Legality of contingency fee agreements
It is a system commonly used within the USA encouraging a claimant to make a claim without the fear of being left with a huge legal bill if the case is not successful.
Under a contingency fee agreement a solicitor will take a percentage of the money awarded to the claimant as their fee.
This will often be more than their usual fee, which is seen as justifiable by the fact the solicitor has taken a risk since they would have received nothing had the case been lost.
The use of contingency fee agreements is restricted to a far greater extent in the UK than in the USA and in most cases only a particular type of contingency fee agreement will be available.
Conditional fee agreements
Generally, in the UK, only conditional fee agreements are allowed to be used as a type of contingency fee agreement.
A conditional fee agreement entitles a solicitor to receive an increased success fee if the client is successful, but this is not directly linked to the amount recovered by the claimant.
In other words, the solicitor will receive no payment if the case is lost, but a fee (or the higher, increased ‘success fee’) if the client is successful.
The fee is based on the solicitor’s hourly rate charges, with the success fee being an increase in the charging rates of the usual hours, rather than a fee related to the money received by the client.
Legality of contingency fee agreements in the UK
Other than the above exception, contingency fee agreements have not been legal in the UK within contentious proceedings, as they have been seen to provide money for solicitors at the expense of the client.
It was felt that a claimant with a good case should not be deprived of a large amount of their compensation because of the type of agreement they have entered into with their own solicitor.
‘Contentious proceedings’ in the context of contingency fee agreements have a wide definition: “business done, in or for the purpose of proceedings begun before a court”.
Therefore, in almost all cases any contingency fee agreement other than a conditional fee arrangement will not be allowed in the UK.
However, there have been recent calls to change the legislation as it is felt the current system is too far weighted in favour of the claimant who can sign up to a no-win no-fee agreement without the fear of a large bill for solicitors’ fees, whereas the defendant is placed in the position of having to potentially pay both sides’ costs including a success fee for the claimant’s solicitor, which could be as much as 100%.
Defendants, therefore, often reach a compromise agreement to avoid such large legal fees, even when they dispute liability; this is clearly a significant disadvantage of the use of conditional fee agreements.
There are likely to be increasing options for paying solicitors’ fees in the future and a client is recommended to review all options with a solicitor before proceeding.