No Win, No Fee

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.

Breaking the Shackles – ‘Tesco law’ and the Transformation of Legal Services

There is no better graphic representation of the history of legal services in England and Wales than the barrister’s wig. The fact that in order to be heard in a senior court a person must first place a 16th century horse hair wig on their head demonstrates the historic exclusivity that accompanied legal services provision.

For much of the last few hundred years the rules regarding who can deliver legal advice have been fixed. In the event of a legal problem arising, one would have to consult an appropriately qualified solicitor who would then recruit a specialist barrister should representation be required in court. As a result, other ways of resolving issues were largely unavailable to the average person.

Recent Reforms

This strict and particular model remained unchallenged for centuries. In the last decade, however, steps have been taken to open up the legal services market.

Firstly, the traditional distinction between barristers and solicitors has been eroded with the creation of ‘solicitor-advocates’ able to act in the senior courts. This was complemented by the introduction of changes which have allowed barristers to advise clients directly without the need for a solicitor. These are major reforms which have broken down divisions which have existed for centuries.

Secondly, the introduction of Alternative Dispute Resolution has changed the way in which legal disputes are resolved. In the past, it was only truly possible to resolve issues by going to court with a lawyer. Now the position is much more complex. In many areas, such as family law, it is a requirement for litigants to attempt mediation before they can enter a courtroom. These changes have significantly reduced the need for lawyers to become involved in the process. Other parties, such as mediators, arbitrators, and the voluntary sector have become more important in helping people to resolve disputes.

Most importantly, however, the Legal Services Act, passed in 2007, has broken down the barriers preventing new models of delivering legal services. Following this legislation, it is now possible for legal services to be provided by ‘Alternative Business Structures’. This has enabled new entrants to the market to compete with established solicitors and barristers. Advantages of these reforms include greater choice, specialisation, and clarity. It is now open to a wider number of bodies, such as supermarkets, co-operatives and online companies, to offer and promote legal services to the market.

Birth of Online Document Retailers

One development that has arisen as a result of the changing market is the advent of online legal document retailers such as Netlawman. These are websites that offer standard legal documents to consumers in exchange for a fixed price. Whereas before customers may have had to visit an expensive solicitor to obtain a draft contract or terms and conditions, these are now available at the click of a mouse via the internet.

Online legal document retailers offer significant benefits to service users. The first and most obvious is cost. Customers can now significantly reduce their expenses by making use of new websites. Other bonuses include simplicity, by enabling customers to obtain documents written in plain English, and efficiency, by facilitating quicker and faster business deals. It is now possible to obtain a vast range of legal templates online such as:

  • Contracts for the Sale of Goods
  • Agreements governing share ownership
  • Tenancy agreements
  • Contracts of employment
  • Confidentiality and non-disclosure agreements
  • Pre-nuptial agreements in marriage cases
  • Agreements concerning power of attorney
  • Intellectual property agreements

Some document retailers provide a post-editing review service as well, further bridging the gap between writing your own contract and having a solicitor draw one for you.

Teething Problems

 Critics of the reforms to legal services have claimed that the changes will lead to ‘Tesco law’. It is suggested that opening up the market will create a new sector of unqualified, unreliable players, which will inevitably be to the detriment of consumer welfare.

Much of this criticism comes from existing legal practitioners. Legal practitioners have to train for a number of years and pass several exams and apprenticeship tests in order to become qualified. There is no such guarantee with the authors of online legal documents, for example. Online documents can be written by anyone, anywhere. As a result, there is a degree of risk that accompanies online retailers, which is also found with other new legal service providers, such as supermarkets and co-operatives.

While there may be issues with quality assurance amongst some new entrants, the net effect of greater competition and choice will in all probability be an increase in standards. The threat presented by Alternative Business Structures innovations will force established providers to offer greater value to consumers. Better ‘niche’ area service will result as providers compete to deliver a wider range of specialist products. These consequences can only be to the benefit of the consumer’s needs and requirements.

Unlike the legal professions, online document retailers require no prior consultation before documents can be obtained. There is no delay as a result of excessive administration or compliance issues. A small business owner can now log on to the internet and select a contract if they intend to employ a new member of staff without having to check the process with a solicitor. The advantages for the whole economy in terms of productivity and growth of this efficiency are plain to see. Furthermore, being able to obtain accurate documents online will encourage businesses and individuals to avoid using lawyers wherever they can. One hopeful consequence of this is that economic actors may become more legally self-reliant, sidestepping the trauma and expense of going through the official litigation process with solicitors and barristers.

Conclusion

 Whenever wholesale reform is introduced, there will be those who resist it. This is no different with changes to legal services, which have been unpopular with a section of the established professional market.

It seems, however, that the title ‘Tesco law’ is both misleading and inaccurate. Alternative Business Structures, particularly online legal document retailers, can offer such choice and variety that standards and quality will surely improve in the long-run. Rather than harming consumer welfare, therefore, there is every chance that ‘Tesco law’ and other developments will create substantial gains for the legal services market heading into the future.