clearly focus primary
responsibility for all client care, contractual and guidance matters on solicitors and the Law
Society™s professional rules of conduct, supporting costs guidance and proposed new model
390
CFA. For web references see Law Society™s Gazette, 18 August 2005, p. 3.
640 Costs and the funding of legal proceedings


would be required to pay anything and his right to have any bill from his solic-
itor assessed. The solicitor must also explain any interest he has in recom-
mending an insurance policy or other funding.391
The critical question now was how breaches of the conduct code would be
regarded. What breaches would make a CFA unenforceable?392
Hopes that Hollins v. Russell and the new regulations had dealt with the
problem of satellite litigation arising from technical defects in CFAs were
dashed by the Court of Appeal™s 2006 decision of Garrett v. Halton Borough
Council and Myatt v. National Coal Board.393 The court held that if there had
been a material breach of the rules it was not necessary for the defendants who
challenged the CFA to show that the client had su¬ered any loss. The fact that
the claimant did not object did not prevent the defendant™s insurers from
objecting. Secondly, the question should be determined by reference to the cir-
cumstances existing at the time the CFA was entered into. Both parts of the deci-
sion gave unexpected support to the insurers. It was predicted that the costs war
would spark back into life.394
This will not happen however in cases under the new predictable (or ¬xed)
costs regime established for road tra¬c cases (p. 564 above). It has been held
that for such costs and the ¬xed success fee to be recoverable there is no need to
establish that the underlying CFA was valid.395


CFAs “ the balance sheet
The House of Commons Constitutional A¬airs Committee considered CFAs in
its 2006 report Compensation Culture.396 A paper prepared by the Advice Service
Alliance (March 2005)397 said that people who took out ATE insurance were
sometimes forced by the insurers to accept low settlements. Another issue was
that many people wrongly believed that ˜no win, no fee™ meant they would have
nothing to pay, whereas if they lost, even with ATE insurance, they might have
to pay the premium on the policy. There had been mis-selling of ATE policies
to people who already had BTE policies.
In its report No Win, No Fee, No Chance (December 2004) Citizens Advice
Bureaux too had highlighted concerns about CFAs: inappropriate high pressure
selling on behalf of claims management companies (e.g. salesmen approaching
injured persons in hospitals), loan ¬nanced insurance premiums and other
costs eroding the value of claimants™ compensation, perverse incentives for

391
For details see 155 New Law Journal, 16 September 2005, pp. 1347“8.
392
For consideration of this in the light of the case law see D. Chalk, ˜CFAs after 1 November “ a
Brave New World?™, 155 New Law Journal, 18 November 2005, p. 1744. See also Judge Michael
Cook, ˜That was the Costs Year that was™, 26 Civil Justice Quarterly, 2007, p. 134 at 138“42.
393
[2006] EWCA Civ 1017 discussed by J. Morgan QC in Law Society™s Gazette, 27 July 2006,
394
pp. 28“9. N. Rose, ˜Back into the Trenches™, Litigation Funding, August 2006, p. 4.
395
Nizami v. Butt [2006] EWHC 159, QB.
396
Third Report of Session 2005“6, HC 754-I, 1 March 2006, paras.12“18.
397
Claiming Compensation “ www.advicenow.org.uk/compensation.
641 Conditional fees and contingency fees


lawyers, for instance, in cherry-picking high value cases and declining to take
up small though valid claims. There had been and remained inadequate con-
sumer protection though the Compensation Act 2006 would belatedly regulate
claims management companies.
The Constitutional A¬airs Committee said it agreed with the conclusion
drawn by the Citizens™ Advice Bureaux that the introduction of CFAs, with a
class of unregulated intermediaries acting as claims managers, had adversely
a¬ected the reputation of legal service providers generally. The statistics showed
that the number of claims had not increased since the introduction of CFAs, but
the increased awareness of the public that it was possible to sue without per-
sonal ¬nancial risk, combined with media attention to apparently unmeritori-
ous claims, had contributed to a widely held opinion that we did indeed have a
compensation culture.


The courts and contingency arrangements
Despite the development of CFAs, the courts have so far refused to recognise
any other form of contingency arrangements. In Awwad v. Geraghty & Co398 the
defendant solicitors agreed to act for the claimant in libel proceedings on the
basis of normal full rate fees if he won but at a lower rate if he lost. The agree-
ment was made in 1993 “ after the Courts and Legal Services had authorised
CFAs but before 1995 when they ¬rst became operational. The case settled and
the solicitor sent a bill to the client at the lower rate. The client refused to pay
and initiated the procedure whereby the court vets the lawyer™s bill.
The judge at ¬rst instance held that the agreement was unlawful and unen-
forceable so that the ¬rm was not entitled to recover any costs. On appeal the ¬rm
argued that the common law did not make the fees irrecoverable or, if it did, they
were entitled to recover reasonable remuneration on a quantum meruit basis. The
Court of Appeal held that it was against public policy for a solicitor to act under a
contingency arrangement “ even one specifying a normal fee “ save if the agree-
ment was sanctioned by statute. The courts would not enforce such an agreement
and where public policy refused enforcement, there could be no quantum mer-
uit.399 The court conceded that there were many considerations that favoured such
arrangements. Such an agreement was of advantage to the client. It did not
increase the costs liability of the losing party. It did not involve any division of the
spoils as a contingency fee agreement did. There was therefore no extra incentive
for the lawyer to stir up litigation. The temptation for the lawyer to act improperly

398
[2000] 1 All ER 608.
399
The Ontario Court of Appeal took a contrary view in Tri Level Claims Consultants Ltd v.
Kolionitis (2006) 15 CPC (6th) 1241 in which, as noted above, it held that recovery of
contingency fees was permitted for lawyers but not for paralegals. The paralegals™ ¬rm had
spent thirteen hours pursuing the claim. The court said the contract for payment was neither
unconscionable nor unfair and that the ¬rm should be paid on a quantum meruit basis at the
rate of $100 an hour.
642 Costs and the funding of legal proceedings


was less than where there was a CFA or one where the lawyer got a success fee on
winning. There was nothing improper in a lawyer agreeing to act for his normal
fees but having in mind “ for reasons of friendship or in order to foster future work
“ not to exact the fee if the client lost. But Parliament had recently addressed itself
to the problem, ¬rst in the 1990 Act and more recently in the Access to Justice Act
1999. Lord Justice Schieman said: ˜I see no reason to suppose that Parliament
foresaw signi¬cant parallel judicial developments of the law™.400
The position at the time of writing was therefore fraught. The costs issues
arising from the introduction of conditional fees had so bedevilled the litigation
system as to cause massive and unprecedented disruption. Solicitors™ ¬rms that
went in for CFAs on a large scale were going unpaid while one test case after
another wound its way its way through the courts. Some were facing bankruptcy.
It was uncertain whether Hollins v. Russell would bring the costs war to an end.
Conditional fees, introduced in 1995 by the Lord Chancellor as his solution
to the ¬nancing of civil litigation, had produced a mass of unexpected problems
and recoverability of success fees and ATE insurance premiums, introduced in
1999, had thrown the system into chaos. The question increasingly being asked
was whether contingency fees might be a better option.401
For research on CFAs see:
S. Yarrow, The Price of Success “ Lawyers, Clients and Conditional Fees (1997).
Based on a sample of 200 CFA personal injury cases undertaken by 121 ¬rms all
of which were personal injury specialists. It was undertaken before many of the
cases had been completed.
S. Yarrow, Just Rewards? (University of Westminster, 2000). Based on a
sample of 197 cases supplied by a representative sample of ¬fty-eight solicitors™
¬rms specialising in personal injury work. The research consisted of interviews
with lawyers in sixteen of the ¬fty-eight ¬rms and details of just over half of the
197 cases (56 per cent) that were completed. Fieldwork ended in March 2000.
(The study found, inter alia, that the success fees written into the CFA ˜were
higher than would have re¬‚ected the actual, very low, risk of losing™.402)
P. Fenn, A. Gray and N. Rickman, The Impact of Conditional Fees on the
Selection, Handling and Outcomes of Personal Injury Cases (DCA Research Study
No. 6/2002). Based on cases closed mostly in 2000 and 2001. (The cases there-
fore were not subject to the recoverability of success fees and ATE insurance pre-
miums which only applied to cases that started after April 2000.)
P. Fenn, A. Gray, N. Rickman and Y. Mansur, The Funding of Personal Injury
Litigation: Comparisons over Time and Across Jurisdictions (DCA Research Study
No. 2/2006 “ www.dca.gov.uk “ Publications “ Research).

400
At 628. See, however, R (on the application of Factortame Ltd) v. Secretary of State for Transport,
Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381, [2002] 4 All
ER 97 where the Court of Appeal upheld a contingency fee for a ¬rm of accountants who
assisted the lawyers in litigation to be paid out of the damages.
401
For an upbeat assessment see G. Langdon-Dawn, ˜The Burning Question™, Litigation Funding,
402
June 2006, p. 4. At p. 7.
643 Conditional fees and contingency fees


According to the last of these studies, ˜regardless of referral route, conditional
fee agreements are now the predominant means of ¬nance for personal injury
claims™. For cases started after 2002, CFAs accounted for 93 per cent of accident
management company403 cases, 99 per cent of trade union cases, 91 per cent of
BTE insurance cases and 86 per cent of the ˜other™ cases in the study.


Should contingency fees be permitted?
The principal reason given for banning contingency fees has always been a
concern over ethical standards “ the fear that the claimant™s lawyer might stoop
to dirty tricks in order to make sure of winning and earning his fee. No win, no
fee. On the other hand, the greater the damages, the fatter the fee. The lawyer™s
direct ¬nancial interest in the outcome of the litigation might act not simply as
a spur to greater activity but a temptation from the path of righteous conduct.
This pass was sold however with the introduction of conditional fees. In a
CFA, the lawyer has a direct ¬nancial interest in the outcome. If the case is won,
the lawyer can charge a substantial success fee up to 100 per cent of his costs
which in many ordinary cases can be as much or more than the damages.404 (It
is also worth noting in this context that the new ¬xed fee for road tra¬c o¬ences
that settle without proceedings for under £10,000 (p. 564 above) has a sliding
scale for the fee, dependent on the level of damages.)
In a report to the Lord Chancellor in 1997 Sir Peter Middleton said:
There is no essential di¬erence in principle between conditional and contin-
gency fees. Indeed, in some ways the latter may be preferable. Contingency fees
create an incentive to achieve the best possible result for the client, not just a
simple win. And they reward a cost-e¬ective approach in a way that conditional
fees, where the lawyers™ remuneration is still based on an hourly bill, do not.
Opponents of contingency fees usually cite the experience of them in the United
States of America. However, considering the di¬erences between the two juris-
dictions “ notably the cost-shifting rule and the fact that juries here do not gen-
erally set damages “ we should re-assess whether those concerns may be
misplaced.405
Contingency fees create a problem of potential con¬‚ict of interest between the
lawyer and the client as the lawyer™s ¬nancial interests may or may not be the
same as those of the client. But the same is true of CFAs.
While CFA success fees remain recoverable from the losing litigant, claimants
are unlikely to prefer a contingency fee arrangement under which the lawyer
would take his fee out of the damages. Under the existing arrangements, the
claimant with a CFA can both have his cake and eat it. He gets his full damages
and his lawyer receives his costs and his success fee from the other side.
403
Such companies refer claimants to solicitors.
404
Lord Woolf ™s Interim Report showed that in a sample of cases in the Supreme Court Taxing
O¬ce the average costs allowed in cases worth £12,500 or less were £12,044.
405
Report to the Lord Chancellor, Review of Civil Justice and Legal Aid, 1997, para. 5.49.
644 Costs and the funding of legal proceedings


However, it is by no means obvious that this is the ideal solution. The recov-
erability of success fees not only spawned a monstrous wave of satellite litiga-
tion. It has also thrown a considerable burden of extra costs on defendants™
insurance companies “ costs that naturally are passed on to the general body of
premium payers. If success fees are a proper inducement to get lawyers to engage
in cases where there is a risk of getting no fee if one loses, it may be fairer that
the cost should be borne by the client as a deduction from his damages than by
the general public.
It would now be a considerable step to put the genie of ˜recoverability™ back
into the bottle. That step would be the more di¬cult politically if it was associ-
ated with permission for lawyers to enter into contingency fee arrangements,
but the question whether contingency fees should be permitted is now on the
legal-political agenda.406
The advantages of contingency fees over conditional fees include the follow-
ing:
• They are much simpler to explain to the client.
• Since contingency fees are calculated as a percentage of the recovery they are,
by de¬nition, proportionate to the damages. (Concern that the lawyer™s con-
tingency fees may in big cases nevertheless be unreasonably high can to some
extent be controlled by regulation requiring a sliding scale of percentages.)
• The client may bene¬t from the incentive for the lawyers to maximise the
damages.
• Unlike CFAs, contingency fees do not have a built-in incentive for lawyers to
pad their costs in order to earn higher success fees.
• Contingency fees would probably not generate the incredible volume of satel-
lite litigation that has been stirred up by conditional fees.
Contingency fees are compatible with the English ˜fee-shifting™ rule as is clear
from Canada where the loser pays the winner™s costs, as in England, and contin-
gency fees are permitted, as in the USA. Ontario was the last Canadian province
to accept contingency fees which it did in the recent case of McIntyre Estate v.
Ontario.407 The Ontario Court of Appeal in that case had to decide whether the
Ontario Champerty Act 1897 meant what it said: ˜All champertous agreements
are forbidden™. The court held that it did not. The reason that contingency fees
had been thought to be against public policy was that they were thought to be
open to abuse but, the court said, there was no evidence that lawyers who acted
on a contingency basis performed to a lower ethical standard than those who
were paid regardless of outcome. From a public policy point of view, the attitude
towards permitting the use of contingency fees had undergone enormous

406
In May 2004 the Better Regulation Task Force attached to the Cabinet O¬ce said that
contingency fees need not lead to an explosion in the ˜compensation™ culture if there were
safeguards such as costs shifting (i.e. a rule that the loser pays the costs of the winner) and a
maximum percentage that could be charged. (Better Routes to Redress, 2004, p. 30.)
407
[2002] OJ No. 3417, 10 September 2002 (Docket No. C36074).
645 Conditional fees and contingency fees


change over the previous century. All the other Canadian provinces had enacted
legislation to permit such arrangements and ˜overwhelmingly, those studying
these issues have recommended that for reasons of promoting access to justice,
contingency fee agreements should be permitted™ (para. 62). Whether a partic-
ular contingency fee was unlawful, the court said, turned on whether the lawyer
had an improper motive, which in turn depended, inter alia, on whether the
agreed fee structure was fair and reasonable. (In the particular case the court said
that could not be decided until the end of the case.)
In Raphael Partners v. Lam408 the Ontario Court of Appeal upheld as reason-
able and enforceable a contingency fee of 15 per cent of the ¬rst $1 million
recovered and 10 per cent of each additional $1 million plus any costs recovered.
(The total fee was $2.5 million plus the costs of $461,000.)
In Ontario therefore the move to legitimate contingency fees was initiated by
the courts re-interpreting public policy on maintenance and champerty.
If contingency fees were to be legitimated in England either by the courts or
by the legislature, the question would be whether the claimant™s lawyers should
have the contingency fee from damages and costs from the other side, as in
Raphael v. Lam, or simply the contingency fee from the damages, as in the
United States, or whether there should be some combination of contingency fee
and ordinary costs. If the successful litigant™s lawyers were entitled to recover
both full costs in the ordinary way and the full contingency fee, the contingency
fee would be somewhat like the CFA success fee but paid by the client out of the
damages rather than by the losing litigant. It would build up the lawyers™ ˜war
chest™ to meet the costs in cases that are litigated and lost or where after investi-
gation the case does not go forward “ and it would increase pro¬ts, making this
form of practice the more economically attractive to lawyers. But to allow the
lawyers to take both costs from the loser and the contingency fee out of the
damages could result in them getting remuneration that was unreasonably high.
These issues came under active consideration in Ontario in the aftermath of
the decision in September 2002 in McIntyre Estate (above). In October 2002,
only weeks after that decision, the Law Society of Upper Canada acted by
amending the Rules of Professional Conduct to allow contingency fee agree-
ments, save in family and criminal matters (Revised Rule 2.08(3)). The com-
mentary to the rule stated that in determining the appropriate percentage or
other basis of a contingent fee, ˜the lawyer and the client should consider a
number of factors, including the likelihood of success, the nature and complex-
ity of the claim, the expense and risk of pursuing it, the amount of the expected
recovery and who is to receive an award of costs™. It continued: ˜If the lawyer and
client agree that the costs award is to be paid to the lawyer, a smaller percentage
of the award than would otherwise be agreed upon for the contingent fee after
considering all relevant factors, will generally be appropriate™. It concluded:
˜The test is whether the fee in all of the circumstances is fair and reasonable™.

408
Ibid.
646 Costs and the funding of legal proceedings


A few weeks later, the Ontario legislature passed the Justice Statute Law
Amendment Act 2002. This amended the Solicitors Act by making it clear that
contingency fee arrangements, providing they are in writing, are permissible, save
in a criminal or family law matter (s. 28.1). The new provisions state that a court
should not reduce an order of costs solely because there is a contingency fee
agreement in existence (s. 20.1). This was to deal with cases where the fee payable
under the contingency arrangement would not adequately compensate the lawyer
for the work he had done, but the approval of the court is required for payment
of both the contingency fee and the whole or part of ordinary costs and under the
legislation such approval can only be given if there are exceptional circumstances
(s. 28.8). The minister is able to prescribe a maximum percentage for contingency
fees but the court may allow a fee above that limit where it is fair to do so. For the
regulations see Ontario Regulation 195/04. They provide, inter alia, that the con-
tingency fee payable by the claimant cannot exceed the amount of his damages.
Dissatisfaction in England, notably among the higher judiciary, with the
results of the recoverability regime introduced by Lord Irvine™s Access to Justice
Act 1999 make it conceivable that the Ontario legislation could become a model
for changes in the English system.
In 2005 a report issued by the Civil Justice Council came down against
American style contingency fees but recommended that ˜consideration should
be given to the introduction of contingency fees on a regulated basis along
similar lines to those permitted in Ontario by the Solicitors Act 2002 particu-
larly to assist access to justice in group actions and other complex cases where
no other method of funding is available™.409 More and more signi¬cant voices
are being heard as to the advantages of contingency fees.410


Contingency Legal Aid Fund (CLAF)
The idea of a Contingency Legal Aid Fund (CLAF) has been mooted for many
years as an adjunct to legal aid. The basic idea is simple. Create a fund from con-
tributions by successful litigants who agree to pay a stated percentage of their
damages into the Fund which is then used to pay the costs of unsuccessful
claimants. The concept avoids the main alleged danger of contingency fees of
lawyers being tempted into unethical conduct because of the ¬nancial impor-
tance of winning.

409
M. Napier, Costs Judge P. Hurst, R. Musgrove and J. Peysner, Improved Access to Justice “
Funding Options and Proportionate Costs (Civil Justice Council, August 2005) p. 39.
410
See J. Robins, ˜Support is Growing for a Controversial “Contingent Legal Aid Fund”™, 34
Independent Lawyer, January/February 2006, p. 18. Having referred to the CJC™s 2005 report
(above), Robins cited Lord Chief Justice Phillips who told the Commons Constitutional
A¬airs Committee ˜that the costs imposed by conditional fees represented a greater burden on
society than the £37 million their introduction saved from the legal aid budget™. Two years
earlier, Lord Phillips said it was time to consider contingency fees ˜particularly for group
actions that may involve issues of public interest but where litigants cannot get funding™. (Law
Society™s Gazette, 24 June 2004, p. 18.)
647 Conditional fees and contingency fees


The CLAF concept has been promoted in particular by JUSTICE,411 the Law
Society412 and the Bar,413 but it has not been implemented in the UK. One
reason (known as the problem of ˜adverse selection™) is the di¬culty of getting
su¬cient numbers of clients with promising actions to agree to give up a per-
centage of their damages to make the system economically viable by creating the
fund. The problem of adverse selection existed before CFAs. It is the greater now
that with a CFA backed by BTE or ATE insurance a claimant can sue knowing
that if he wins he will get his full damages and if he loses he is not liable to pay
anything. The only situation in which the CLAF would be attractive to the
claimant would be in the less promising case which no solicitor would take on
a CFA and/or no insurer would back with ATE cover. How could such cases gen-
erate su¬cient moneys in the Fund?
In the parliamentary debates leading to the Access to Justice Act 1999 the
CLAF concept was discussed.414 Though unpersuaded of the merits of a CLAF
alongside CFAs, the Lord Chancellor was eventually persuaded to introduce a
Government amendment to permit the establishment of a CLAF.415
In August 2005 the Civil Justice Council in its paper Improved Access to Justice
“ Funding Options and Proportionate Costs recommended that the Legal
Services Commission ˜should give further consideration™ to the idea. It referred
especially to the scheme that had operated successfully in Hong Kong since
1984.416 It did not explain, or even discuss, how the problem of ˜adverse selec-
tion™ could be addressed.
Lord Carter in his Review in July 2006 also referred to the idea with a new
twist, namely that the fund could be supported by CFA style success fees. He
recognised that because of adverse selection a contingent legal aid fund could
not be self-¬nancing in direct competition with CFAs. It might have scope
where CFAs were not available. Alternatively, a success fee or pro¬t-making
element might be added to the legal aid scheme “ perhaps through a levy on
damages or a levy from costs.417


F U RT H E R R EA D I N G

For discussion of ethical problems in England raised by conditional fees and/or contin-
gency fees see D. Luban, ˜Speculating on Justice: The Ethics and Jurisprudence of
Contingency Fees™ in S. Parker and C. Stamford (eds.), Legal Ethics and Legal Practice
411
CLAF Proposals for a Contingency Legal Aid Fund, 1978.
412
Most recently in the Law Society™s consultation paper The Future of Publicly Funded Legal
413
Services, February 2003, paras. 71“7. An Idea Whose Time Has Come, August 1997.
414
See especially House of Lords, Hansard, 21 January 1999, vol. 596, cols. 782“90.
415
House of Commons, Standing Committee E, 13 May 1999, cols. 376“80. See the Access to
Justice Act 1999, s. 28.
416

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