Law Reform
SIMPLIFYING CFAs
The Conditional Fee Agreement regime including the Conditional Fee Agreements, Collective Conditional Fee Agreements and Membership Organisation Regulations
This response is made by the London Solicitors Litigation Association (the LSLA). The LSLA has some 900 members, who are litigation specialists practising in London, mainly Central London. The membership covers both large and small litigation firms and spans the range of commercial litigation, as well as claimant and defendant personal injury and clinical negligence. Three members of the LSLA committee attended the Civil Justice Council's Forum in July 2003 to discuss this consultation paper.
Reflecting the position that was reached at the July 2003 Forum, the LSLA accepts that a consensus was reached that the CFA Regulations could be simplified to certain minimum requirements and that the more detailed regulation of conduct could be left to professional rules. That was the majority view at the Forum. Those attending the forum who did not fully endorse this approach pointed out that the need for more effective regulation and the apparent difficulty experienced by The Law Society in providing that by enforceable and enforced professional rules.
In view of this broad consensus, we do not propose to address the individual detailed questions within the consultation paper, which largely fall away. The purpose of this response is to address the bigger picture. We do this because we believe that these issues should be addressed sooner rather than later.
Need to simplify
It is common ground that the CFA regulations and requirements are too complex, both for solicitors and for clients. Indeed the costs system as a whole and the requirements of Solicitors Practice Rule 15 provide the client with a confusing mass of information, which they are unlikely to understand unless they are a repeat purchaser of legal services, which most clients using CFAs are probably not.
There is a clear need to simplify the requirements. Continuing arguments about the technical detail of a Conditional Fee Agreement before the Courts are in no-one's interests and risk bringing the profession into disrepute.
As the Court of Appeal also recognised in the "technical challenge" cases, as long as the paying party is obliged to pay only amounts for which the receiving party client is liable (the indemnity principle), there is a need for transparency between the parties. There is always a need for transparency between solicitor and client.
Policing the system
Relying on the indemnity principle, the Government sought to leave policing of the CFA system largely to paying parties, assuming that market forces would bring certainty to the level of success fees and premiums. In terms of personal injury litigation, where the majority of CFAs have so far been written, this has not been the case.
There remain a number of conceptual difficulties which hamper effective use of the system. Commercial litigators are now waking up to these conceptual problems, problems which PI litigators have grappled with for some 3½ years. Two recent articles (attached to this paper) represent the growing unease of commercial litigators over certain aspects of the CFA system. By way of example;
· It remains the fact that a defendant with a good defence will face higher success fees if he loses than a defendant who unreasonably maintains a poor defence
· The apparent acceptance of the Court of Appeal that a firm doing a few CFA cases may be entitled to set a higher success fee for the same case than a specialist firm conducting a higher volume (and probably doing the job more competently).
· The difficulty in assessing risk on a case by case basis as against the overall risk profile of a particular category of work.
· The difficulty for a paying defendant to assess the appropriate potential exposure in the absence of information as to the level of success fee, as against the understandable need to protect the claimant's interest by not disclosing such information.
This latter point could be addressed by ordering the party to disclose the level of success fee during a budgeting process (see below). Whilst the LSLA broadly supports the budgeting concept, the disclosure of a recoverable success fee level in our view gives too much information to the opponent about the strength of the case against him and tilts the balance of fairness. This only demonstrates that the real difficulty is in the concept of recoverability.
Budgeting
Some of the problems could be addressed by wider adoption by the courts of budgeting, along the lines set out by Mr Justice Gage earlier this year in the organ retention litigation. The LSLA supports the concept that in appropriate cases the court should set budgets for the parties’ legal costs. The court might in this way be able to exercise some control over success fees although it is not clear how such information could be disclosed to the court and included in a budget without giving away vital information to the opponent.
Should there be change?
There is a school of thought, actually expressed at The Law Society Conference last week by a sole practitioner, that following the Court of Appeal cases things have broadly settled down and that to make limited changes to the regulations will only create a fresh round of uncertainty and challenges. At the opposite end of the spectrum some of the LSLA's members advocate a radical reform of the system. Two options being canvassed are:-
1. Removing the recoverability of success fee and ATE premium. This would leave the issue of success fee and premium very much between the solicitor and the client, subject to market forces and the appropriate professional rules to govern that relationship. Many of the speakers at the CFA forum in July 2003 reflected on the difficulties caused by recoverability, as did the Master of the Rolls in his interview in Litigation Funding in August 2003.
2. More radical still, a move now to pure contingency fees. Again this is something that the Master of the Rolls and other senior members of the judiciary see as likely to happen in the future. As this term can mean different things to different people, we intend by contingency fees to refer to the US style model of the solicitors' remuneration being tied to percentage of damages recovered. This in turn would inevitably require some modification of the rules on costs transfer, either for abolition or a form of limited fee shift of a set percentage uplift on damages. We would comment in passing that this is not so different from the fixed costs scheme being introduced for RTA pre-litigation settlements on 6 October 2003.
(It is fair to say that not all LSLA members agree with the idea of introducing contingency fees and some are actively opposed.)
We should stress that both these options are put forward for consideration in recognition that any system for costs should ensure the principles of access to justice espoused by Lord Woolf. Further, claimants should not be out of pocket and that any such restriction of recoverable costs would need to be reflected in some other set and controllable recovery, such as an addition to damages. Those advocating such moves on the defence side are looking for clarity and fairness rather than reducing the claimant's damages or the solicitor's income below reasonable levels. Any costs system must be fair to both sides and guarantee access to justice: it should not simply shift an administrative or financial burden back onto claimants. However there is a sense of considerable frustration at the present system on both sides and we would urge the Department to consider much more radical solutions now, rather than the very limited scope of the proposed changes.
Consultation
If radical solutions are to be considered, there is an obvious need to ensure that any new system has the broad support of all stakeholders. There would need to be extensive consultation and probably wide ranging research to select the right alternative and to learn the lessons of CFAs. That consultation should include bodies representing claimants, defendants, insurers, funders, solicitors and the Courts. The Woolf reforms started out with the laudable aims of saving expense and allocating Court resources appropriately – the focus needs to turn away from the legal costs and towards the true subject matter of the dispute between claimant and defendant.
Andrew Parker, Beachcroft Wansbroughs
Contact: aparker@bwlaw.co.uk Tel no: 020 7894 6232
David Greene, Edwin Coe
Contact: david.greene@edwincoe.com Tel no: 020 7691 4020
London Solicitors Litigation Association
October 2003
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