I will use an analogy to try and explain how these complex types of retainers work in law firms. It applies in the ease of “no win no fee” or a “conditional fee agreement”, something that we have had for the last 30 years.
Let’s say you have a treasure map (a good case) but you need a skipper (the lawyer) to sail you to the treasure island. You do not know how long the journey will take and how much it will cost. The skipper tells you his day rate for his ship and his crew and you nearly faint. So you say to him,
“Is there another way? It is a lot of treasure but I cannot afford your day rate right now as I am not made of money.” And he says,
“Well, listen, I will do it for free, but once we do find the treasure I will charge you double my hourly rate, yes?”
Well, you see the sense in this but you might be worried just how big this figure is ultimately going to be. Let’s say the island is thousands of miles away in the middle of the Pacific and it may take many months to get there. His day rate could be very large, even before it is doubled.
You say to him, “Okay, I see the sense in that, but what if your fees eat up all the treasure and there’s nothing left for me? The whole exercise will be a bit pointless.”
He says to you, “Good point. Okay, look. I will limit my fees to no more than 25% of your treasure. I will ‘cap’ my fees. But you are going to have to pick up costs along the way, expenses like port fees, navigator’s costs and soldier’s pay to protect us from any natives or cannibals on the island or pirates en route.68 I am not going to pay for these. I have enough to pay for with my ship and my crew.”
You can just about afford these expenses so you agree.
He might say to you, “25% is not enough as the treasure is not big and the journey long and risky. So I want a 50% cap.”
Well, you might moan about this, but at the end of the day, it is a business partnership, a deal, in which you are getting at least something, instead of nothing, all thanks to his help. You might say to him, “35%, but only if you help me pay these expenses if cash is tight.”
And he says, “Okay, deal.”
You can see how the amount of treasure (claim value) and the riskiness of the journey (the merits of the claim) are important factors in deciding what percentage to charge.
Now I have mentioned “expenses” above. You should be aware that there is no such thing as a free lunch. You are going to have to put your hand in your pocket to pay for court fees, counsel’s advice, if needed, expert’s fees and so on. You may also have to pay for “After the Event Insurance” – insurance that protects you from having to pay a large legal bill if you lose, where your opponent is instructed by expensive lawyers, for instance. This insurance pays out the premium in a lump sum right at the end of the case if you lose and takes a part of your treasure if you win. It will have an up-front fee.
We now also have “damages-based agreements” (DBAs). These are American-style agreements, introduced in 2013.
Going back to the treasure island analogy, in this case, the skipper says to you, “Okay, I will work entirely for free, win or lose, but I want 25% of the treasure. Period.”
“What about your hourly rate?” you ask. “Aren’t you going to charge me anything for all your time and expense?”
“Forget about that”, he says. “I’ll just do it for a share of the treasure.” He then thinks for a minute, “In fact” he adds, “I will even pay all the expenses.” So you see that in the ‘no win no fee’ arrangement you have the lawyer double his hourly rate and use a cap to make sure his fees do not gobble up all the treasure, but in the case of DBAs, it is very simple – he just takes a share.
DBA sounds just like the ticket, right?
Well, yes, it works for you but does it work for the skipper? Actually, in the case of the DBA he knows that particular island and he knows the size of the treasure and it is huge. So he is happy to take a risk. Unfortunately, most cases are not like this, and this is why very few skippers are going to agree to a DBA. Unless the claim value is very large – seven figures, let’s say – the ‘no win no fee’ agreement is better for him in every way. This is because of the limitations that were brought in at the time they were introduced. Without boring you with the detail, the 2013 Act made some conditions around DBAs, which rather ham-strung the whole point of them! So that in most average cases lawyers do not touch them! The reason is that the old guard is afraid of our legal system turning into an American-style business market and so are very grudging and slow at changing the law. It will probably take further legislation to advance the process to make them fully-fledged contingency arrangements like they have in the US.
Having said all that, there is an area in which a lawyer may well consider DBAs and that is in small claims of high enough value. This is because you do not usually get your legal costs paid on that track so a CFA will not work, but a DBA with high enough value (let’s say anything over £5,000) may be worth it if they are getting at least 25%-50%. (50% is the limit, inclusive of VAT.) I offered to do one recently with a client who had already done a lot of work on his case.
You could view this as a case where the treasure is not big but the sea journey is very short, just a day’s sailing across the bay. So the skipper thinks, “Yeah, why not? I’ve not got much on at the moment and my crew are bored.”
As an alternative to both DBAs and CFAs, you could simply ask a lawyer to “cap” the amount of their legal fees. They would work on a traditional taxi meter arrangement but would agree to not go above a certain amount. For example, they would not go above £4,000 costs in any event in a £10,000 claim. Not many will, but there are enough exceptions to make it worth asking, and lawyers really do need to start moving with the times. There’s no harm in asking! If I had a client who was super-organised with a straightforward claim I might well do this type of retainer.
You might also consider bringing in a lawyer halfway. A lot of clients actually do a really great job of initially bringing the claim but then get into choppy weather and suddenly realise they need help.
In that case, a lawyer can turn things around for you – if, after the initial hourly rate work he thinks you have a strong case, he may even do a ‘no win no fee’ at that point. Or you could just use him to strengthen your case and then drop him for the trial. It’s like letting a pilot handle a bit of the journey after take off but before landing in a severe storm or fog whilst you do everything else. It does not stop you taking back the controls afterwards. You may only want to use him where it is essential.
In short, it is good as a litigant in person to have an experienced pilot to hand, who can take over the controls of the plane, if you feel it is necessary. As I said earlier, if a litigation law firm is not prepared to entertain CFAs or DBAs then you really do have to question whether they are properly equipped as a law firm to fight for their clients. If they say, “we don’t do them”, they are actually limiting your tactical options immediately and significantly, without a thought.
As litigators, they should be trying to make sure that there are as many options, or weapons, available to you as possible in order to get your claim over the wire. Their retainers can be a key weapon. Opponents facing lawyers who are on ‘no win no fee’ arrangements know that they are facing a tough opponent – they think the case is strong enough to take it on a contingency basis and will be more determined than the usual lawyers because they will not get paid until they win! A great move in some cases and a way of bringing them to the negotiating table.
To conclude, not all cases are suitable for ‘no win no fee’. Where there is not a clear pile of treasure at the end of the journey, or something that can easily be converted into money – like a property or an estate in a will – they are less likely to be of use. To find out whether or not they are suitable, a lawyer is going to have to do some work initially. Sadly, there is no such thing as a “free lunch”.
Finally, I should say that there are certain people who waste a lot of my time by phoning up and wanting to spend an hour talking about their case and saying, “This is a sure-fire winner. You need to do it on a ‘no win no fee’. It’s a great case I’ve got for you here!” That’s nonsense. Not even a lawyer with his own dispute can think in a rational and detached way about its true merits.
You cannot assess a winner unless you have spent at least a couple of hours getting to know the case papers and the client. I have learned this the hard way from having wasted a lot of time on people’s hopeless cases in the past. I have also learned that when someone tells me I should do a no win no fee because their claim is a sure-fire winner – this is a good indicator that it is a sure-fire dud.
