14.3 Retainers, Fixed Fees, CFAs and DBAs

Funding is a Legal Services topic with an ethics wrapper

The SQE1 FLK1 specification for assessments from 1 September 2026 lists funding options as: private retainer; conditional fee agreements; damages based agreements; fixed fees; eligibility for civil legal aid; third party funding; and legal expenses insurance. The 2026 annual review deleted the words "criminal and" from that legal-aid line, because criminal legal aid can be tested as part of Criminal Law and Practice in FLK2 and the SRA wanted to avoid a criminal-based funding question in FLK1. This section teaches the civil three-gate test in detail. Criminal eligibility (interests of justice, adult means, and the representation order) is applied on first-hearing facts in FLK2 Criminal Law and Practice.

Funding decisions are still ethics decisions. SRA Principle 7 (best interests of each client), Principle 3 (independence from the funder or introducer), and Code paragraph 8.7 (best possible information about how the matter will be priced and the likely overall cost) apply to every model. The SRA's warning notice on 'no win, no fee' practices (issued 28 January 2026) restates those duties for high-volume consumer claims: be accurate in marketing, explain what the client pays if the claim succeeds and if it fails, do not prefer the firm's commercial interest, check referrers, and check that the client has actually understood.

This independent OpenExamPrep section teaches the current statutory and regulatory framework for England and Wales. Official pages to keep open are CLSA 1990 section 58, the Conditional Fee Agreements Order 2013, the Damages-Based Agreements Regulations 2013, LASPO 2012 section 25, and Civil legal aid: means testing (Legal Aid Agency, last updated 5 August 2026).

Private retainers and published prices

A private retainer is a contract under which the client (or a paying third party who is not buying the right to dictate the advice) pays the solicitor for work done. Typical structures are an hourly rate with periodic bills, a cap, or payment on account. The client still pays VAT on taxable supplies of legal services and disbursements (court fees, expert fees, search fees) unless the retainer says otherwise. The solicitor must identify who the client is before taking money from a relative; the paying relative does not become the client.

Code paragraph 8.7 requires the best possible information about pricing and likely overall cost, updated when the picture changes. An estimate is not a quote unless you say it is. A newly qualified solicitor who gives a casual "about two thousand" in a first call, then bills eight thousand without a revised costs explanation, has a Code problem and a Legal Ombudsman problem even if every hour was recorded.

The SRA Transparency Rules (Rule 1, with SRA guidance updated 30 September 2024) require firms — and freelance solicitors who publish that they offer the listed services — to publish price and service information for:

Publish what is included, what a reasonable client might expect but is not included, who will do the work and their experience, typical timescales and key stages, and whether prices include VAT (and the VAT rate or amount, or that the firm is not VAT-registered). Put the information in a prominent, easy-to-find place on the website, or have it ready on request if there is no website. Publishing a typical or average cost is acceptable; an online generator must produce a figure without forcing a callback first. Transparency Rule publication does not replace the individual retainer conversation on a live file.

A private-paying client can still have costs assessed under the Solicitors Act 1974. That is a reason to keep the client-care letter, the estimates and the narrative accurate. It is not a reason to hide the hourly rate.

Fixed fees (and what they are not)

A fixed fee is an agreed price for a defined scope ("£1,800 plus VAT and disbursements to act on this uncontested grant, provided the estate is as described"). It is attractive for work the Transparency Rules already force you to price. It is a retainer term, not a statutory funding scheme.

Spell out the assumptions. If the probate ceases to be uncontested, or the buyer asks for a novel indemnity and a second contract package, the fixed fee no longer covers that extra work unless you said it did. Do not use "fixed fee" in marketing if the small print converts it into an hourly rate after a few letters.

A solicitor's fixed fee to the client is not the same as fixed recoverable costs between the parties under CPR Part 45. A client can owe you £4,000 under a private fixed fee on a fast-track claim in which inter-partes recovery is a lower Part 45 figure. Explain that gap at the start. Fixed recoverable costs belong mainly to Dispute Resolution; FLK1 Legal Services tests whether you can tell the client what they will pay you.

Conditional fee agreements

Courts and Legal Services Act 1990 section 58 defines a conditional fee agreement as an agreement with a person providing advocacy or litigation services under which fees and expenses, or any part of them, are payable only in specified circumstances. The agreement provides for a success fee if the fees are increased, in specified circumstances, above the amount that would be payable if they were not contingent. A CFA that does not satisfy section 58 is unenforceable (subject to the non-contentious-business saving in section 58(5) and the Solicitors Act 1974 section 57).

Every CFA must be in writing, must not relate to proceedings that cannot be the subject of an enforceable CFA, and must meet any prescribed requirements. A CFA with a success fee must state the percentage increase and that percentage must not exceed the prescribed maximum. Conditional Fee Agreements Order 2013 article 3 sets that maximum at 100% of the base fees for the proceedings the Order specifies.

For personal-injury proceedings specified in the Order, article 5 adds a damages cap at first instance: the success fee must not exceed 25% of general damages for pain, suffering and loss of amenity plus damages for pecuniary loss other than future pecuniary loss, net of sums recoverable by the Compensation Recovery Unit. In later proceedings the article 5 percentage is 100%. Future care and future loss are kept out of the cap so that a catastrophic-injury claimant does not lose the money that will pay for care.

Worked figures. Base profit costs if billed hourly would be £12,000. The CFA success fee is 100% of those costs, so £12,000 on paper. Damages at first instance are £20,000 PSLA, £8,000 past earnings, £60,000 future care, and CRU recoups £2,000 from the past-earnings head. The article 5 pot is £20,000 + (£8,000 − £2,000) = £26,000. Twenty-five percent of £26,000 is £6,500. The recoverable success fee from the client cannot exceed £6,500, even though 100% of base costs would have been £12,000. Future care of £60,000 is not in the pot.

LASPO 2012 ended, for most civil claims, the old world in which the losing opponent paid the success fee and the after-the-event premium. From the 2013 commencement (with limited historic exceptions, including a delayed timetable for some publication and privacy claims, and a continuing special treatment of diffuse mesothelioma), the client usually pays the success fee from damages. Tell the client that in the CFA. Do not market "the other side pays everything" unless an identified exception actually applies.

A CFA can be no win, no fee (nothing if you lose; base costs plus success fee if you win), no win, low fee (a discounted rate if you lose), or a CFA without a success fee (0% uplift). "No win, no fee" is still a marketing phrase the January 2026 warning notice tells firms to use with care: the client may still owe disbursements, ATE premium, opponent's costs in a non-QOCS case, or a success fee if they win.

Damages-based agreements — and the contrast with CFAs

Section 58AA of the 1990 Act deals with damages-based agreements. In substance, the client agrees that if a specified financial benefit is obtained, the representative is paid an amount determined by reference to that benefit — a share of the damages, not a percentage of the solicitor's hourly costs. A DBA that does not satisfy section 58AA and the Damages-Based Agreements Regulations 2013 is unenforceable.

Regulation 4 (claims other than employment matters) is the provision SQE1 will use. The client must not be required to pay more than the DBA payment, net of costs (including CPR Part 45 fixed costs) and relevant counsel's fees recovered from the opponent, plus the representative's expenses net of anything recovered from the opponent. In a personal-injury claim the payment may be taken only from PSLA and past (not future) pecuniary loss, net of CRU, and must not exceed 25% including VAT of those sums at first instance. In other first-instance claims the cap is 50% including VAT of the sums ultimately recovered. Regulation 7 caps an employment-matter DBA at 35% including VAT of the sums ultimately recovered.

Worked figures. A non-PI contract claim recovers £80,000. A 40% DBA at first instance is within the 50% cap: £32,000 including VAT, before the netting of any costs paid by the opponent. If the opponent is ordered to pay £10,000 costs, regulation 4 nets those costs against the payment so the client is not charged twice for the same work. A 60% DBA on that first-instance recovery would be unenforceable as to the excess over 50%.

A client with a strong, high-value PI claim and modest time costs may prefer a CFA: the success fee is a percentage of costs, capped by 25% of a limited damages pot. A client with a modest claim and heavy work may find a DBA eats a large slice of damages even after the 25% cap. Walk through both numbers. Do not pick the model that is only better for the firm.

Hybrid arrangements (a discounted hourly rate plus a DBA slice) have been litigated and remain drafting-sensitive. If the stem does not give a hybrid, do not invent one. If the stem gives a hybrid that fails the Regulations, the answer is that the DBA is unenforceable.