UK: Funding Of Litigation - UK

Last Updated: 11 January 2002
Article by Julie Smith

Court Of Appeal Tackles Issues In "No Win, No Fee" Litigation

The Court of Appeal in England, presided over by Lord Woolf, has recently issued a two-part judgment in Callery v Gray and Russell v Pal Pak, concerning success fees payable under conditional fee arrangements and the recovery of "after the event" insurance premiums. The rulings have been eagerly awaited by the legal profession and the insurance industry alike, as to date there has been no clear judicial guidance on these issues.

The success or failure of conditional fee arrangements will have significant impact on the future of product liability litigation in the UK. As legal aid funding for personal injury claims has all but dried up (except for "public interest" cases), these arrangements represent the primary means by which injured claimants (whether individually, or as part of a group action) might be able to bring their claims.

Both cases involved straightforward motor accident claims. The questions of law raised, however, are considered to be very important to the development of "no win, no fee" litigation in England generally. Given the potentially widespread consequences of the decisions in these cases, the Court agreed to consider submissions from a number of interested third parties, including the Law Society of England and Wales.

Unlike most of Europe, in England the unsuccessful party is responsible for the winner's costs. This has been a major stumbling block to the introduction of no win, no fee litigation in this country through the chosen mechanism of the conditional fee arrangement. Under this arrangement, the lawyer acting for the successful party can claim his usual fees and an uplift of up to 100%. While such an arrangement relieves the claimant of the burden of funding the litigation, it still leaves the claimant with the risk of having to pay the defendant's costs if the claim fails.

The solution to this problem has been for the claimant to take out insurance to cover the defendant's costs if the claim fails. The Government has made conditional fee arrangements even more attractive by allowing the claimant to recover from the defendant the costs of the insurance premium and the contingency fee "uplift", if the claimant makes a successful recovery either as a result of a settlement or judgment. Insurers have become increasingly concerned about the size of both the premiums for after the event insurance and the size of the uplift being agreed between claimants and their solicitors, particularly in fairly straightforward cases which could be expected to settle at an early stage. The refusal of the insurers to pay the premium and uplift on the grounds that they were unreasonable led to these tests cases being brought before the Court of Appeal.

While the Court of Appeal judgments provide some guidance, the decisions in Callery and Russell nevertheless fail to provide clear-cut answers in all respects, and scope for dispute remains.

The Court of Appeal considered, amongst other things:

  • the stage at which it was appropriate to enter into a conditional fee arrangement and take out after the event insurance. The Court decided "the sooner, the better" and that it was not necessary for solicitors to wait and see whether the insurer would dispute liability
  • the levels of percentage uplift and after the event premium that were to be considered reasonable. The Court held that this was a question to be answered on a case by case basis but did provide some limited guidance.

Success Fees

On the facts before it, the Court held that 20% is the maximum uplift that can reasonably be agreed when a conditional fee arrangement is entered into at the outset of a "straightforward" claim. The Court stressed, however, that this decision should be reviewed in future as more information on funding schemes becomes available. The Court also considered that it was open to a solicitor and his client to agree a "two-stage success fee". In such a case the uplift may be agreed at the outset to be up to 100% subject to a reduction to 5% should the claim settle before proceedings are formally commenced.

In practice the two-stage success fee may keep more cases out of the courts but it will likely result in matters being settled on a purely economic basis rather than on their merits. The Court unfortunately gave little guidance as to what would be a reasonable uplift in more complicated cases.

After the Event Premium Levels

The Court did suggest that, when considering whether a premium is reasonable, a judge should examine the relationship between the premium and the risk and take into account the cost of alternative available cover. It was, however, acknowledged that this would be a difficult task at present given the limited available data. The Court accepted that some premiums may have built-in costs, which could be challenged thereby reducing the amount of premium recoverable. An example of this might be where payment of a premium buys entitlement to collateral benefits such as practical help in the home or counselling; defendants could argue that the premium should not be recoverable to such an extent.

On the other hand, it would be reasonable, in principle, for factors such as administration costs, distribution commission and risk profit costs to be built into the premium. A suitable figure attributable to such factors was calculated in the Callery case at £350. In calculating this figure, the Court made it clear that it was not determining a universally suitable figure and that the £350 should not be treated as such.


The Association of Personal Injury Lawyers has welcomed these rulings as a step forward in access to justice for claimants. Certainly, in the short term, the Court's decision is expected to result in an increase in the number of cases that are funded in this manner, inevitably at a cost to defendants and their insurers. The good news for insurers is that the limited guidance given on acceptable levels of uplift should encourage claimants and their solicitors to be realistic in their demands.


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.

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