No win no fee agreements – report highlights importance of clients being properly advised

Posted: 07/01/2014

Information released by the Legal Ombudsman today, 6 January 2014, highlights that law firms have been penalised to the sum of almost £1m in the space of 12 months for the use of conditional fee agreements (CFAs), often described as ‘no win, no fee’ agreements. The Ombudsman has reported that the remedies awarded on CFA cases from November 2012 to November 2013 came to £944,000. This includes compensation, reduced fees and the costs of putting things right with clients.

The history behind ‘no win, no arrangements’ are that they were brought into being by the Government to fill the gaps left by removing some of the legal aid provision for these types of claims. The idea was to allow access to justice for people no longer entitled to legal aid.

Solicitors working on CFAs often take on significant risk with difficult and complex cases. The idea was that the ability to charge success fees under the agreement, in addition to basic fees, compensated that risk and the uplifted costs recovered in successful cases would cover the written off costs on unsuccessful cases, thereby enabling access to justice for clients with difficult cases. This success fee was previously paid for by the defendant with little or no success fee payable by the client. These were genuine ‘no win, no fee’ arrangements where, if successful, the client often kept 100% of damages and, if unsuccessful, the intention was that the client would not have any financial outlay.

However, the cases looked into by the Ombudsman showed a number of worrying situations where claimants were left out of pocket or incurred costs that they had not expected and the Ombudsman is clearly concerned at the conduct of some solicitors with such agreements.

Since the government changes in April 2013, success fees can no longer be recovered from the defendant and must instead be taken from damages awards to the clients. Given the change in funding enforced following Jackson, and what will now be a common approach to deduct fees from a client’s damages under the new terms of these agreements, there could be further difficulties and complaints regarding their use ahead. Claimants should still be protected if unsuccessful but do have potential costs’ liability if they succeed in part or all of their case. Careful advice needs to be given about costs recovery and liability.

At present, these agreements are the only real option available to clients when they have no other source of funding - such as legal expenses insurance, union membership funding etc - available to them. They are essential for the right for injured persons to bring claims in such instances and therefore must remain in place. However, the impact that recent changes are likely to have on clients has yet to be properly seen. There are concerns that the changes may result in clients being unable to pursue difficult cases or having substantial deductions for legal costs made from their compensation thereby not leaving them fully compensated.

Philippa Luscombe, partner in Penningtons Manches’ clinical negligence and personal injury team said: "A good proportion of these remedies were awarded on pre April 2013 agreements. Since the change in April 2013, it is even more essential that solicitors need to be very clear with clients on their agreement terms given the potential for deduction from damages received. Use of a specialist solicitor with experience in dealing with these types of cases and agreements and subject to approval and codes of conduct by bodies such as the Law Society and APIL is essential to avoid issues in the future."

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