UK: The Strength of a Staged Success Fee in a CFA

Last Updated: 6 September 2010
Article by Beth Lovell

The recent decision in Peacock v MGN Ltd [2010] EWHC 90174 (Costs) has highlighted the strength of a staged success fee in a CFA.

Background

Historically, all forms of contingency fees in litigation (whereby payment of the solicitor depended on the results) were considered to be unlawful. It was felt that they could lead to a conflict of interest between the solicitor and his client. In 1990 CFAs (Conditional Fee Agreements) were introduced which allow for the amount of any fees to be increased, in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement. All other forms of contingency fee agreements are unlawful.

CFAs are often referred to as "no win, no fee" agreements. Essentially the solicitor agrees to forego payment of his fees until the court decides the matter. In the event you win he is entitled to his fees at his normal rates together with a success fee being a percentage of his normal rates, subject to a maximum 100%. Significantly, not only the normal rates but also the success fee are recoverable from the other side in the event you win in the proceedings. In the event you lose the solicitor will not recover any fees from you. You will only be liable to pay disbursements, which will include Counsel's fees (although rarely some Counsel will also proceed on CFAs).

A success fee must be expressed as a percentage uplift on the amount which would be payable if there was no CFA. The percentage uplift of the success fee must be reasonable. The reasonable success fee should in general be calculated so that it does not exceed the amount of the fees at risk ie. the conditional fees. On a detailed assessment of costs the Court will consider the reasonableness of the success fee. If the Court finds the level of the success fee to be unreasonable it will reduce it accordingly.

The legal representatives acting for the client with whom the CFA is to be concluded will calculate the level of the success fee. There are two elements which go into the calculation of a success fee:

  • The risk of losing the litigation (the risk element).
  • The cost of funding the litigation (the postponement element).

The legal representative will need to calculate separate percentages for these elements which, together, must not exceed 100% of the amount which would normally be payable if there was no CFA.

Discounted CFAs are becoming increasingly common. This is where the solicitor will be paid a discounted rate for his fees during the progress of the matter. In the event you win the claim the solicitor will be able to recover his fees at his normal rates together with the success fee, applied to his normal rates. If you lose the solicitor simply retains the discounted fees he has been paid during the conduct of the litigation. The court will usually take into account the fact that a reduced level of fees would have been recoverable even if the case had been lost when considering the reasonableness of the success fee.

A success fee is seen as the just reward for the solicitor taking the risk of either not being paid at all; or being paid significantly less than their usual going rates (depending on the terms of the CFA) if the client should lose the case.

The Peacock decision

The recent decision in Peacock v MGN Ltd [2010] EWHC 90174 (Costs) on a detailed assessment of costs reconsidered the issue of staged success fees.

In Callery v Gray (2001) EWCA CIV 1117 Woolf CJ explained the logic behind a staged success fee:

"The logic behind a two-stage success fee is that, in calculating the success fee, it can properly be assumed that if, notwithstanding the compliance with the protocol, the other party is not prepared to settle, or is not prepared to settle upon reasonable terms, there is a serious defence [emphasis added]. By the end of the protocol period, both parties should have decided upon their positions ..."

In Peacock the success fee was staged so that it was:

  • 100% it the claim proceeded to 28 days after service of the defence and beyond.
  • 50% if the case settled after proceedings were issued, but before 28 days after the defence is served.
  • 25% if the case settled before proceedings were issued.

Proceedings were issued on 2 September 2008, the defence was served on 24 October 2008 and a settlement was reached and embodied in an order dated 30 November 2009. The order included a provision that the defendant would pay the claimant's costs on the standard basis, to be assessed, if not agreed.

MGN disputed the reasonableness of the 100% success fee. In advancing an offer of 43% success fee, the thrust of MGN's argument was that where the success fee is staged, it is unreasonable for this to be fixed at 100% at an early stage in the proceedings, such as 28 days after service of the defence. MGN further advanced the proposition that the risk assessment undertaken by Carter Ruck (solicitors acting for Peacock) is not "bespoke" but is akin to block-rating, because if the firm decides to accept a case funded by a CFA, a "one-size-fits-all" success fee of 100% is invariably agreed at the final stage.

MGN did not contend that the "discount" from 25% to 100% "ran out too soon". This was wise given that the case of KU v Liverpool City Council (2005) EWCA Civ 475 plainly contemplated the second stage of a two stage success fee taking effect on service of the Defence.

Master Campbell held that the decision to enter into the staged success fees was reasonable. Once the claim had got to the stage where it was apparent that the defendant believed it had a "serious defence" then it was reasonable for the level of success fee to rise in accordance with the other side's view of the merits and the defendant's apparent belief that the claim would fail.

He derived the following propositions in relation to the arguments in the case:

  • A party who contends for a high success fee in a matter that has gone a long distance towards trial (the situation here) stands a better prospect of having that fee approved if a lower success fee would have been payable had the claim settled earlier (precisely what could have but did not happen here). A party who enters into a CFA with an unstaged success fee which is payable at that level irrespective of whether the case settles quickly or slowly, will find it more difficult to justify the fee. For that reason, the "high" success fee, having been staged so that it would have been less if the case had settled "quickly", is justified;
  • It is open to the Claimant to choose the date of staging. Since in Ku the Court of Appeal contemplated a low success fee, "perhaps until the service of the defence" and to have the benefit of a high success fee in the cases that did not settle early, Master Campbell considered there was nothing unreasonable in the Claimant choosing 28 days following service of the Defence as the date on which the 100% success fee would come into effect; this gave MGN an extra four weeks above and beyond the period mentioned by Brooke LJ in Ku before it would assume any potential liability for a 100% success fee.
  • If a defendant denies liability and serves a Defence the Court can infer that the defendant must believe that it has a realistic chance of the defence succeeding at trial. Having not settled the matter in the protocol period and having thereafter served a Defence giving the particulars of justification in the manner that it did, it is reasonable to suppose that MGN believed it had a "serious defence" in the nature contemplated by Lord Woolf in Callery v Gray.
  • A court should be cautious about a suggestion that a claimant firm has not undertaken bespoke risk assessments when fixing success fees but rather, has used a "one size fits all" staged success fee. Such arguments will be put to strict proof and require cogent evidence.

Upon entering into a CFA notice must be given to the other parties to the dispute as soon as possible and in any event within 7 days of entering into it or, where a claimant enters into a CFA before sending a letter before claim, in the letter before claim. The only information that must be provided to the court and the other parties is the date of the CFA and the claims to which it relates. The party with the benefit of the CFA does not need to reveal the terms of it or the applicable success fee.

Lord Justice Jackson's review of civil litigation costs published in January 2010 included the proposal that success fees should cease to be recoverable. For further information on Lord Justice Jackson's report see Karen Jacobs blog on 14 January Lord Justice Jackson's report on costs in civil litigation. However, for the time being at least the current CFA regime remains.

Comment

Beth Lovell, solicitor at Matthew Arnold & Baldwin, comments "the Peacock case is a further example of the Court's willingness to penalise in costs a losing party who has passed up the opportunity to settle the claim at an early stage in the proceedings. Entering into a CFA early on and giving notice to the other side, as required by the rules, can be a real tactical weapon in settling claims early in the proceedings. A foolish defendant that carries on regardless runs the risk of paying significant sums in costs with hefty success fees on top".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.