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Industry Updates

Uplifts on Legal Fees not Recoverable from the Losing Party

16 May 2012

In many jurisdictions, clients seek to fund litigation using conditional fee agreements. Such agreements provide that the attorney will be paid a certain basis (usually an hourly rate basis or fixed fee) and if the client succeeds in the litigation, the attorney will be paid an additional uplift on the fees (usually a percentage increase across the board) or a success fee. (This is different from a US-style contingency fee arrangement where, if the client is successful, the attorney agrees to be paid a percentage of the damages awarded.)

In Barrett v Attorney General 1 , the plaintiff brought proceedings in connection with a road traffic accident involving a government employee. The government was insured and its insurer defended the proceedings on behalf of the government. The plaintiff entered into a conditional fee agreement with her attorneys. The plaintiff and her attorneys agreed she would pay her attorneys at a certain hourly rate and that if she was successful in her litigation she would pay them an additional 33% of the attorneys fees.

The matter went to trial on the question of liability and the plaintiff succeeded. At the conclusion of the trial, the trial judge ordered that the defendant pay the plaintiffs costs including the 33% uplift in the attorneys fees. In doing so, the trial judge relied upon two earlier decisions of the Grand Court that held that such uplifts were recoverable.2  He concluded that the statutory costs guidelines prohibited the recovery of costs on any basis other than on an hourly rate and hours-spent basis, but did not preclude the recovery of uplifts on hourly rates.

The defendants insurers appealed against the costs order. Given the importance of the appeal, the Cayman Islands Insurance Association applied for, and was granted, permission to intervene in the appeal.

The Court of Appeal allowed the appeal. It found that the statutory costs guidelines did not permit a successful party to recover an hourly rate above that set out in those guidelines and that any increase in the hourly rate in a conditional fee agreement must be disallowed. This was evident from the clear wording of the statutory costs guidelines. Doubt was also cast on the trial judges reliance on Quayum, on the grounds that the Quayum decision concerned the enforceability of conditional fee agreements, not whether the uplifts would be recoverable.

It is important to note that, although the decision in Barrett relates to a personal injury claim, it applies equally to all civil and commercial proceedings. In particular, plaintiffs who lack funding to bring significant and complex claims will have to consider whether or not conditional fee agreements are an effective means of funding the litigation. It is likely that such plaintiffs will be more likely to make use of more traditional sources of litigation funding, such as professional litigation funds and investment banks. Defendants, on the other hand, can be confident that their liability for costs in Cayman Islands litigation will not include uplifts on the plaintiffs attorneys fees.

The Court of Appeal acknowledged that there were important public policy considerations involved in the recovery of uplifts and success fees, but made it clear that the proper forum for balancing the public policy interests was the legislature not the courts. Following the decision, the Law Reform Commission has announced that it has started a review of the existing law.

1 Unreported, 14 February 2012

2 Bennett v Attorney General [2010] (1) CILR 478 (a case on almost very similar facts), and Quayum v Hexagon Trust Company (Cayman Islands) Limited [2002] CILR 161.