We looked the other day at whether VAT will be included or excluded from the 25% cap on damages that will apply to success fees. Looking again at the proposed changes to the Courts and Legal Services Act 1990, the Legal Aid, Sentencing and Punishment of Offenders Bill says:
“The additional conditions are that—
(a) the agreement must provide that the success fee is subject to a maximum limit,
(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,
(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified”
The percentage specified by the Lord Chancellor will presumably be 25%.
Note that the wording is that the “success fee” is subject to a maximum limit, not the total taken from the client.
The current wording of the Courts and Legal Services Act 1990 reads:
“The following further conditions are applicable to a conditional fee agreement which provides for a success fee—
(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and
(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor.”
The current maximum percentage allowed is 100%. It has never previously been disputed that VAT can be added to the 100% figure. It is not immediately obvious why the wording of the Bill would not allow for VAT to therefore be payable in addition to the 25% cap (meaning clients would have up to 30% of their damages taken in respect of the success fee).
That problem aside, what about counsels’ success fees?
The Bill, and the Court and Legal Services Act 1990, are concerned with individual CFAs, not the overall funding arrangement of the claimant.
Will counsel therefore also be able to charge a success fee that is capped at 25% of damages in addition to that of the solicitor? That would mean that the claimant would lose up to 50% of damages (or 60% if VAT can be added). What if there is both junior and leading counsel? Can each take 25% in addition to the solicitors, meaning the claimant would lose up to 75% of damages (or 90% if VAT can be added)?
If not, will the solicitor and counsel have to try to carve up the 25% cap between themselves? It is not obvious that counsel would want to accept instructions on a CFA basis where liability is finely balanced but they will get a success fee based on potentially much less than 25% of the damages, particularly in lower value claims.
It is not obvious that solicitors will want to instruct counsel to act on a CFA where a matter is proceeding to trial on quantum only if they will have to split the 25% cap. Will they advise the claimant to settle?
Solicitors are unlikely to be willing to treat counsels’ fees as a disbursement if they are paying disbursements out of their own pocket.
Similar cap related problems arise where more than one firm of solicitors has had conduct of a claim. Can each take up to 25% of damages, in addition to counsel? Or must the firms somehow agree amongst themselves how to divide the cap?
The anti-Jackson lobby seems to have focused on all the wrong issues.