How legal fees and costs work in England and Wales

How a lawyer charges is one of the least understood parts of using legal services, partly because there is no single model. The oldest is the hourly rate, where the client pays for time recorded in units, usually six-minute increments. It remains common in complex and unpredictable work, but its weakness is obvious: the client cannot know the final bill in advance, and the incentive runs towards more hours rather than fewer. In response, fixed and capped fees have spread, particularly for defined tasks such as a conveyance, a will or a company incorporation, where the scope is knowable at the outset.

For litigation, a different vocabulary applies. A conditional fee agreement, the familiar no-win-no-fee arrangement, lets a client pay reduced or no fees if the case is lost, in exchange for a success fee on top of the normal charge if it is won. Since the reforms in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, that success fee is no longer recoverable from the losing side and instead comes out of the winning client’s damages, subject to a cap. In personal injury cases the success fee is capped by statute at 25 per cent of certain heads of damages, excluding damages for future care and loss.

A damages-based agreement goes further, tying the lawyer’s payment to a percentage of what the client recovers rather than to time spent. The Damages-Based Agreements Regulations 2013 cap that payment, including VAT, at 25 per cent of damages in personal injury claims, 35 per cent in employment matters and 50 per cent in other civil proceedings. Damages-based agreements have been used cautiously, in part because the drafting rules are technical and the consequences of getting them wrong can be severe.

Then there is the question of who pays the other side’s costs. The general rule in civil litigation is that the unsuccessful party pays the successful party’s costs, a principle known as costs-shifting or, informally, loser-pays. It is not automatic or unlimited: the court has a discretion, conduct is taken into account, and the winner usually recovers only a proportion of what they actually spent.

That gap between spending and recovery has narrowed for many cases through fixed recoverable costs. From 1 October 2023 the regime was extended so that fixed costs apply to most civil claims valued up to £100,000, using the fast track and a new intermediate track for less complex claims worth between £25,000 and £100,000. The aim is predictability: the amount a losing party must pay towards the winner’s costs is set by a published grid rather than assessed case by case. For higher-value or genuinely complex multi-track work, costs are still budgeted and assessed in the traditional way.