The Issues: The Claimant’s solicitors had signed a CFA with their Client prior to November 2005, but shortly before the end of the case it became apparent that the Defendant would challenge the validity of the CFA, so at the request of her solicitors, the Claimant signed a second CFA. The first CFA did not contain a success fee, but the second CFA provided for a success fee of 100% if the case went to trial. Was the second CFA enforceable and was it possible to apply a retrospective success fee?
Held: The Claimant’s solicitor’s consideration for the second CFA was to continue acting on behalf of the Claimant because if the Defendant’s challenge to the validity to the first CFA had been right, they had no obligation to do so. The Claimant’s consideration was a fresh promise to pay under an enforceable CFA, in place of one which the Defendant alleged was unenforceable. There was no bar to CFAs being retrospective and no particular reason why a retrospective success fee was contrary to public policy. The second CFA was not invalid because it introduced a success fee - if a success fee was unreasonable it could be reduced or disallowed on detailed assessment.
(1) Although in this case it was the Defendant which raised a specific challenge with regard to the validity of the first CFA, the same reasoning must apply where a Claimant’s solicitor has his own reasonable doubts as to whether his pre November 2005 CFA is enforceable.
(2) In such circumstances it seems a second CFA can be signed, and if the second CFA is signed now, then the pre November 2005 CFA Regulations will not apply to it, meaning that previous and future basic costs will be protected and any previously agreed success fee should remain recoverable.
(3) Introducing a success fee into a second CFA (where none was previously agreed) or increasing it in the second CFA, will not damage the validity of the second CFA, but the extent to which the new or increased success fee will be recoverable, is unclear. It is also unclear whether it will run right from the beginning of the case or only from the date the second CFA was signed.
(4) It is worth noting that in this case the Claimant’s solicitors wrote to their Client explaining that the legal costs up to that date would be dealt with under the second CFA unless the Court ruled it invalid, in which case they would revert to the first CFA. They also pointed out that the second CFA contained a success fee, whereas the first did not. It was held by the Court that this letter formed part of the retainer and that as the second CFA fell under the post November 2005 regime, it was not necessary for the Claimant to sign the letter for it to have contractual effect. It would therefore seem wise for solicitors to include similar wording in correspondence with their Clients if proceeding down this route. Click for Sample Letter.
(5) This is potentially a neat solution to any CFA question marks hanging over those older files. There is a possible problem however. In this present case the consideration for the second CFA was the agreement by the client's solicitors to continue acting ie the second CFA was signed while the case was ongoing and further work was required. The solution of signing a second CFA may not work if it is planned to sign it only after a final judgement/settlement because there is no further work which the client will want done which could form the consideration for the second agreement. There is of course the work of recovering costs, but if the first CFA is invalid, there is nothing to recover.
Conclusion: If there is any doubt about the enforceability of your existing pre November 2005 CFA, sign a new one immediately. In almost all cases, the doubt will relate to the adequacy of your enquiries as to suitable alternative insurance arrangements (“BTE Enquiries"), and the file documentation on this should be carefully checked.