The Strength of a Staged Success Fee in a CFA

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...