Smith-Jones

How changes in no win, no fee regulations will affect PI companies

The last decade has certainly seen a lot of so-called “no win, no fee” deals. Widely offered by law firms across the UK, this funding mechanism has been open to much debate and put under intense scrutiny by Government agencies such as the Legal Ombudsman, Law Society and Legal Services Board.

So, what exactly are “no win, no fee” arrangements and how do they affect the legal profession?

In this article, we take a closer look at the history of this particular funding initiative together with the ways in which any changes might potentially impact the legal market.

 

What does “no win, no fee” mean?

A “no win, no fee” arrangement is often used in cases concerning personal injury or those against an employer. What it effectively means is that the intended claimant can obtain legal advice without having to pay any solicitor fees up front and instead only pays in the event that the claim is successful.

Whilst there are basically two different types of “no win, no fee” arrangements, the ultimate outcome is the same, i.e. that the intended claimant will only have to pay certain disbursements (such as court fees and medical expenses), until such time as the case is settled.

If the case is successful, then the losing party will usually be ordered to pay the claimant’s costs, and it is only at this point the solicitor gets paid. Of course, the bigger picture is slightly more complicated than that since insurance policies are often used to protect against risk, but that really is the crux of the matter.

 

So why might there be changes to the current arrangement?

There are a few reasons why the current “no win; no fee” arrangement might well be set to change.

Over the last decade, the Legal Ombudsman service has acknowledged that this particular arrangement has its problems. [1] In fact, in a recent publication the Ombudsman service categorically stated that this relatively new model had played its part “… in fostering a culture of ‘ambulance chasing’ and fraudulent claims, which has inadvertently driven up insurance premiums.” This is certainly not good news for anyone wishing to pursue a claim for compensation and/or any other type of damage or loss sustained.

Consequently, and in direct response to this, the Government have now begun to take more control over the situation, primarily by banning referral fees.

In the meantime, the Government’s concerns are also firmly echoed by the Solicitors (Advertising) Regulations 2002. [2]

Under these regulations (more specifically, SI no. 518 of 2002), any solicitor offering advice on a “no win, no fee” basis is strictly prohibited from using such terminology in order to advertise their services since they’re expressly deemed as being extremely misleading. The Law Society further considers these misleading adverts to be a prima facie breach of both standard regulation and good practice.

 

What happens if a solicitor’s advert is misleading?

If a law firm or individual solicitor attempts to (or indeed, does) breach the very strict criteria laid down by the regulations then this may well constitute misconduct and will be dealt with accordingly. Furthermore, s.5 of the Solicitors (Amendment) Act 2002 strictly prohibits any person who is not a qualified solicitor from publishing such advertisements which, if published by a solicitor, would remain in clear breach of the legislation. In fact, the act further extends the definition of misconduct to include any solicitor having either direct or indirect association with a person acting in contravention of s.5.

Breaches of this nature are dealt with under s.18 of the Act – ordinarily by making application to the Law Society and then to the High Court for an order prohibiting the solicitor from further breaching the regulations. Thereafter, the application is usually made to the Solicitors Disciplinary Tribunal who will duly take whatever steps are considered necessary against the individual, or firm, concerned.

 

What part does the Legal Ombudsman play in regulatory changes?

For their part, the Ombudsman is now seeing increasingly more cases where the ultimate promise that a consumer won’t have to pay any legal expenses is being broken, thus leaving the client with unexpected fees to pay when their intended claim has failed. Cases of this nature are dealt with very seriously, and consequences should never be underestimated.

 

What are the most common problems with “no win, no fee” arrangements?

Unfortunately, there remain quite a few problems associated with “no win, no fee” arrangements, although the Legal Ombudsman has attempted to broadly categorise these as follows:

  1. Transfer of risk – where solicitors are attempting to pass the ultimate risk of unrecovered costs onto their client instead of accepting responsibility for them themselves.

 

  1. Unclear terms and conditions of business – whereby the drafted agreements are so complex in nature that their clients simply don’t understand the ultimate financial risk of entering into them. By marketing these agreements as “no win, no fee” this directly implies that the client won’t have to pay any costs unless their claim is successful, and this simply isn’t true. The Ombudsman has therefore raised real questions as to whether the phrase should even be used at all.

 

  1. Market forces – due to the increased competition to get clients through the door on a “no win, no fee” arrangement, the Ombudsman considers that many firms are now forfeiting a robust vetting process in favour of gaining more business. With over 70{d0b33ffed4c839fc4b18c811774d92ca1331969f61d589721459b0764cff8e09} of complaints currently received by them relating to personal injury claims, there can clearly be little doubt that this particular approach is at best, detrimental to clients, with far too many solicitors simply wanting quantity over quality.

 

What is being done to ensure fairness?

In response to the various consultations and complaint trends, the Law Society has now produced a model conditional fee agreement for use in both personal injury and clinical negligence cases. This model more clearly sets out exactly what is (and, perhaps more specifically, what “isn’t”) covered under the terms of the agreement, what happens in each eventuality (i.e. whether the claim is successful or not) and also includes additional information relating to success fees and basic charges.

For new clients then, this can only be a good thing and has certainly been welcomed across the board. What’s more, the template is also available on the Law Society’s website which means that both solicitors and clients alike are able to access it and fully consider the terms prior to entering into it.

 

Conclusion

It seems reasonable to suggest that the “no win, no fee” culture is still subject to much further debate and regulatory changes.

For now, however, both the apparent pro’s and con’s of these agreements will continue to evolve with some intended claimants still finding them beneficial and others, quite the opposite.

Either way, there can be very little doubt that regulatory changes are afoot, and these could well have a massive impact on the current market. However, with greater consistency across the industry, stricter regulations and further clarity it seems that intended claimants will be given a much clearer picture of what to expect as the claim progresses.

Ultimately, of course, the main aim of legal services is to make them much more accessible, whilst also managing costs within given expectations. If this can be achieved, then that can only be a good thing for all concerned – not to mention the Legal Ombudsman who should ultimately see a drastic reduction in those complaints currently being made by PI law firms.

 

References

[1] Legal Ombudsman http://www.legalombudsman.org.uk/publications/no-win-no-fee/

[2] The Law Society, Registrar of Solicitors, published 7th March 2014: https://www.lawsociety.ie/Solicitors/Practising/Practice-Notes/Solicitors-Advertising-Regulations/#.WoLSgEx2t-w