No win no fee: the reality
Conditional fee agreements (CFAs)
In April 2000 legal aid for routine personal injury cases was abolished and replaced by no win no fee agreements, involving the recovery of insurance premiums and success fees from the losing party. These schemes are borrowed from the United States.
It has been commented that there are growing concerns that these arrangements may not always be operating in the interests of justice. This appears to be a mastery of understatement.
It is generally recognised that solicitors will not take on a case under a CFA unless they estimate that there is a 70 per cent chance of success.
In 2005 the Citizens Advice Bureau made the following comments about CFAs:
Consumers were being misled by the term no win no fee.
They often found that the system cost them more than they gained.
They were subjected to high-pressure and aggressive sales tactics from non-lawyers employed by claims management companies.
Those companies were paid a fee by solicitors to whom they referred cases.
Consumers were not clearly informed of the financial risks involved in legal proceedings.
They were misled into believing that the system was genuinely no win no fee.
The reality was that consumers had to take out insurance policies to offset legal expenses incurred if they lost the case and had to pay the winning side’s costs. They were encouraged to take out loans to pay for these policies.
Private insurance companies charged according to risk. Clients with uncertain cases could face very high insurance premiums.
Legal expenses could be artificially inflated by claims management companies.
It frequently happened that injured persons did not benefit from the compensation they were awarded.
For example, the CAB dealt with a case where a woman was left with £15 from a £2150 compensation award, and another where a man received Â£1250 compensation but owed £2400 for insurance policies.
No win no fee can be described as another gimmick to avoid state responsibility and to secure justice on the cheap.
The following arguments against the conditional fee system were put forward before its introduction:
It was an open invitation to unprofessional conduct.
Lawyers would refuse to take on weaker cases.
There would be increased pressure to accept an early settlement.
Lord Denning, writing in 1982, stated that English law had never sanctioned an agreement by which a lawyer was remunerated on the basis of a contingency fee, that is, he gets paid the fee if he wins but not if he loses. Such an agreement was illegal on the ground that it was the offence of champerty. Never, never, said Denning, allow lawyers to work on the basis of a contingency fee.
No win no fee
No win no fee, in reality, is a grotesque over-simplification which reflects the naive innocence of clients. It has developed into an impenetrable jungle of regulations and procedures, mostly concerned with insurance premiums and payments. There is also a significant body of case law dealing with CFAs and their insurance implications.
In outline, a solicitor assesses the chance of success in a case and decides on a success fee to be paid on top of normal fees if the claim succeeds.
This includes the cost of an insurance policy to cover costs if the claim fails.
The introduction of CFAs is another example of the commercialisation of legal practice. CFAs make it less likely that poor claimants with cases which are not overwhelmingly likely to succeed will be able to find professional representation. Claims with a significant risk of failure are not taken on.
In 2009 a study by Oxford University concluded that the use of CFAs in defamation cases (essentially, libel) made such cases 140 times more expensive in England and Wales than in other European countries. Defendants who lost defamation cases faced a doubling of reasonable costs against them. Media outlets were being forced to settle claims because of the financial risks of fighting such cases. CFAs in defamation cases enabled lawyers to charge up to twice their normal fees of up to Â£800 an hour. The study made the point that media companies were being forced to self-censor because they had no economic incentive to defend defamation claims. Where the claimant had the benefit of a CFA, there was no longer any incentive to control the amount of work being done. This distorted the normal costs control mechanism and potentially breached Article 6 of the European Convention on Human Rights (the right of access to justice) and Article 10 (freedom of speech).
Compensation in libel cases assesses a person’s reputation as if this was a commodity. The valuation of a person’s reputation in money risks undermining the very thing which the law seeks to restore, namely the intangible good name of the injured person. The law of defamation is fundamentally geared towards financial compensation.
English law imposes a monetary value on injuries. Although there are a number of non-money remedies available in the employment tribunal, they are rarely ordered. Employment tribunal claims, like the vast majority of civil claims, are mainly about money.
What is the client’s ultimate aim? If it is financial compensation, then the system functions. If it is otherwise, for example to obtain justice or to have a day in court, the procedural aspects of the case become highly problematic.