Lawyer Michael Clinch explains the Conditional Fee Agreement rules
Litigation can be expensive, particularly for small and medium- sized companies trying to recover losses against large corporations. And with an increasing amount of litigation stemming from troubled IT projects or web-based trade disputes, IT managers in SMEs need to be aware of the changed legal landscape.
The usual tactic is for the corporate to run an aggressive defence, bleeding the smaller claimant to death financially before the claim is too far off the ground. Where intellectual property rights have been infringed, the claimant may be entitled to a share of profits or sizable damages. It may also need to obtain an injunction to protect its product. However, if the firm cannot afford the court proceedings, it may find itself facing financial ruin.
For some years now lawyers have worked on a deferred remuneration basis for personal injuries claims. If a claimant cannot afford a lawyer outright, he can reach an arrangement whereby the lawyer receives payment from the proceeds of the claim. This "no win, no fee" agreement is called a Conditional Fee Arrangement.
In 1998, CFAs were extended to all types of civil legal disputes, except family law. Under the Access to Justice Act 1999, a solicitor can recover the success fee from a losing opponent. The client is also entitled to claim the cost of any insurance taken out to cover legal fees.
The Conditional Fee Agreement Regulations 2000 set out the requirements for a CFA to be enforceable. This is often the area in which claimants - and even lawyers - are caught out. Here are some of the main requirements:
For a claimant to recover a success fee from a defendant, the claimant's solicitor must serve notice on the opponent within the time limit that exists at the time the CFA is agreed.
Form and content
The form and content of an agreement are dictated by formal requirements. Failure to follow these correctly may mean the solicitor cannot recover the success fee from the client.
There are accepted bases on which the success fee can be calculated. The overriding requirement for the fees charged is fairness.
The standard form agreements for particular types of claims should be used.
A lawyer must explain specific information to a client, including:
- The client's potential liability for costs and disbursements
- The client's entitlement for costs to be assessed
- The client's potential liability for costs to the other side
- The availability of legal costs insurance
- The need to disclose the agreement to the court and to the other side.
The Law Society issues a checklist to solicitors of 13 points that need to be addressed between solicitor and client. These are designed to ensure the client is fully aware of the effect of a contingency agreement, so there are no problems in the future.
These developments mean that more claimants will get access to justice. In the right sort of cases, a lawyer will be prepared to defer payment of fees or work on a success fee basis. Obviously, not every case will be suitable. The lawyer will need to assess the merits of a claim to decide whether to take it on. Commercial claims that might be pursued on a contingency basis include:
- Negligence claims against accountants, lawyers, consultants or other professionals
- Copyright infringements
- Trade mark infringements
- Contractual disputes
- Property claims
- Trust and estate claims.
So although litigation is costly, there may be ways around the financial problem. If you are unsure, you should speak to a lawyer and find out how the options work. Usually, something can be done to ensure a worthy claim gets a fair hearing.
Michael Clinch is a partner at law firm Picton Powell
This was first published in May 2003