Julian Holloway - It's now supposed to be easier for lawyers to handle disputes on a conditional-fee basis, but all sorts of obstacles have been put in their way. Is it too big a bet?
On 1 April last year, new rules came into effect widening the scope for construction disputes to be handled on a conditional-fee basis.

Tony Bingham describes a conditional fee agreement as "no duck, no dinner". My client, Big Time Construction plc, can ask me to enter into a CFA if it has a worthwhile delay and disruption claim against Rip Off Developments (Bermuda) Inc. If Big Time wins, it pays my fees at the "normal" charge-out rate plus a success fee that can be up to 100% of the charge-out rate. If it loses, it pays the disbursements only. Big Time may also be able to take out insurance against losing and having to pay Rip Off's costs.

Having spent a great deal of parliamentary time on the issue, together with extensive consultation, you would have thought that the government would have put in place a regime to encourage the use of CFAs. After all, the Lord Chancellor's department, in publicising the new rules, stated that they would "give effect to parliament's intention to increase access to justice through making it easier and more affordable to use conditional fee agreements and insurance policies". So are they more user-friendly?

Well, no, actually. But first the good news. The changes mean that the winner can recover the success fee from the loser. Another good thing is that if a party to a dispute insures itself against losing, this premium is also recoverable.

So Big Time has asked me to enter into a CFA. You might think that all I have to do is assess the risk and, if I get it right, recover my fee together with the success fee that Big Time then recovers from the losing party, together with the insurance premium. Simple isn't it?

No. Lawyers, forever cautious, not only find that they are taking the risk of losing the case and their fee, but also that all kinds of obstacles are put in their way before and after entering into an agreement. For example, the success fee has to be apportioned in at least two ways:

  • The percentage relating to the cost of not getting my fee upfront. This percentage is not recoverable. Presumably, it is thought that neither the client nor the solicitor need to worry about cash flow
  • The reasons for setting the success fee at, say, 75% of the standard fee. As we will see, this can be challenged.

I then have to get Big Time into the office and explain the following:

  • When it might be liable to pay costs
  • How it can seek assessment of the fees
  • Whether the risk of paying the other side's costs is insured under existing policies or whether other insurance may be available
  • The different ways of funding or insuring the costs and my recommendation on these.

Would I not be justifiably aggrieved if, after I won, the bookie went to the Tote to argue that the odds were too long?

The rules state that the matters in the first and last instances have to be given orally, whether or not explanations are also given in writing. Certain information has to be given both orally and in writing. Big Time is in fact a very experienced contractor and could easily pick up what I have to say if I put it all in writing. It goes without saying that all this spelling-out both orally and in writing does nothing to keep costs down. The icing on the cake is that if the CFA is amended in any way, the whole procedure has to be repeated.

That's just for starters. In addition, Big Time must give Rip Off and the court all kinds of information if it wants to be sure of recovering its costs. This must include the fact that it has:

  • Entered into a CFA that provides for a success fee
  • Taken out an insurance policy (relevant details of the policy must be given).

So, having complied with all of the above, gone to court and won, Big Time will get its damages, recover its insurance premium and I get my fee and the agreed success fee, all of which can be recovered from Rip Off – right?

Wrong. Rip Off can now challenge the level of the fee. If it is successful, Big Time may also be able to ensure that it only pays the reduced level of success fee, despite the fact that the CFA, laboriously negotiated with Big Time, provides for a higher percentage.

It's said that contract disputes are like gambling, so let me use a gambling analogy. Suppose I backed a horse at 50-1 and it romped home, would I not expect to get 50 times my stake? Would I not be justifiably aggrieved if, after the result, the bookie went to the Tote and argued that the odds were too long? Why, then, if I enter into an agreement with Big Time to receive a mark-up of 75% if the "horse" wins, can I not be guaranteed getting 75% when it flies past the post?