Television advertisements featuring solicitors offering ‘no win, no fee’ services are extremely hard to miss. On any one day, a viewer is likely to watch several commercials from lawyers enticing customers into supposedly free litigation. These no win, no fee services have become increasingly controversial as a result of their complexity and punitive consequences for losing parties.
This article examines what ‘no win, no fee’ really means in practice and identifies the changing nature of litigation funding in light of recent reforms.
What Happens After Judgment?
A number of matters must be decided once a civil case comes to an end. Clients often remark that they are unconcerned by anything other than the principle of litigation, i.e. which person ‘wins’ or, in legal terms, receives judgment. In actual fact, the additional matters that follow judgment are incredibly significant.
The first of these matters is damages (or in personal injury terminology, quantum). Damages refer to the money that will be paid to the claimant, if successful, that reflect the loss suffered. For example, in a personal injury case a successful claimant will potentially receive money for pain and suffering, loss of earnings, and any disadvantage on the labour market. Of course, if the claimant loses the case, no damages will be awarded.
The second matter to be decided is costs. Costs cover the amount spent by the parties in bringing a case to trial. The largest expense within costs will inevitably be the lawyers’ fees. It is not unusual for costs to exceed damages in certain cases, making the issue of costs highly important in practical terms.
Costs – General Principles
When the court turns to the issue of costs it will start by applying the general rule. This is that the losing party must pay the winner’s costs in addition to their own costs. The court may depart from the general rule in cases where the winner’s costs were unreasonable or where the winner behaved in a way that would make it unfair for the loser to have to pay. Despite this, the general rule is the starting point in most cases.
Obviously, applying the general rule has the potential to cause serious injustice to the losing party. The consequence of a single judge ruling in the claimant’s favour may mean that the defendant not only has to pay damages and their own costs but the claimant’s costs as well.
As a result of this, alternative funding methods have been developed. In the absence of public funding (which is now highly restricted in civil cases), lawyers have devised various schemes to try and improve the affordability of litigation. The two main mechanisms are explained below.
Conditional Fee Agreements
Conditional Fee Agreements (CFAs) have been the main form of ‘no win, no fee’ funding structure used in the last ten years. The basic premise of CFAs is that an unsuccessful party will not have to pay anything to his lawyer following defeat in the case.
The consequences of a CFA are highlighted in this table:
|Client Wins||Client Loses|
|Client able to recover their lawyer’s base costs from the losing party.
Client able to recover their lawyer’s ‘success fee’ (a percentage of base costs) from the losing party.
Client able to recover costs of ATE premium from losing party.
|Client must pay winning party’s base costs, success fee, and ATE premium.
Client does not have to pay their own lawyer’s costs.
In practice, litigants who use a CFA will be covered by After The Event (ATE) insurance, which will cover their costs to the other party in the event that they lose the case.
As a result, the term ‘no win, no fee’ is somewhat misleading. What it really means is ‘no win, no fees to your own lawyer’. The client will of course have to pay the significant fees incurred by the other party’s legal team.
CFAs are a good idea for parties who have an extremely strong case. This is because they will have to pay minimal costs if they are successful at trial. For parties who have weaker cases, however, CFAs can prove to be expensive arrangements.
Perhaps unsurprisingly, CFAs have encountered a lot of criticism in recent years. In one case involving libel it was held that the huge costs facing an unsuccessful defendant under a CFA amounted to a breach of freedom of expression. The 2011 Jackson Review of civil litigation funding proposed abolishing CFAs on the basis of the unfair costs to losing parties. Instead, the review proposed taking a larger share from the winner’s damages.
Damages Based Agreements
Rather than making the losing party pay the entirety of the successful party’s costs, one alternative is to take the money from the successful party’s damages. This is known as a Damages Based Agreement (DBA) and it is the approach that will be taken following the implementation of the Jackson Review proposals in 2013.
The way this works is that the success fee charged by lawyers will now be recoverable as a percentage of damages obtained after trial. Furthermore, successful parties will no longer be able to claim back the costs of the ATE insurance premium from the losing party. In personal injury cases, the success fee will be capped at 25% of the claimant’s damages.
As a result, the responsibility for funding litigation is spread between the parties more evenly than under CFAs. Claimants may find this scheme to be somewhat unfair, however. Damages should reflect money the claimant is entitled to following the injury they have suffered through no fault of their own. To have this money reduced to pay for lawyers they would not have needed but for the defendant’s wrongdoing might seem unjust.
Whatever the merits of the DBA funding structure, it is clear that the new approach will become the norm in future years. Claimants should think whether they could afford to lose up to 25% of their damages as costs before undertaking litigation in this way.
Summary and Key Points
After judgment, the complex issues of damages and costs need to be resolved.
The general rule for costs is that the loser pays both their own costs and the costs of the successful party.
This may cause hardship to the losing party, which has given rise to ‘no win, no fee’ arrangements.
Conditional Fee Agreements ensure that the successful party does not have to pay any costs; the losing party pays all of these but no fees to their own lawyers. Parties will often take out insurance to protect themselves – the premium is recoverable from the losing party after trial.
New Damages Based Agreements replaced CFAs from 2013. This type of structure allows the winning party’s lawyers to claim their success fee from the claimant’s damages rather than the losing party.