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Success Fees: Are You at Risk?

Whilst you want to maximise the percentage uplift that you can recover, it is essential to minimise the risks of losing your success fee altogether!

Since the introduction of the Jackson Report 1, success fees have come under increasing scrutiny from various different fronts with debates reigning in both legal and political forums cumulating in a high degree of media interest. Amongst the extensive recommendations contained within Lord Justice Jackson's Report are major reforms to Conditional Fee Agreements and the recoverability of success fees. The review of Civil Litigation costs and ensuing political debate has cumulated in the Legal Aid, Sentencing and Punishment of Offenders Bill which recently 2 passed its second reading in the House of Commons 3. The Bill will now be considered and scrutinised by a Public Bill Committee and there is currently a call for written evidence 4. If the Bill is enacted, it will likely result in, inter alia, a massive overhaul to the funding of Civil Litigation as we know it.

There has been a great deal of support 5 for the Jackson Report's recommendations and it is clear that a number in the Judiciary appear keen for some form of implementation, which can be adduced from Judgments of recent cases such as Sousa v. London Borough of Waltham Forest Council [2011] 6. With success fees becoming progressively criticised and the provisions within the Legal Aid, Sentencing and Punishment of Offenders Bill hot topic, it is increasingly important to ensure that you comply with the regulatory requirements to allow for maximal recovery of your success fee.

Conditional Fee Agreements, particularly for the impecunious, provide Clients with a method of funding which allows them access to Justice but with an arguably limited personal liability for costs 7. With the possibility of not being paid in the event of failure, the Client's Solicitor is undoubtedly taking on board a risk. However, this risk is somewhat compensated for by the ability to apply a success fee which is recoverable from the Paying Party at the conclusion of the case. Thus, it is necessary to carefully consider the claim at the outset to weigh up the relevant factors prior to incurring the risk. Consequently, following the conclusion of a lengthy contentious action with all its inherent risks 8, it can be particularly disheartening for the Receiving Party to be faced with the prospect of losing their additional liabilities due to a potential oversight in failing to follow the Rules9.

Consideration must be given to Rule 44.3B of the Civil Procedure Rules which provides various sanctions which can prevent a Receiving Party recovering their additional liabilities. Of particular concern to the recoverability of the success fee are 44.3B(1)(c) and (d) 10, which state:-



(1) Unless the Court orders otherwise, a party may not recover as an additional liability -









(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;




(d) any percentage increase where that party has failed to comply with -





i. a requirement in the Cost Practice Direction; or





ii. a Court Order,




to disclose in any assessment proceedings the reasons for setting the percentage increase at the level stated in the conditional fee agreement;








Whilst these sanctions might seem somewhat harsh, from the Receiving Party's point of view, had they known the extent of their liabilities whilst the substantive claim was ongoing, they might have changed their position by settling sooner or even by fighting on.

If you want to avoid arguments that the above sanctions ought to be imposed, it is essential that you give your opponent notice of your funding position in accordance with the Rules at the various stages before, during and after issue of proceedings.

Steps Required Prior to Issuing Proceedings

The Rules in relation to notification of the funding position changed with the introduction of the Practice Direction for Pre Action Conduct 11. The requirements under the Practice Direction for Pre Action Conduct only apply to funding arrangements entered into from 1st October 2009 12.

For funding arrangements entered into before the 1st October 2009, there is no requirement to inform your opponent of the details of your Client's funding until issue of the Claim Form 13. However, if your funding arrangement changed after the 1st October 2009, for instance, you obtained After the Event Insurance, notification would need to be provided in accordance with the current rules.

For funding arrangements entered into from the 1st October 2009, it is necessary to provide your opponent with notice of your funding arrangement as soon as possible and in any event within 7 days of entering the funding arrangement. It is important to note that where the funding arrangement has been entered prior to the letter of claim, notice should be provided within the letter of claim 14. If you change your funding arrangement, it is prudent to provide notice within 7 days of the change.

What information must be provided? Section 19.4 of the Cost Practice Direction details the information which must be provided to your opponent. In relation to success fees, you must inform your opponent of the fact that you have entered into a CFA which provides for a success fee (or CCFA if applicable) and state the date of the agreement identifying the claim to which it related (if it is a CCFA, you must also provide information regarding the relevant body and set out the date and terms of the undertaking) 15 . You do not need to inform your opponent of the level of the success fee agreed with the Client.

Steps Required Post Issue of Proceedings

Where a funding arrangement has been entered prior to the issue of proceedings, it is necessary to file a Notice of Funding 16 with the Court on issue of the Claim Form. The Notice of Funding should be served on every other party with the Claim Form 17.

If you are the Defendant and have entered into a funding arrangement before filing any document, then Notice must be provided to the Court with the first document filed, e.g. Acknowledgement of Service 18. Notice should also be served on every other party.

If you enter into a funding arrangement after the issue of the Claim Form, then you must file and service a Notice of Funding within 7 days of entering the arrangement 19.

In accordance with Rule 44.15(2) of the CPR, if there is any change to the funding arrangement, then notice of the change must be filed and served on all parties within 7 days 20. It is important to remember that where an Allocation Questionnaire and/or Listing Questionnaire have been filed, a new estimate of costs must be filed with the notice of the change of funding 21.

Steps Required following Conclusion of Substantive Claim

The sanctions under Rule 44.3B(d) tend to kick in where you are at the stage of serving your Bill of Costs and only concerns recovery of the success fee. Try not to get caught out; the Rules concerning Service of the Bill and disclosure of documents such as the Conditional Fee Agreement, changed from 6th April 2010.

Where the Conditional Fee Agreement (or CCFA) was entered into before 1st November 2005, a statement of reasons for the percentage increase should be given on Service of the Bill (regardless of whether or not the success fee is fixed under Part 45, Sections II to V of the CPR) 22.

Where the Conditional Fee Agreement was entered into on or after 1st November 2005 and the success fee is not fixed under Part 45, Sections II to V of the CPR, a Statement of Reasons for the percentage increase or a copy of the risk assessment prepared at the time the Agreement was entered into should be provided on Service of the Bill of Costs23.

Watch out for the Paying Party attempting argue that Rule 44.3B(c) should also apply at this stage. Section 32.5(1)(d) provides that where the Conditional Fee Agreement is not disclosed, a statement providing the relevant information (as set out within the aforementioned Section) should be served with the Bill of Costs. Were this argument to succeed, the sanction should only apply to the costs incurred from service of the Bill up to the time the information was provided, therefore only likely to affect any success fee claimed on your Assessment costs.

All May Not Be Lost!

If you have failed to provide notice of your success fees as required under any Rule, Practice Direction or Court Order – don't Panic! You may still be able to recover your additional liabilities by making an Application for Relief from Sanctions 24.

Applications for Relief from Sanctions under Rule 44.3B should be made as quickly as possible after being made aware of the default and Counsel must be served with a copy of the Application if their success fee could be affected by the outcome 25. When hearing an Application for Relief from Sanctions, the Court will consider all the circumstances set out in Rule 3.9(1) and the evidence filed 26.

Whether an Application for Relief from Sanctions will be successful depends on the circumstances of the case. The following cases are useful to consider when contemplating an Application under Rule 3.9 as they illustrate the Court's inherent discretion and possible outcomes:

1 Published 14th January 2010 following a year long review of the cost of civil litigation

2 On 29th June 2011

3 With a vote of 295 to the Ayes and 212 to the Noes

4 The Committee will stop receiving written evidence at the end of the Committee stage on 13th October 2011. See http://www.parliament.uk/business/news/2011/june/second-reading-of-legal-aid-sentencing-and-punishment-of-offenders-bill/ for more information.

5 Although it shouldn't be forgotten that there is also quite a backlash to the recommendations, see for example AJAG (Access to Justice Action Group)

6 EWCA Civ 194; where Lord Justice Ward stated in the Judgment at Paragraph 39: “Let Lord Justice Jackson's reforms be enacted sooner rather than later.”

7 Especially where After the Event Insurance has been taken out

8 See Lord Woolf's remarks in Callery v. Gray (No.1) [2001] EWCA Civ. 1117 at para 103 where he stated: “We do not consider that it can ever be said that a case is without risk”. Also see the case of Haines v. Sarner [2005] EWHC 90009 (Costs)

9 Specifically, the Civil Procedure Rules

10 Whilst this article does not deal with the recoverability of After the Event Insurance, heed should certainly be taken to 44.3B(1)(e) in respect of any insurance premium

11 The requirements for funding arrangements entered into prior to 3rd July 2000 are not covered within this article – for more information on these see Sections 19.1(3) and 57.9 of the Cost Practice Direction

12 See Section 19.6 of the Cost Practice Direction. For definition of applicable 'funding arrangements' see Rule 43.2(1)(k) of the CPR

13 e..g see the Judgment of Costs Judge, Master Campbell in Metcalfe v. Clipston [2004] EWHC 9005 (Costs)

14 See Paragraph 9.3 of the Practice Direction – Pre Action Conduct

15 Just don't forget about providing information about insurance premiums!!!

16 The notice should contain the information set out in Form N251

17 See Section 19.2(2) of the Cost Practice Direction

18 See Section 19.2(3) of the Cost Practice Direction

19 See Section 19.2(4) of the Cost Practice Direction

20 See Section 19.3(2) of the Cost Practice Direction for the exception to the rule

21 Rule 44.15(3)

22 For further information see Section 32.5(1)(b) of the Cost Practice Direction, Regulation 3(1)(a) of the Conditional Fee Agreements Regulations 2000 and Regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000

23 See Section 32.5(1)(c) of the Cost Practice Direction

24 In accordance with Rule 3.9 of the CPR

25 See Section 10 of the Costs Practice Direction

26 See the Judgment of Master O'Hare in Robinson-Tait & anor v. Cataldo & anor [2010] EWHC 90166 (Costs)

27 See the Judgment of the Honourable Mr Justice Floyd at para 39

28 Which, it should be noted, was in the sum of £80,325.00!

29 It was held that, without more, the term “additional liabilities” could not be used as conclusive evidence of referring to both the success fee and ATE premium