The balance of payments

Do ‘no win, no fee’ deals really offer a risk-free way to claim for
a personal injury or pursue a libel case? We weigh up the pros and cons.

This article is reproduced, with permission, from Which? magazine, February 2004.

Driving home from work one afternoon in 2000, Stephen Price suddenly saw another car careering into his path. The other driver’s foot had slipped off the brake, and she’d lost control of her car. Stephen was seriously hurt. Unable to work while he recovered, and struck by ongoing back problems, he decided to seek compensation.

The trouble was, the upfront costs of taking the case to court were substantial. And the risk of losing – in other words, the risk of paying both sides’ legal costs – was one Stephen just couldn’t afford to take. So he found a solicitor who would handle his claim on a ‘no win, no fee’ basis. The claim progressed quickly. Within six months, he’d received £2,700 for his injuries and loss of earnings. And he didn’t have to pay his solicitor a penny – all his legal fees were paid by the losing side. ‘I was impressed by how quickly and smoothly things went,’ says Stephen. ‘The “no-win, no fee” arrangement was crucial. I would never have been able to pay for legal help upfront and take the risk of losing.’

The type of ‘no win, no fee’ deal that Stephen found sounds too good to be true. If you lose, you don’t pay. If you win, you can claim your legal costs from your opponents, including the additional ‘success fee’ that solicitors charge in these cases. But there’s nothing dodgy about it. ‘No win, no fee’ agreements are a perfectly sound way to pay for legal help. From their first appearance in 1995, they’ve become so ingrained in the legal system that, for straightforward cases, they’re effectively filling the gap left by cuts to legal aid.

However, the name is slightly misleading – it’s rare that you can avoid spending anything at all on your case. That’s because, if you lose, although you won’t have to pay your own solicitor’s costs, you will have to pay your opponent’s – even in a quick, simple case, that could be thousands of pounds. To cover yourself against it, you need to take out insurance, which can be costly.

In this article, we explain how solicitors work their ‘no win, no fee’ agreements, and what to look out for. Then we look at the problems with some other, similar legal payment deals.

Using ‘no win,no fee’

‘No win, no fee’ arrangements can cover most civil (that is, not criminal) proceedings, from people selling you dodgy TVs to disputes with your neighbour. The only exceptions are family cases.

However, solicitors will generally take on cases only when there’s a reasonable chance of success (and therefore less risk that their bill will go unpaid). Difficult cases are likely to be turned away. For example, you’d probably struggle to make a ‘no win, no fee’ claim for negligent medical treatment, which is always complicated. If you’re unsure about whether ‘no win, no fee’ is for you, you can receive free advice from Citizens’ Advice Bureaux or the Community Legal Service. Also, some solicitors will provide a free initial assessment.

If you win

If you win, you can claim legal costs from your opponent, but only if those costs are reasonable. That includes the success fee that solicitors usually charge for winning a case. This fee is designed to compensate your solicitor for the risk of not being paid. The riskier the case, the higher the success fee. As a guide, a reasonable success fee in a straightforward traffic accident claim would be 20 per cent. Make sure your agreement with the solicitor states the success fee and why it’s set at that level. If it’s too high, the court won’t award it all and you’ll have to pay some.

If you lose

Shirley won £3,000 in compensation, but the cost of insuring the ‘no win,no fee’ deal ate into her winnings.
Illustration of Shirley and scales od justice

If you lose, your opponent will try to claim their costs from you. To cover this risk, it’s vital to take out insurance before you make a claim. The cost of insurance varies, depending on the risk involved (your solicitor will tell the insurance company how strong your claim is). As a rough guide, the typical premium for a claim following a road traffic accident is around £350. As with the success fee, you can claim back any reasonable insurance premium from the other side if you win. If you don’t win, you could lose your premium, although there’s sometimes a way around this. For example, Allianz Cornhill offers a policy that will refund your premium if you lose. There’s no guarantee that it will think your case is strong enough, though. Your solicitor will usually offer to arrange insurance for you. If they do, ask why they have chosen the particular insurer and get a clear idea of what the policy covers and what it doesn’t. If they don’t offer you insurance, find a solicitor that will.

The solicitor might also offer to arrange finance to pay for the insurance, though you can go elsewhere and organise your own loan. If you do take out a loan, you probably won’t be able to claim back the interest. That might not seem like much, but the costs can soon mount up, as Shirley Drabble discovered.

Claims management companies

Making her way down a flight of slippery stairs at the Bluewater shopping centre in Kent, Shirley took a serious fall. She shot her arm out in an effort to support herself but, in doing so, wrenched it and suffered injuries to her shoulder.

The stairs were wet because of a leaking roof, so Shirley decided to seek compensation. The firm

she chose to help her found a solicitor and arranged the insurance, for which she paid a £1,312 premium. She balked slightly at the size of the premium but, on the company’s advice, financed the insurance with a loan which it arranged.

The claim plodded on for more than two years. In the end, she was awarded £3,000, but £288 was swallowed up by interest on the loan. ‘I felt let down badly by the firm,’ Shirley now reckons. ‘If I’d known the cost of the loan, I would never have taken it out.’

The type of company she chose is called a claims management company. They also offer ‘no win, no fee’ deals, but they pass your claim on to a solicitor rather than handling it themselves. They’ll also arrange the insurance and any related loans, and they’ll even deal with the solicitor on your behalf.

Sounds good in theory, perhaps, but Shirley’s experience isn’t a one-off – we’ve seen plenty of other cases like it. What’s more, there have been accusations that claims management companies don’t win as much compensation as solicitors, because the pressure is on to keep a high turnover of cases. They’ve also been under fire recently following the high-profile collapse of The Accident Group and Claims Direct, with claims in the media that they took on too many weak cases. And, of course, common sense suggests that they might add an unnecessary layer to the process.

All of which makes a fairly compelling case for trying to find your own solicitor before turning to a claims management company – but the clincher is that they’re not subject to the same regulations as solicitors.

For a start, unlike solicitors, there are no rules governing how much claims management companies can charge. And solicitors have to follow The Law Society’s code of conduct. This states, for example, that solicitors can’t make a profit from arranging your insurance. Also, if you’re unhappy with your solicitor, you can refer it to the complaints body, the Office for the Supervision of Solicitors. If you’re still unhappy, you can take it to the Legal Services Ombudsman. The solicitors used by claims management companies are subject to the same rules as all other solicitors – but if your problem’s with the company itself, there’s no ombudsman for you to fall back on.

Referral companies

The type of claims management company Shirley dealt with shouldn’t be confused with a similar-looking, but less worrying, beast – the referral company. These simply put you in touch with a solicitor. They don’t charge for their service because they’re a marketing tool for the solicitors that they represent. For example, Accident Line, which is endorsed by The Law Society, will put you in touch with a solicitor who has particular expertise in personal injury claims. You can phone it on 0800 192939 or check its website on www.accidentlinedirect.co.uk.

Claims assessors

Claims management companies are also easy to confuse with claims assessors. These will often charge you only if you get a settlement but, since they don’t generally use solicitors, they can’t take legal action. All they can do is advise you about how much your claim is worth and negotiate on your behalf. If they don’t succeed, you’ll still have to use a solicitor to take court action.

A further drawback is that, if you win, they’ll want a proportion of your winnings. Unlike the other types of firm, they can’t claim their fees from the losing side.

Alternatives to ‘no win,no fee’

If you have difficulty finding a solicitor who’ll take on your claim on a ‘no win, no fee’ basis, there are some other low-cost options.

Community legal service fund. This has replaced legal aid, though it’s accessible for fewer types of case than legal aid was. It will help only for types of claim that tend to be complex or expensive – clinical negligence, say – and if you meet certain financial criteria. In cases where ‘no win, no fee’ is unsuitable, the fund may provide assistance.

Trade union. If you’re claiming because of an injury sustained at work and you belong to a trade union, it might help you. You may need to make a contribution, depending on the terms of your membership.

Legal expenses insurance cover. Look to see if you already have this as part of your household or motor insurance. It could enable you to pursue a legal claim either without paying or paying only an excess fee.

Our verdict

‘No win, no fee’ arrangements have radically changed the legal system. And much of that change has been for the good. Now people like Stephen – not rich enough to pay lawyers, not poor enough to qualify for help from the state – have access to justice which they would previously have been denied.

This has led to a growth in the claims industry and the creation of the claims management company. We’re not convinced that claims management companies provide real value to people with a claim to make. In fact, in a lot of cases, consumers like Shirley have been badly let down by claims companies.

If you want to make a claim, ‘no, win, no fee’ is a good route to take. But choose a firm carefully – how much of your winnings you keep will be in the balance.

Further information

www.nacab.org.uk
Staff at Citizens’ Advice Bureaux can offer advice about the best way to proceed with your claim
www.justask.org.uk
The Community Legal Service provides information about legal services in your area
www.lawsoc.org.uk
The Law Society provides a code of professional conduct which solicitors must follow. The site also contains details about the Office for the Supervision of Solicitors
www.olso.org
The Legal Services Ombudsman can deal with complaints if you’re unhappy with how the Office for the Supervision of Solicitors handled them.

Dealing with the solicitor

As with most things legal,’no win,no fee’ agreements can have hidden complications.

Before you sign anything,make sure you go through the following points.

  • Ask whether you’re entitled to publicly funded legal help.
  • Find out exactly what the solicitor’s basic costs will be.
  • Ask how much will it cost to insure against the possibility of losing.
  • Look for a clear idea from the solicitor of how much compensation you’re likely to be awarded.
  • Find out whether your solicitor, rather than you, bears the risk of the other side refusing to,or being unable to,pay.
  • Ask what happens if the claim is settled out of court. You’re looking for certainty – there should be a clear answer.
  • Check whether the solicitor will pay the expenses of making the claim – court fees,medical reports and the like.
  • Your solicitor should supply you with a certain level of information. For example, they should tell you that you might be liable for costs if you withdraw your claim. If they don’t, ask yourself how competent they seem.