What does a speculative fee allow?

Speculative or contingency?

I am confused about speculative fee arrangements – I’m not sure when they can be used. Are speculative fee arrangements the same as contingency fees? 

A client has instructed me to pursue a personal injury claim. It is complex, as there are three potential defenders, none of whom were prepared to concede liability on a pre-litigation basis. My client is not eligible for legal aid. I plan to ask him to sign a speculative fee agreement which entitles me to recover a fee equal to 15% of the compensation awarded and then to raise a court action on his behalf. Does this raise any professional practice issues? 

Fiona Robb replies:

Speculative fee agreements in personal injury cases are perfectly legal and proper, but the fee must be based on the work done. A speculative fee agreement in a personal injury action, in which the fee is solely calculated using a percentage of the compensation awarded (known as a contingency fee) is void and unenforceable.

In 1990 the Society challenged Lefevre Litigation and Quantum Claims in relation to an agreement where the fee was calculated on a contingency basis as a proportion of the damages. The Court of Session accepted that contingency fees calculated solely on the damages give the lawyer an unhealthy financial interest in the outcome of the case. This was reaffirmed in the later case of Quantum Claims v Powell 1998 SLT 228, in which a distinction was drawn between a claims company which can enforce such an agreement and a solicitor who cannot.

A speculative fee agreement can seek an uplift on the solicitor’s fee up to a maximum of 100% of the solicitor’s fees in the recoverable expenses. If a success fee is a percentage of the compensation without reference to the work actually done, it risks being “grossly excessive” and subject to a complaint under s 39A of the Solicitors (Scotland) Act 1980, in which the sanction is withdrawal of a solicitor’s practising certificate!

The situation might be slightly different if you were using a speculative fee agreement to recover a commercial debt. I  assume that there will be a relatively finite amount of money (subject to interest and charges) owed to the creditor client. The difference is that the client will have fair notice of the level of fees. In addition it also makes a difference that the client is a business as opposed to a private individual.