No win, no fee funding arrangements

The most common form of ‘no win, no fee’ agreement is the conditional fee agreement (CFA). Under a CFA the lawyers share with the client the risk of losing the case. If the case is lost, the lawyers will not charge the client for the work done.

However if the case is won the lawyers will charge an additional success fee on top of the normal fees. This is intended to compensate the lawyers for the risk of not being paid and for the delays in getting paid. The level at which the success fee is set reflects the risk involved and can be up to 100% of the base cost. A lower success fee may be payable if a case is settled at an earlier stage.

Lawyers are not obliged to accept a case on a CFA and when deciding whether or not to act on this basis they will take into account the merits of the case, its likely outcome and the level of the success fee.

To protect against having to pay the opponent’s legal costs and both sides’ disbursements (other expenses or charges, such as fees for expert witnesses if they are needed) claimants entering into CFAs may take out an after-the-event (ATE) insurance policy under which the insurer agrees to underwrite (sometimes subject to a maximum) the person’s liability to pay the costs of another party to the litigation.

In November 2008 Lord Justice Jackson was commissioned by the then Master of the Rolls to undertake a review of legal costs. The review was established on the basis that the costs of civil litigation were too high.

The review considered the rules and principles governing the costs of civil litigation and made recommendations on how best to promote access to justice at proportionate cost. Lord Justice Jackson published a Preliminary Report on 8 May 2009, and a Final Report in December 2009.

The report found that in some areas of civil litigation costs were disproportionate and impeding access to justice. ‘No win, no fee’ agreements were described by Lord Justice Jackson as “the major contributor to disproportionate costs in civil litigation in England and Wales”. He identified the lawyer’s success fee and ATE insurance premium as “two key drivers of cost under such agreements”.

In November 2010 the previous Government consulted on implementing a package of Lord Justice Jackson’s recommendations which were then taken forward in the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

Following the Government’s implementation of Lord Justice Jackson’s recommendations, success fees payable under CFAs entered into after 1 April 2013 are no longer paid by the losing party (except in limited classes of cases temporarily excluded from the reforms).

Nor can a costs order made in favour of a claimant using a CFA require the defendant to pay all or part of the ATE insurance premium. The cost of an insurance policy is therefore now another factor that must be considered by any party contemplating litigation.

The Conditional Fee Agreements Order 2013 provides that success fees may not exceed 100% of the basic damages. In personal injury claims the Order capped success fees at 25% of the general damages for pain, suffering and loss of amenity and damages for past pecuniary loss in proceedings at first instance. They are capped at 100% of those heads of damage on appeal.

A damages-based agreement (DBA) is a type of contingency fee agreement under which a lawyer can recover a percentage of the client’s damages if the case is won. Previously DBAs could not be used to fund litigation or arbitration proceedings and could be used only in claims before tribunals. Since the entry into force on 1 April 2013 of the Damages-Based Agreements Regulations 2013, DBAs can be used to fund proceedings in all civil litigation cases (with limited exceptions).

The 2013 regulations cap the maximum payment that a lawyer can recover from the client’s damages at 25% of damages (excluding damages for future care and loss) in personal injury cases, 35% on employment tribunal cases (which has existed since 2010) and 50% in all other cases.

Solicitors in Scotland can currently enter into ‘speculative fee arrangements’ which are akin to CFAs in that a client is only required to pay his solicitor’s legal fees if the litigation is successful. An enhanced fee is normally charged in the event of success.

Success fees are calculated as a percentage of legal fees and not on the amount recovered by the client. In the event of the client’s success, the fees element in the solicitor’s account of expenses can be increased by a maximum of 100%.

Although entering into a speculative fee agreement means that a client will not have to pay his own solicitor anything if he loses the case, he still runs the risk of having to meet the other side’s expenses. Currently, the only way of addressing this risk is through purchasing ATE insurance.

In contrast to their availability in England and Wales, DBAs cannot currently be enforced by solicitors in Scotland and advocates are expressly forbidden by the Faculty of Advocates from entering into them. Some firms of solicitors have set up separate claims management companies, which are currently unregulated in Scotland, so that they can offer DBAs to their clients.

The Scottish Government launched a consultation on the expenses and funding of civil litigation in January 2015. In summary, the main recommendations of the Taylor Review were as follows:

• Speculative fee arrangements offer access to justice but caps to the level of success fees should be introduced: a cap of 20% (inclusive of VAT) for the first £100,000 of damages; 10% (inclusive of VAT) on damages between £100,001 and £500,000; and 2.5% (inclusive of VAT) on all damages over £500,000.
• Solicitors in Scotland should be able to enter into DBAs (also referred to as ‘contingency fees’) on the basis that no fee would be charged should the case be lost.
• ‘One way costs shifting’ should operate in most circumstances in personal injury cases (including clinical negligence), meaning that the pursuer (usually an individual) would not be responsible for paying the defender’s legal costs should the pursuer lose but that the defender would remain liable for the pursuer’s legal costs should the defender lose.

Potential legislation

In its consultation the Scottish Government announced its intention to bring forward legislation broadly along the lines recommended by Sheriff Principal Taylor:

• to introduce caps on success fees
• to introduce DBAs (with the same caps)

The legislation will likely provide that the only outlay which will remain the responsibility of a client under such agreements is any premium to obtain ATE insurance cover, should the client deem that necessary.

The Scottish Government published its analysis of the consultation responses in August 2015. However reform in this area was not included in the Scottish Government’s legislative programme for 2015/16.

‘No win, no fee’ agreements are not available to fund civil litigation in Northern Ireland.

Personal injury claims not reliant on legal aid are funded in a variety of ways, including commercial arrangements between lawyers and insurers, trade union support, and informal practices adopted by smaller firms. Many personal injury cases in Northern Ireland operate under what are in practice CFAs, although they are not recognised as such.

In September 2010 the Minister of Justice in the NI Executive announced a review to examine how people could best be helped to secure access to justice in a cost effective manner. A consultation in 2013 shortlisted two options, both involving a conditional fee agreement with the success fee payable by the successful plaintiff or by the losing defendant.

Both options were rejected, following further consideration, due to the significant additional costs that would be incurred from the success fees and ATE insurance premiums.

A second report published following the Access to Justice Review Part II, A strategy for access to justice, made further recommendations for how to maintain access to justice while minimising the cost to legal aid. It proposed the introduction of CFAs in Northern Ireland in line with the Jackson reforms. The report recommended that success fees should not be permitted in road traffic claims and success fees should be limited in all other cases to 20% of damages recovered.

A second consultation was opened on 30 November 2015 inviting comment on the recommendations made in A strategy for access to justice. It closed on 19 February 2016. The NI Executive has not yet published its response.