Caven blog

Could no-win, no-fee agreements be on their way out?

Concerns are mounting over no-win, no-fee agreements after a Legal Ombudsman’s report in late January 2014 highlighted abusive practices by some solicitors.

In 2013 lawyers were ordered to pay nearly £1 million in compensation to clients after agreements went wrong.

No-win, no-fee (or conditional fee) agreements were introduced in 1995 as an alternative to legal aid. They have since become extremely popular, especially in personal injury cases.

Not what it says on the tin

The report documents cases in which:

“The fundamental promise which underpins the marketing [of these agreements] – that the consumer will not have to pay for losing cases – is being broken. People who have entered into no win, no fee agreements have been hit with significant and unexpected costs when cases have failed.”

Examples include:

  • A successful claimant who was told that almost a third of his damages would be deducted in costs, which had not been explained to him previously
  • A firm who abandoned a case before it went to court and billed their former client £24,000 after he went on to represent himself and win
  • A client who was asked to pay almost £15,000 after losing her case as her solicitors’ insurers refused to cover the cost

Why are no-win, no-fee agreements causing trouble?

Part of the explanation is the complex nature of such arrangements.

In addition to standard fees and disbursements, clients normally have to pay for insurance taken out to cover the risk of losing. In the event of a win they are charged a supplementary ‘success fee’.

The majority of solicitors are very careful to make sure that potential clients understand cost structures. However, some firms may be so concerned to get new business on board that they neglect to do this.

Moreover, to quote the Ombudsman:

“The ‘no win, no fee’ market has become increasingly aggressive, with many law firms competing for cases and sometimes prioritising sourcing a  large number of customers over a careful selection process.”

So a claim that initially appears to be a golden goose often turns out to be a turkey. Unfortunately, a minority of solicitors have exploited loopholes in their contract (or even breached it) to get out of handling the case - or they pass the losses onto the client.

But should this mean the end of no-win, no-fee?

For the few horror stories, there are many happy customers who would not have got the compensation they deserved without no-win, no-fee agreements. As Law Society President Nicholas Fluck said, “No-win, no-fee solicitors are bringing justice to the masses for people denied legal aid”.

Here at Caven we have spoken to thousands of clients who would have had no chance of justice without no win, no fee.

And the Legal Ombudsman himself acknowledged that the problems were not widespread. Only 8% of the complaints they resolved last year related to these agreements.

However, the report emphasises that law firms must make sure their clients understand how their fee and cost arrangements work. It suggests using the model no-win, no-fee contracts on the Law Society website.

In addition the report raises the question whether the phrase “no-win, no-fee” should be discontinued since it is potentially misleading. In time it could be replaced by the less catchy “conditional fee agreement”, which is already in use.

Whether the small number of irresponsible no-win, no-fee solicitors heed the concerns raised by the Ombudsman remains to be seen. Otherwise regulators may step into the market.

For consumers, the message is clear. No win, no fee is a real option, and sometimes the only option. But it is vital to ensure that you fully understand the payment system before committing to anything.

Original report:

Legal Ombudsman website

Related links:

Caven – understanding solicitor fees
Caven – how are legal specialists regulated?

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