As leading professional negligence solicitors, we pursue claims under professional negligence no win no fee agreements against a wide range of different professionals.
However, professional negligence no win no fee agreements may not be the best option in every case and there are circumstances where a different form of funding could be more advantageous to you as a claimant.
To assist you in deciding whether a no win no fee agreement is right for you, we have prepared this helpful guide. Within it we explain how professional negligence no win no fee agreements operate, what the advantages and disadvantages associated with them are and when an alternative funding arrangement might be more suitable.
What are professional negligence no win no fee agreements?
The colloquial term ‘no win no fee’ is commonly used to refer to conditional fee agreements, which are also known as ‘CFAs’. No win no fee agreements are defined by section 58(2)(a) of the Courts and Legal Services Act 1990 as:
‘an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances.’
In essence, this means that an agreement between a solicitor and client will be a no win no fee agreement (aka a CFA) if it provides that the amount the client pays to the solicitor is dependent upon the outcome of the claim to which it relates.
What is the history behind no win no fee agreements?
No win no fee agreements were introduced into statutory law in England & Wales on 1 November 1990. Prior to their introduction, it was unlawful for a solicitor conducting a professional negligence claim, or any other litigation, to enter into any form of contingency fee arrangement. That was largely due to a concern that such arrangements could give rise to a conflict of interest between the solicitor and client, as well as between a solicitor’s own financial interests and the duties which he/she owed as an officer of the court.
However, with wider pressure to reduce government spending, the mounting cost of the Legal Aid budget and the potential of a ‘cost-free’ alternative, such ethical concerns as there were eventually gave way to the political and economic reality of the day.
Why did no win no fee agreements become so popular?
Both for professional negligence claims and other forms of litigation, CFAs quickly became the ‘go to’ funding option for solicitors and clients alike. There were a number of reasons for this.
When originally introduced, and once coupled with an After-The-Event (‘ATE’) insurance policy, CFAs provided claimants with a largely cost free (and therefore, risk-free) platform for pursuing litigation: if the claim succeeded all the costs were recoverable (subject to assessment) from the defendant; if the claim failed, the defendant’s costs were simply covered by insurance. This made litigation a much more affordable, and far more attractive, option for many.
At the same time, and because most CFAs included an additional fee (known as a ‘success fee’) which significantly increased the defendant’s potential liability for costs, defending litigation became less economical in many more cases. This in turn resulted in an increased prospect of settlement for claimants, which itself encouraged more litigation. This was particularly apparent in claims of more modest value, such as those frequently encountered within the personal injury arena.
Why are no win no fee agreements less popular now?
For the insurance industry that was funding the settlement of many thousands of claims, the imbalance introduced by the CFA regime gave rise to uncomfortable levels of liability. As the associated costs were then passed along to policyholders in the form of increased insurance premiums, that dissatisfaction spread more widely through the general public. Pressure on the Government then mounted and CFAs became a victim of their own success.
On 1 April 2013 Parliament introduced the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO 2012’). Under section 44(4) of LASPO 2012, the success fees usually provided for within a professional negligence no win no fee agreement ceased to be recoverable from the defendant. In addition, and under section 46(1) of LASPO 2012, claimants in professional negligence claims would no longer be able to recover the cost of their ATE insurance policy from the defendant.
For defendants, these changes removed much of the sting in the tail of CFAs, while for claimants it meant that it would now be more expensive to rely on CFAs to fund their claims.
How do no win no fee agreements work in practice?
Under a standard CFA, a solicitor’s fees are made up of two elements: a basic fee and a success fee. The basic fee is calculated at an agreed hourly rate and according to the amount of time the solicitor has spent working on the claim, which is the same way in which a solicitor’s fees are calculated under a more traditional, private retainer. The success fee is then charged in addition to the basic fee and usually at an agreed percentage of the basic fee.
If the claim is unsuccessful, the claimant will not have to pay any fees to the solicitor. However, if the claim is successful, as the claimant invariably hopes that it will be, the claimant will then have to pay both the basic fee and the additional success fee.
The purpose of the success fee is not to act as a gratuity or windfall for the solicitor. Rather, it is the reward the solicitor receives for accepting the risk that he/she may receive no fees at all for the work done and in the general expectation that, over time, the successful and unsuccessful claims should balance one another out.
The percentage at which the success fee is calculated should in each case reflect the merits of the claim and, therefore, the risk of failure. In this way, it should be fair and reasonable as between the solicitor and his/her client.
While some solicitors will apply a pre-determined success fee, or make an arbitrary assessment, we will not do so. In each case, we undertake a methodical assessment, drawing on our extensive experience of professional negligence claims. Only in this way do we consider that a fair balance can be reliably struck.
What are the advantages of no win no fee agreements in professional negligence claims?
Despite the reforms that have been introduced, as outlined above, no win no fee agreements still have certain advantages for claimants. These include:
- No liability for own costs – CFAs continue to enable claimants to avoid any liability for their own solicitor’s fees in the event that their claim is unsuccessful.
- No liability for adverse costs – CFAs can still be coupled with an ATE insurance policy to protect claimants from having to pay a defendant’s costs if their claim is unsuccessful.
- Affordability – As the solicitor’s fees do not have to be paid either upfront or on an interim basis under a CFA, they still have the ability to ‘unlock’ litigation that a claimant might not otherwise have the financial means to pursue.
- Skin in the game – CFAs require a solicitor to take a direct financial interest in the outcome of the claim and, for some clients, this provides an additional level of comfort.
- Deferment of fees – CFAs still serve to defer the payment of the solicitor’s fees until the conclusion of the claim, which can be several years away, enabling claimants to deploy such capital as they have available for other commercial purposes.
What are the disadvantages of professional negligence no win no fee agreements?
In our experience, most claimants wishing to pursue a professional negligence claim are aware of the main advantages of a no win no fee agreement, but few are aware of the potential disadvantages. In part because of the reforms made, these disadvantages now include:
- Additional cost – As the success fee is no longer recoverable from the defendant, it means that CFAs are now more costly than they previously were.
- More expensive – For the same reason, standard CFAs are now likely to be more expensive than other forms of funding, such as a private retainer.
- Disproportionate fees – For the same reason too, and while at least the basic fee should be largely recoverable, the total cost of pursuing a claim under a CFA when weighed against the compensation (known as ‘damages’) likely to be recovered may be more difficult to justify commercially.
- Limited availability – As success fees are usually deducted from the damages recovered from the defendant, many lower value claims will simply not support a CFA and in those circumstances, claimants are much less likely to be offered them by a solicitor.
- Conflicts of interest – The historical concerns that led to the prohibition on the use of CFAs (and which are set out above) have not been eradicated and there is greater potential for disputes to arise between solicitors and their clients in relation to fees where a no win no fee agreement is utilised.
What are the different types of professional negligence no win no fee agreements?
Some of the disadvantages encountered with standard form CFAs can be mitigated by entering into alternative agreements and options include:
- Thai Trading Agreements – here the solicitor charges no fee if the claim is unsuccessful and only a basic fee if it is successful.
- Discounted Fee Agreements – here the solicitor charges a reduced basic fee if the claim is unsuccessful and a full basic fee and limited success fee in the event of success.
- CFA lites – here the basic and/or success fees payable are limited to those fees which are actually recoverable from the defendant.
- Capped CFAs – here the success fee is agreed as a percentage of the basic fee, but capped at an agreed level above which no further fees are charged.
- Staged CFAs – here an additional provision is made within the CFA for the success fee to be adjusted at various stages of the litigation, usually with the percentage increasing as the claim approaches trial.
However, while each of these alternative funding options provides additional flexibility, much will depend on the solicitor’s readiness to accept the transfer of risk from his/her client and the claimant’s desire to secure his/her preferred legal representation.
Are no win no fee solicitors any good?
Although this is a question that is commonly asked by potential claimants, because it relies upon both an imprecise categorisation of solicitors and an inappropriate correlation of attributes, it is one that is unlikely to produce a reliable answer.
While as a matter of policy, some litigation solicitors will never enter into a no win no fee agreement, and while some will enter into CFAs for most of the claims they deal with, the vast majority of litigation solicitors will consider whether or not to enter into a CFA on a case-by-case basis.
Therefore, the term ‘no win no fee solicitors’ arguably represents the vast majority of litigation solicitors and neither the distinction nor the mass categorisation provides any real clue as to the quality of the service they are likely to provide.
The unreliability of this distinction is all the more apparent when considering that a solicitor might offer a CFA either because (i) the solicitor possesses a specialist understanding which enables him/her to see merit in a claim which another, less experienced, solicitor does not; or (ii) the solicitor lacks experience and understanding and has failed to apprehend the shortcomings in the claim. While the former may reasonably be regarded as ‘good’ and the latter as ‘bad’, both could be categorised as a ‘no win no fee solicitor’.
Further, a solicitor’s readiness to enter into a no win no fee agreement is principally a commercial decision, which is likely to be influenced by a range of different commercial factors, none of which is a direct indicator of his/her ability to handle the claim. These factors might include the cash flow position of the solicitor’s practice, the number of current CFAs the solicitor has already entered into and/or the stage the related claims are at, the solicitor’s attitude to risk and/or the attitudes of his/her partners, as well as the business model of the solicitor’s firm.
Therefore, in determining whether a solicitor is well suited to act in a particular claim other, more reliable, factors should be considered. In specialist areas of legal practice, such as professional negligence, experience is often both a key factor and a key differentiator, as we explain separately in our related guide: How to find the Best Professional Negligence Solicitors.
What alternative funding arrangements might be available?
No win no fee agreements are not the only form of funding for a professional negligence claim. Others include:
- A private retainer – this is the simplest form of funding arrangement, where the solicitor’s fees are calculated on a time spent basis and at an agreed hourly rate. It can also be the most cost effective. For these reasons, it can be a better option for clients who already have the financial means to fund their claim.
- Before-the-Event insurance – some claimants have legal expenses insurance cover which might meet some or all of the costs of their intended claim. Such cover is often limited in its scope and many policyholders are critical of the standard of advice and service they receive. Nevertheless, it can provide a cost-effective alternative, particularly for low value claims.
- Damages Based Agreements – these are true contingency agreements where the solicitor’s fees are charged as a fixed percentage of the damages recovered from the defendant. However, for claims that are resolved at an early stage and with limited effort, they can prove unnecessarily expensive.
- Third Party Funding – in some cases a commercial funder will agree to pay some or all of the costs of a claim in return for a share of the damages if the claim is successful. However, this option is usually restricted to higher value claims, where the damages likely to be recovered are sufficiently great to cover the funder’s profit costs and other expenses.
Further assistance
We act for clients nationwide, to resolve substantial claims against a wide range of professionals, including claims against solicitors, accountants, insurance brokers and surveyors.
If you are considering bringing a claim for professional negligence, and if you believe that the value of your claim is likely to exceed £100,000, we would be happy to discuss the matter with you.
Most of our clients fund their claims under a private retainer and almost all our instructions commence on this basis. However, in some cases and where requested, we may then be able to offer an alternative form of funding.
To arrange an initial consultation with us, and in the first instance, please complete our Contact Form or email us at mail@pnclegal.com.
