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Conditional Fee Agreement - Assessing Risk


Assessing the risks involved in litigation is a key element of a Conditional Fee Agreement. It is crucial to determine the likelihood of success in any particular case having regard to the client’s objectives. It is on this basis that the level of ‘succes

Assessing the risks involved in litigation is a key element of a Conditional Fee Agreement. It is crucial to determine the likelihood of success in any particular case having regard to the client's objectives. It is on this basis that the level of ‘success fee' is calculated. Success fees should therefore be treated subjectively and will vary on each case.  

It is worth pointing out, from a costs point of view, that when considering the level of success fee claimed upon conclusion of a matter, the Court will only have regard to the circumstances as they reasonably appeared to the solicitor at the time the CFA was entered (more often than not the outset of the case) U -v- Liverpool City Council (2005) EWCA Civ 475.

The Principles of Risk Assessment

  1. The Facts
  2. The Law
  3. The Client
  4. The Opponent
  5. The Costs
  6. The Procedure

1. The Facts

The Factual Uncertainty

There will likely be factual uncertainties which can affect the likelihood of success. There are at least four categories of fact:

  1. facts known to the client which support the case,
  2. facts known to the client which are adverse to the case,
  3. facts which are not yet known but which would be favourable, and
  4. facts which are not yet known which would be unfavourable

An analysis can be made against the facts in issue showing what evidence there is and is not, where it comes from and whether it is favourable or not. It would be possible to express confidence levels by a percentage figure, which goes a long way to satisfying the requirement of a written assessment when entering a CFA.

Proving The Facts

It is necessary to asses how these facts can be proved. When this is looked at the area of uncertainty will arise in the nature of the method of proof and any evidence (on either side) already to hand. Such areas of uncertainty build up a picture which enables an assessment to be made of the objective of the client and the chances of success, highlighting where the gaps are and where the work needs to be done as well as throwing up inconsistencies between evidence addressing the fact and conflicts in the evidence between the parties.   

Contributory Negligence

A further illustration of the effects of findings of fact comes from contributory negligence. Given a case where it is known that the defendant will raise contributory negligence, a risk assessment can show the effect on the outcome of a particular finding. It cannot show how likely the finding is - that will always be the area for professional judgement. The costs of the case set against the various outcomes will again place value on the risk attached to the case going to trial.

The Law

Uncertainty In The Law

Assuming the facts are clear and can be proven, do they establish a legal action? Would a Judge agree? Will the other side not agree?

The risk assessment can be done to show the effects on a case of the various decisions on the law that could be made. Some assessment has to be made as to the likelihood of one decision rather than another and clearly this is a matter for judgement.

Aside from the test case scenario where one or both parties want a court to decide the law, the true value of a case going to Trial can be arrived at by seeing the area of difference in outcome according to each possible finding on the law and that value is what is at risk should the case proceed to Trial.

The Client

Client Risk

Risk assessment of the client is also essential and includes the clients commitment to the case, potential as a witness, why he/she has decided to see a solicitor, have they seen another solicitor already? Are they able to give a clear account of events? What is the level of their expectation as to outcome? Are they emotionally involved, do they want their day in Court? To what extent is the case dependant upon the client's version of events?

Difficulty may arise due to the requirement to give the client a written risk assessment when entering a CFA. If the client is being taken on despite any reservations about the client his/her self, any recorded risk assessment ought to reflect that.

The Opponent

Opponent Risk

The assessment of the other sides solvency is something which should be done both at the outset and also throughout the case, as the client will receive nothing from the action from an insolvent opponent and the CFA will leave the solicitor unpaid if the client is unable to pay. Also, it may be obvious that the other side is likely to be difficult to deal with and therefore costly to deal with. In addition, an unrepresented opponent is likely to add to the time needed to proceed with the case.

The Cost

Cost Risk

Meeting the costs of pre-action protocols and fact investigation, including potentially the need for experts, raises questions for the client and solicitor which may well have a bearing on the viability of the case for litigation. Proportionality of costs and the use and effect of Part 36 offers are the new regime in this respect. The need to assess the suitability of the funding mechanism CFA and the awareness of the ability of a losing opponent to challenge the recoverability is required.

The Procedure

Procedural Risk

Limitation periods need to be considered here as do pre-action protocols. With the protocols consideration needs to be given to the time period for completion and the time remaining. The use of summary judgment and issues of security for costs as well as statutory defences will feature in insolvency litigation.

The Success Fee

As a final point, the assessment process will enable a clear picture for the After the Event insurer, if applicable. The level of case presentation and analysis displayed to insurers does have an influence on the decisions made in individual cases, and the more factors that can be shown / justified to back up the assessment of a success fee on any case will have a direct impact on the success fee recovered at the conclusion.

There is no authority or rule that states exactly how the percentage success fee should be calculated, however the Law Society's publication Conditional Fees - A Survival Guide (2nd Edition 2001) provides the following method of calculating a success fee:

F divided by S multiplied by 100 equals SF where:

F = chances of failure

S = chances of success

SF = success fee

For example, the chances of success are assessed in a particular case at 75%. This gives a success fee of 33.3%. In other words, out of every 4 cases 1 is going to lose. In order to pay for that losing case the costs on the other 3 must each yield an addition 1/3 in costs.

The calculation: 25% chance of failure / 75% chance of success = 0.333. multiplied by 100 = 33.3%.

The following ‘ready reckoner' table shows the success fee levels for different prospects of success.

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