The ‘no win, no fee’ problem

The Legal Ombudsman’s report on complaints about ‘no win, no fee’ agreements is well worth a read for lawyers who work under these funding arrangements. There are some quite shocking examples of consumers facing bills of tens of thousands of pounds, in cases where the ombudsman found that law firms had contradicted their promises or breached their agreements.

But the problem should not be over-egged – and LeO itself points out that although it has ordered £1m in financial remedies relating to conditional fee agreements in the past year, these problems are not necessarily widespread. Only around 8% of the complaints it handled last year related to CFAs. But the fear is that the highly pressured environment created post-Jackson could fuel bad practice by law firms.

The case studies provided by LeO reveal some worrying instances where there is a clear-cut breach of the CFA terms by solicitors. But in other cases the issues are a little more blurred – for example, one case involved a law firm that had withdrawn from the case on learning of a claimant’s previous accidents. The claimant found herself liable for the other side’s costs of £6,000, and LeO considered that the law firm had effectively exploited a loophole in its terms and conditions to end the agreement, as it rated its prospects of success at below 50%. The ombudsman noted that the firm had had the opportunity to ask about previous accidents when first taking the case, but had failed to do so.

One strong message emerging from the report is that communication with clients is now more important than ever. Lawyers must make sure that the client genuinely understands what the potential deductions might be from their damages, or what disbursements or costs they may have to pay if they lose. The more clearly the lawyer can set this out – and document that they have done so – the safer they will be if the matter is later scrutinised by the ombudsman or regulator. The obvious commercial downside is that the client may be deterred from bringing the claim – but ultimately they must be made aware of the risks.

A large question mark is now hanging over the very use of the headline term ‘no win, no fee’, when it does not always reflect reality in the post-Jackson world. The ombudsman’s report questions whether or not the phrase should continue to be used.

The commercial reality, however, is that clients will continue to be attracted to the reassurance of the ‘no win, no fee’ strapline – even if the promise does not always hold true. If the firm next door is using that banner, it will be very difficult to compete without offering the same.

Rachel Rothwell is editor of Litigation Funding magazine