Costs Litigation Blog

This blog was written by Andrew Roy, Deputy Costs Judge & Head of 12KBW’s Costs Team

Introduction 

CFA Lites are very common form of funding operation.  They are sometimes colloquially described as “eat what you kill” agreements.  They generally operate by capping the solicitors’ costs at those recovered from the opposing party.

However, the cap does not always apply.  Nearly all CFAs have clauses protecting the solicitor if the agreement ends before the litigation concludes.  The need for such protection arises because the solicitor’s fees are potentially at risk in litigation over which they no longer any control and into which they no longer have any input.

One of the most common such provisions is what in this case was called a “stick or twist” clause.  Such a clause entitles a solicitor, upon early termination, to elect either to claim their basic charges immediately (“stick”) or wait until the conclusion of the litigation and claim their basic charges and success fee if the client wins (“twist”).

Sellers v Simpkins [2023] EWHC 3296 (SCCO) (Sellers v Simpkins [2023] EWHC 3296 (SCCO) (20 December 2023) (bailii.org)) is salutary illustration as to how such a clause affects a CFA Lite cap. 

The facts

The claimant was injured in a road accident on 4 November 2014.  She instructed Simpkins & Co (“the solicitors”) under a CFA Lite.  The CFA adopted standard Law Society wording.  The relevant provision for present purposes were that:

• It contained a CFA Lite cap.
• The success fee was 0%.
• It contained a “stick or twist” clause in the following terms:

You can end the agreement at any time … you must:

• pay our basic charges and our expenses and disbursements including barristers fees but not the success fee when we ask for them; or
• pay our basic charges and our expenses and disbursements including barristers fees and success fees if you go on to win your claim for damages.

In March 2021, the Claimant terminated the retainer and instructed new solicitors, Fieldfisher.

The claim was settled at a joint settlement meeting in August 2021. The settlement was on a global basis inclusive of costs.

In November 2022 the solicitors delivered their bill to the Claimant.  It totalled £496,983.96, of which £48,000 had been paid on account, leaving a balance of £448,983.96.

In December 2022 the Claimant commenced proceedings for an order for the detailed assessment of the bill under s.70(2) Solicitors Act 1974.

The matter came before Senior Costs Judge Gordon-Saker for a preliminary issue hearing.  The main issue was whether the CFA Lite cap applied in light of the Claimant’s termination of the agreement.

The judgment

The judge referred to Higgins & Co Lawyers Ltd v Evans [2019] EWHC 2809 (QB); [2020] 1 WLR 141.  In that case it was held that a cap limiting the client’s liability to the solicitors (net of any costs paid by the opponent) to a maximum of 25 per cent of the damages received did not operate when the CFA was automatically terminated by the client’s death. 

Interpreting the ratio of Higgins, the Senior Costs Judge held that there was a distinction between the situation where the solicitor is entitled to payment before the claim had been concluded (when the overall cap would make no sense) and the situation where the solicitor waits to see the outcome. In the latter case, the overall cap would make sense.

He rejected the solicitors’ broad argument that the cap cannot apply where the client terminates the agreement before the case is won.  If the solicitor elects to wait for the outcome of the case and the claim succeeds (i.e. “twists”) when the agreement has been terminated before the case is won, there is no difficulty applying the overall cap.

However, the question remained as to whether in this case the solicitors had elected to “stick” or “twist”.

The solicitors did not make a clear and explicit election.  The fee earner stated “I shall seek payment of the costs and disbursements due as per the agreement term indicated above.” He later added “There is real risk my firm faces concerning the costs it has incurred. It is therefore entirely reasonable that now my firm is no longer instructed and risks apparent, the issue of costs owed to the firm must be resolved prior to the file transfer”.  They accordingly refused to hand over the Claimant’s files to Fieldfisher.

The Claimant contended that this was not sufficient to trigger the first bullet point in clause (a) (i.e. an election to “stick”). She argued that there had to be a demand for payment in the form of a bill which complied with s.69 Solicitors Act 1974.

The judge rejected this argument in the following terms:

36. I think that ignores the factual matrix. There was no advantage to elect to await the outcome of the case, or in Ms Bedford’s words to “twist”, because no success fee would be payable in the event of a win. It seems to me that while the [solicitor] did not “ask” for payment until he delivered a bill, in March 2021 he had exercised his right to decide that the Claimant must pay his basic charges, expenses etc without waiting for the conclusion of the claim. Effectively, he had said “I’ll stick”.

37. Had a success fee been payable under the agreement, in view of the emails, the [solicitor] would have had no prospect of arguing that he had exercised his election to await the outcome.

38. Following Higgins, the overall cap did not apply because the [solicitor] had elected to claim his basic charges before the case was won.

Takeaway Practice Points

Several important takeaway points emerge from this case:

• Clients need to aware of the potential consequences of early termination of a CFA, especially a CFA Lite.  They need to be aware that CFA Lite cap will not operate in all certain circumstances.
• It is vital to take into account the full extent of potential costs liabilities when considering an all inclusive settlement.  Whilst this point applies generally, it is particularly important where there is a CFA, as CFAs are generally not tailored to such settlements.  Various points arise here:
• Where there have been previous solicitors (or, for that matter, counsel), unless they have confirmed the extent of the costs they will be seeking, it may not be possible for the client to know how much damages they will ultimately retain. 
• Even where a CFA cap would otherwise be engaged, it is unclear whether and how it would work following an all inclusive settlement.  The solicitor in Sellers argued that the cap could not apply where there is no express costs recovery or ascertainable sum recovered in respect of costs.  In the event, the court did not have decide this argument.
• It is therefore highly advisable before offering or accepting any all inclusive settlement to agree with the client (and clearly record) a notional division of the damages and costs elements.  This at the very least reduces the risk of future disputes, complaints and the like.
• A solicitor should make it crystal clear whether they are electing to “stick” or “twist”.  Whilst the solicitors here won the point, it was an argument which they would have been better to have avoided entirely. They could easily have done so.
• When as here, there is a 0% uplift, there will never be any benefit in “twisting”.  The solicitor should always “stick”.  They may for practical reasons wish to await the conclusion of the claim before actively pursuing payment, but it should be made clear that this is without prejudice to their electing that the costs liability crystallises immediately.

Andrew Roy KC

5 March 2024