Is ‘No Win, No Fee’ Misleading?

The recent report from the Legal Ombudsman, Complaints in focus: No win, no fee agreements is essential reading for all civil litigators. Conditional fee agreements (CFAs) account for a growing number of complaints against solicitors. All the case studies in the report arise from pre-Jackson CFAs where recoverable success fees and ready availability of recoverable after the event (ATE) insurance should have provided a simple consumer solution.

However, the report highlights a number of problems:

• ATE insurers withdrawing indemnity because of poor reporting by solicitors, leaving the client facing a bill for opponent’s costs;
• solicitors promising to arrange ATE insurance but failing to do so, leaving the client with the bill for opponent’s costs;
• solicitors using ‘new information’ to withdraw from a case which had become more risky, but not less than 50%, just because they no longer liked the risk;
• solicitors terminating a CFA because they believed there were no merits, then pursuing a client for a ‘success fee’ when the client won as a litigant in person;
• solicitors charging costs to the client after having entered into a ‘CFA lite’, promising no deductions.

The Ombudsman was able to provide redress to the clients. Its jurisdiction to make awards for poor service is up to £50,000. The Legal Ombudsman is able to go beyond the strict contractual position and consider what is fair when making a finding.

The Ombudsman concludes that a major problem is the use of the term ‘no win, no fee’. Although as a matter of plain English this means ‘if you lose then I don’t charge you a fee’, the Ombudsman feels that over-use of the phrase as shorthand has led consumers to believe that, in addition, it means (1) no liability to pay anything at all if they lose (disbursements, or adverse costs), and/or (2) no liability to pay anything to the solicitor if they win either.

The Ombudsman says that all “this raises real questions about whether the phrase ‘no win, no fee’ should continue to be used”. However, the phrase is so engrained in consumer consciousness as synonymous with CFAs that it would be a brave commercial decision by any one firm to abandon it. Use of alternatives might be viewed by consumers as suspicious. Perhaps more important is to ensure that explanations are full, clear and transparent. Terms should be clearly explained – the ombudsman commends the Law Society’s model CFA as “a great example of how to do this”. The ombudsman also exhorts firms to look at the spirit rather than the letter of the agreement to avoid a reference and an adverse finding.

Post-Jackson CFAs where the client is paying a success fee and ATE premium, and possibly a base costs shortfall, offer even greater opportunities for misunderstanding and complaint. And, as the ‘only game in town’ for impecunious litigants following the virtual abolition of civil legal aid, it is the responsibility of all of us to make sure they work.

This article was first published in the Law Society Civil Justice Section newsletter on 31st March 2014 and is reproduced with kind permission.

David Marshall is Managing Partner at Anthony Gold and Chair of the Law Society’s Civil Justice Committee.  For further information email David Marshall or call 020 7940 4060.

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