In some kinds of matters, some law firms will conduct litigation on a “No Win – No Fee” basis. This is usually where the lawyer is very confident of the likely success of the claim, and often where the lawyer would expect to take their fees out of the claim proceeds.
“No Win – No Fee” arrangements are often also referred to as “speculative fee arrangements” (ie where the lawyer is speculating that it will succeed) but less flamboyantly under the Legal Profession Act as “conditional cost agreements”.
While there are obligations on lawyers in respect of cost disclosures for all matters, there are particular obligations on lawyers in respect of disclosures for these kinds of arrangements.
Section 323 Legal Profession Act 2007 regulates these matters (other than matters that involve criminal proceedings or proceedings under the Family Law Act 1975). It calls the arrangements “conditional cost agreements” which are defined under section 300 of the Act as being a cost agreement that provides that the payment of sum or all of the legal costs is conditional on the successful outcome of the matter to which the costs relate.
Under section 325, “contingency fees” are prohibited, that being an amount payable to the law practice calculated with reference to the amount of an award – eg if a lawyer runs a matter on the basis that they receive half of the proceeds, but that doesn’t stop arrangements where the lawyer might get an “uplift” (a premium) of (say) 50% of their costs if they succeed.
Returning to the requirements for a conditional cost agreement, it has to:
- Set out the circumstances that constitute a successful outcome of the matter to which it relates;
- be in writing, in clear and plain language, and signed by the client;
- contain a statement that the client has been informed of their right to seek independent legal advice before entering the agreement; and
- contain a cooling off period of not less than 5 clear business days.
A particularly important matter is to determine what in fact constitutes a successful outcome. While that might appear to be common sense, in a matter involving court proceedings, would a successful outcome mean:
- That the court proceedings are won at first instance;
- That if there is any appeal, then the appeal also has to be won; or
- That costs have to be obtained in addition to the successful outcome?
Also, a negotiated settlement might be treated by the lawyer as a successful outcome when the client believes that it is not.
Prior to the Legal Profession Act, it was not unheard of for clients to be charged as much as or more than the amount that they were to receive with the lawyer claiming to be entitled to make those charges because they had been “successful”.
Under section 327 Legal Profession Act, if the conditional cost agreement contravenes or is entered into in contravention of any provision of the division, then it is void. While there is still an ability to recover some legal costs under void costs agreements (under section 319), there are restrictions to that, both under section 327 and under section 319.
The lesson is to be careful about any agreements with lawyers involving them running matters on a speculative or “No Win – No Fee” basis, and to be comfortable that you have identified clearly the circumstances under which you might have to pay fees.
For advice in relation to “No Win – No Fee” arrangements, contact Peter Muller at firstname.lastname@example.org. But don’t ask Peter to do work on a “no win no fee” basis, because he won’t.