Success fee agreements: analysis of consultation responses

Question 4: Do you agree that the kind of arrangement described in paragraph 43 above should not be permitted in a success fee agreement?

51. In paragraph 43, the Scottish Government stated: “In circumstances where the provider has come to the conclusion that the recipient is unlikely to win, the provider may withdraw from the agreement. It is understood that under some existing success fee agreements, the recipient may be responsible for the original provider’s fees and outlays up to the point when the agreement is terminated by the provider, but only if the recipient does ultimately receive a financial benefit from the claim as a result of it being pursued by another provider.” Eleven respondents agreed with this suggestion and three opposed it.

52. In support of this, the ABI wrote: “The ABI fully supports the Scottish Government’s position that the arrangement described in paragraph 43 should not be permitted in a success fee agreement. The withdrawing provider will have made a commercial decision not to proceed based upon their assessment of the case. The successful pursuer has not let the withdrawing provider’s decision to withdraw from the case weaken their resolve to proceed with their case and find alternative representation. The pursuer is likely to have experienced some inconvenience following the withdrawing provider’s decision to cease acting. Further, the withdrawing provider has not had to bear the litigation risk which success fees are intended to reward.”

53. Whilst not agreeing totally with the proposition, some gave a more qualified answer. For example Alan Paterson wrote: “This is a difficult area. If the work done by the first solicitor did not contribute significantly to the eventual outcome, it is not clear why they should be financially rewarded in this situation. Otherwise a pro rata split of expenses should occur with the second provider.”

54. APIL agreed with paragraph 43 only in the more specific situation where the provider has come to the conclusion that the recipient is unlikely to win at court because they have been made a reasonable offer that they have then rejected, rather than because the prospects of success are low. In other cases, where the provider does not believe that the pursuer has a case, and that liability cannot be established, APIL agreed with Clyde and Co that the provider should not be paid any success fee if the pursuer subsequently takes the case to a different solicitor and succeeds. However, there should be a refund of recovered outlays paid by the first solicitor in that event.

55. Most of those who agreed thought that the provider who terminates the agreement should be able to receive reasonable disbursements in the event of the pursuer’s success with another provider. Most thought that this should be agreed between the providers and come out of the success fee or the judicial expenses. In these situations the pursuer should only be liable for the success fee of the successful provider. Clyde and Co took a different view arguing that the pursuer should be responsible for provider’s expenses up to the point of termination.

56. The Law Society and Iain Nicol disagreed with the paragraph 43 proposal. They pointed to the fact that the scenario has been provided for in the Law Society’s Conditional Fee Agreement style for the last 20 years and worked well in practice. They both noted that in speculative fee agreements it is necessary to have 50% or more chance of success to have Legal Expenses Insurance cover. Assessing the prospects of success are down to the professional judgment and will differ from provider to provider. They argue that if the original provider has not acted negligently in rating prospects of success 50% or less and the recipient rejects their advice, then the original solicitor is entitled to be paid for the work they did if the case settles. The obligation to pay those expenses should lie with the recipient. They both also raised the situation where the recipient whose provider has taken the decision to withdraw goes on to represent themselves. In the event of success, under paragraph 43, they would not only receive all the damages but also the judicial expenses. Iain Nicol went on to say: “So either the client gets a windfall in recovering court expenses that he doesn’t have to pay to the solicitor or the new agent gets to keep all the judicial expenses for work they haven't done.”

57. The Law Society suggested that the “level of expenses due by the recipient to the provider … shall be capped at the level of judicial expenses due by the opponent, with the obligation on the recipient to take all reasonable steps to seek and recover those expenses”.

58. Clyde and Co considered that the recipient should be responsible for the provider’s fees and outlays up to the point of termination. Dentons objected to the Government’s use of the word “misjudgment”. It argued that prospects of success can shift as a result of documentary evidence or witness evidence and that litigation is by nature unpredictable.

59. The Faculty indicated that it disagreed with the views expressed at paragraphs 42 to 46 of the consultation paper. “Solicitors and counsel must be able to part company with their clients for good reason. Indeed, their professional obligations, including as officers of the court, may require them to do so in certain circumstances. Depriving the provider of their fee entitlement in those circumstances could induce them to act unreasonably (and potentially even unprofessionally) and penalise agents and counsel who do their job properly. An ordinary example of where such a tension would arise would be where a client refuses to take advice on a tender, and agents and counsel responsibly consider that they should withdraw from acting.”