Personal Injury: A Partial Solution

Almost ten years since conditional fee agreements (CFAs) were introduced for personal injury work, Nigel Godsmark QC reviews their development and costs consequences

The Conditional Fee Agreements Order 1995, which came into force on 5 July, 1995, permitted personal injury lawyers to enter into a so-called ‘no win, no fee’ arrangement with their clients. Under the Order, the maximum success fee chargeable to the client was 100% of the basic fee. There was no provision to recover the success fee (or any insurance premium) from the other side, which meant that the client paid the success fee out of any damages awarded. In addition, the lawyers’ success fee was capped at 25% of the damages recovered.

Lawyers now had to grapple with identifying the percentage success fee to be charged by reference to the strength of the claim. The techniques employed for this were not uniform. Some lawyers used the socalled ‘ready reckoner’ developed by specialist associations such as the Association of Personal Injury Lawyers and Personal Injury Bar Association.

Others were less scientific and used an assessment technique apparently based on the state of the weather; some applied a 100% success fee to all but the most straightforward claims. The Bar felt particularly vulnerable. By definition, they tended not to see the straightforward bread and butter claims that settled quickly. It was only when there was a serious prospect of the claim going to court that the Bar was involved, which meant that the Bar’s exposure was predominantly on higher risk cases.

Initially, this was all of limited interest to defendants (or, more accurately, their insurers) because neither the success fee element of costs nor any after the event (ATE) insurance premium was recoverable as part of a costs award.

However, all that changed in April 2000 when legislation came into force to extend the class of proceedings for which conditional fee agreements (CFAs) were available. In addition, the changes laid down new and detailed requirements for CFAs themselves.

Most significantly, CFA success fees and insurance premiums became recoverable as part of any costs order. The attitude of defendant insurers altered. A somewhat keener interest was paid to the percentage of the success uplift claimed. They also focused on the compliance of the CFA with legislative requirements. Both the percentage uplift and the terms of the CFA were challengeable and reviewable on detailed assessment of costs

Costs issues began to be litigated as fiercely as the litigation that had spawned them. The Court of Appeal tried to limit the scope of the success fee recoverable in certain types of cases. Callery v Gray [2002] made reference to a 20% uplift for straightforward road traffic cases, unless there was reason to think that the claim "might not prove to be sound", in which case the uplift could be higher. The possibility of two-stage uplifts was raised — e.g. a success fee of 100%, reducing to 5% if the case settled during the protocol period. In Halloran v Delaney [2003], the Court of Appeal said that in costs-only proceedings, the appropriate uplift was 5%.

In addition, there was the prospect of a defendant attacking the validity of a CFA for non-compliance with the Conditional Fee Agreements Regulations 2000, thereby escaping any costs liability to a successful claimant.

The spectre of satellite litigation was looming on a scale not seen since the days of automatic striking out under Order 17 rule 11 of the old County Court Rules. A partial solution to the problem is now emerging with the introduction of fixed success fees in certain types of litigation. The details are set out in CPR part 45, and at the moment the new fixed uplift provisions apply only to road traffic and employers’ liability cases. In broad outline, the provisions can be summarised as follows:

Road traffic cases (RTA)

There is a fixed success fee of 12.5% in RTA costs-only proceedings where the claimant has entered a CFA.

For RTA cases subject to a CFA (not costs-only), the solicitor’s success fee is:

- 100% where the claim concludes at trial, i.e. after a trial has commenced); or

- 12.5% where the claim concludes before commencement of trial (or issue of proceedings).

For counsel, the success fee is:

- 100% where the claim concludes after a trial has commenced;

- 75% if the claim concludes 21 days or less before the date fixed for trial in a multi-track case;

- 50% if the claim concludes 14 days or less before the date fixed for trial in a fast-track case; or

- 12.5% otherwise. The RTA fixed fees do not apply to small claims or to accidents that occurred before 6 October, 2003.

There is provision to apply to vary the 12.5% uplift in high-value cases (£500,000 plus), but only to more than 20% or less than 7.5% (see CPR 45.18 & 45.19).

Employers’ liability cases

For employers’ liability (EL) cases subject to a CFA, the rates are the same as in RTA cases, except that the uplift is 12.5% rather than 25% (or 27.5% for solicitors if a membership organisation has undertaken to meet the claimant’s liability to costs).

EL fixed fees do not apply to small claim cases, injuries sustained before 1 October, 2004, or where the dispute relates to a disease or arises out of an RTA. Again, there is provision to vary the 25% (or 27.5%) uplift in £500,000 plus cases, but only to more than 40% or less than 15%.

There should be an end to arguments about the level of success fees appropriate to the cases that fall into the net described above, and as time passes, the vast majority of these claims will be caught by CPR 45.

With RTA and EL claims making up a substantial part of the personal injury claims picture, it seems that the majority of personal injury claims will become subject to these success rates. This will dampen at least part of the satellite litigation that has been developing. Disputes about the validity of a CFA will not be affected by the fixed rates and might still rumble on.

The uplift rates were fixed after consultation and agreement between those representing both claimants and defendants. The 100% success fee for a case going to trial acknowledges the fact that by that stage each party is likely to believe that it will win, meaning that the risk of losing is high. For the Bar, the addition of 50% and 75% uplifts to late settlement goes a considerable way towards addressing the different risk profile that counsel has in taking CFA cases.

The provisions are likely to make two- or three-stage uplifts within CFAs the norm. They were encouraged in Callery v Gray and are now here to stay. This is likely to lead to the abandonment of the ready reckoner that has been used to identify the appropriate uplift for cases with particular prospects for success. The trend will now be towards the sort of staged uplifts set out above (25%, 50%, 75% and 100%).

The likelihood must be that the net will be widened to embrace further categories of personal injury (and other) litigation: if it works for RTA and EL, why not extend it? With the principle of a 100% uplift for a case that reaches trial established, the implication is that in crude terms a CFA lawyer needs to win half of all contested cases in order to break even on trials, even though some trials are costlier than others. Given the number of cases that settle at a lower uplift, any CFA lawyer who wins half their cases at trial should be at least as well off as before the advent of CFAs.

Will the regime work for all civil claims? There will be problems with those cases that have high initial investigative costs, where much money is spent before it is known whether or not there is a potential claim at all. The obvious example in the realm of personal injury is clinical negligence. However, these considerations are such as to make high investigative cost cases unsuitable for CFA funding at all rather than unsuitable for fixed success fees.

Fixed success fees for CFAs in personal injury litigation offer a remedy to a number of the problems outlined above and have much to offer those acting for both claimants and defendants. They should be embraced.

Nigel Godsmark QC is a barrister at Seven Bedford Row.

source: Legal Week (Last Updated: Thursday 3 Feb, 2005)

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