Summary

Over recent months, the Legal Ombudsman has become increasingly concerned about the operation of ‘no win, no fee’ legal services. We have made conduct referrals to regulators about the way some law firms have handled these agreements. Our scheme has also made financial remedies to consumers of almost £1 million in the past year.1

‘No win, no fee’ agreements promise customers a way of funding litigation at minimal financial risk to themselves. They are usually formally referred to as conditional fee agreements (CFAs), and are sold on the understanding that a lawyer will not take a fee if the claim fails. In most cases, if the claim is successful, the lawyer will charge an uplift (known as a success fee) in addition to their base costs.

These agreements can offer customers an affordable and simple solution. Not all the time though - we are seeing examples of very poor service in some of the cases that come to us and have made conduct referrals where service providers have failed to honour agreements with customers or have exploited loopholes in the contracts, with serious consequences for their clients.

These raise questions about the way that such agreements are structured and sold. There are signs that these cases may be representative of a wider problem with ‘no win, no fee’ agreements which, if unaddressed, may lead to significant market issues arising. Some, such as the Committees of Advertising Practice (CAP), have previously warned that the phrase ‘no win, no fee’ is “potentially misleading, because it can imply that the client will be liable for no costs whatsoever”2. Its guidance note advises that generally, these agreements should not be used unless the service is genuinely free of cost to the claimant. The Advertising Standards Authority has upheld complaints against firms claiming ‘no win, no fee’ because, unqualified, it implied the client would be liable for no costs whatsoever.3

This short report sets out our concerns and includes six cases that illustrate what can go wrong. We conclude that:

• The use of ‘no win, no fee’ agreements should be monitored and reviewed by regulators to ensure that they do not lead to consumer detriment.

• It is essential that lawyers take care in explaining the conditions attached to ‘no win, no fee’ agreements and make clear the circumstances where the customer may end up incurring legal costs, and

• Lawyers should also exercise due care before agreeing to take on a case to ensure that the cases are well founded, minimising risk to themselves and their customer.

Finally, we raise the question as to whether the ‘no win, no fee’ descriptor of the agreement should be used at all.

1 The total amount of financial remedy awarded on CFA cases between 1 November 2012–30 Nov 2013 was £944,177. This includes compensation, fees reduced, and costs associated with putting things right for consumers.

2 See CAP advice at http://www.cap.org.uk/Advice-Training-on-the-rules/Advice-Online-Database/Litigation-No-win-no-fee-claims.aspx as at 17 December 2013

3 http://www.cap.org.uk/~/media/Files/Copy%20Advice/Help%20Notes%20new/No_Win_No_Fee.ashx at paragraph 3 as at 17 December 2013