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In relation to conditional fees, the House of Lords decision in Callery v Gray [2002] 1
WLR 2000, is instructive. It throws light on the impact of conditional fees on costs
and shows that it is quite fallacious to suggest, as some respondents to the consultation
have, that conditional fee arrangements reduce litigation costs. To appreciate the true
position, one must have a grasp of how conditional fee arrangements work.
(a)
The intention of a conditional fee arrangement is to enable a plaintiff with a
viable case but without the means to pay for legal representation, to bring an
action represented by lawyers. The lawyers' costs are ultimately to be paid out
of the anticipated award against the defendants, but the lawyers must take on the
risk that, if, contrary to expectation, the plaintiff fails and nothing is recovered,
their source of remuneration will not materialise. Hence, these are called "no-
win, no pay" agreements.
(b)
Where the plaintiff wins, the lawyers are entitled to an "uplift" in their fees (or
"success fee"). In other words, they charge a certain amount more (usually
measured as a percentage of their usual fee up to a prescribed maximum
percentage) than they would have charged if they had been acting without any
conditional fee agreement, to compensate them for the risk taken.
(c)
However, in a system like ours, where a defendant who wins is generally
entitled to costs against the losing plaintiff, the plaintiff faces a potential
liability beyond having to pay his own lawyers' fees. While his lawyers may be
prepared to appear on a no-win, no-fee basis, they would hardly be prepared to
shoulder liability for the winning defendant's fees under the costs-shifting rule.
(d)
To cover that liability, "after the event" or "ATE" insurance has been
introduced in England and Wales. An insurer agrees to insure the plaintiff
against an order to pay the defendant's costs if the defendant should win the
case. As the plaintiff generally will not have the means to pay the premium for
such cover, the ATE insurer does not collect it from the plaintiff in advance, but
seeks to recover it (and so to make his profits) out of the anticipated award
against the defendant.
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