Conditional fee agreements fund many commercial professional negligence claims in England and Wales. A claimant firm agrees with its solicitor that if the case fails, the solicitor's fee is reduced or extinguished; if it succeeds, the solicitor recovers base costs plus a success fee. The economics changed in April 2013 when the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) took effect, and the interaction with professional indemnity (PI) insurance shifted with it. This entry sets out the framework, the caps, the position after LASPO, and how PI cover responds when a claim is prosecuted on a CFA.
The CFA was placed on a statutory footing by section 58 of the Courts and Legal Services Act 1990, as amended. A CFA is an agreement with a person providing advocacy or litigation services whose fees are payable only in specified circumstances. Section 58(2)(b) permits a success fee — an uplift on base costs — where the agreement so provides. The current secondary legislation is the Conditional Fee Agreements Order 2013 (SI 2013/689), which sets the caps and prescribes formalities. A CFA that fails the statutory requirements is unenforceable — a material risk if the paperwork is not carefully drawn.
The success fee is a percentage uplift on base profit costs. Two caps matter. For commercial litigation, including professional negligence claims brought by business claimants, the uplift may go up to 100% of base costs. For personal injury claims, the 2013 Order caps the success fee at 25% of the damages awarded (excluding damages for future care and loss). Because most PI professional negligence claims involve business claimants rather than personal-injury victims, the 100% commercial cap is the everyday PI ceiling.
Before April 2013, a winning CFA claimant could recover both the success fee and any after-the-event (ATE) premium from the losing defendant. LASPO abolished that recoverability. From 1 April 2013 the success fee is payable by the client out of their damages, not by the defendant. ATE premiums are likewise no longer recoverable, save in limited preserved categories (mesothelioma and certain publication and privacy cases). The transitional position — pre-1 April 2013 CFAs retained recoverability — was confirmed as compatible with Article 6 ECHR in Coventry v Lawrence [2015] UKSC 50.
To keep the client whole, many solicitors offer a "CFA-Lite" variant. The solicitor agrees the client will pay only what is recovered by way of base costs; any shortfall between costs recovered inter partes and costs the solicitor would have charged is waived. The success fee, which the client is legally liable to pay from damages, remains. CFA-Lite is common in commercial PI claims where the claimant wants certainty of net recovery.
CFAs are used widely in commercial PI claims against solicitors, accountants, surveyors, IFAs, architects and engineers. Damages-based agreements — see damages-based agreements in PI claims — remain rarer because the DBA Regulations 2013 are commercially awkward and cap the solicitor's recovery at a percentage of damages that many firms find insufficient in complex, document-heavy litigation. A CFA with a percentage uplift on hourly-rate base costs is the more predictable vehicle for the claimant firm.
A PI policy responds to the professional's liability to a claimant. It pays the damages the professional is ordered or agreed to pay, together with the claimant's base costs on the standard or indemnity basis. It does not pay the claimant's CFA success fee — that is a matter between the claimant and its own solicitor, funded from the damages recovered, and since LASPO it is not a head of costs recoverable from the defendant. The policy also responds to the professional's own defence costs, subject to terms.
Qualified one-way costs shifting (QOCS) applies to personal-injury claims, not to commercial professional negligence claims. A commercial PI claimant on a CFA therefore carries adverse-costs risk if the claim fails, and often takes out ATE to cover it. ATE premiums for commercial claims are not recoverable inter partes post-LASPO; the claimant pays the premium, often on deferred, self-insured terms payable only on success.
An IFA (see IFA PI insurance) is sued for negligent pension-transfer advice. The claimant instructs solicitors on a CFA at base hourly rates plus a 50% success fee. The claimant wins. Base costs assessed against the defendant total £100,000. The success-fee uplift is £50,000. Damages awarded to the claimant are £600,000. Post-LASPO, the defendant pays base costs of £100,000 plus damages of £600,000 — £700,000 total — and the PI policy responds to that liability, subject to limit and excess. The claimant pays the £50,000 success fee out of the £600,000 damages and nets £550,000. See also accountants PI insurance and solicitors PI insurance for how CFA-funded claims present in adjacent professions.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.