‘No win, no fee’ – are clients being hoodwinked?

At a time when a national broadcaster feels obliged to unpick (for the lawyer in us: alleged) misleading information from the leader of the free world[1], I almost choked on my breakfast when reading that we should also be concerned that some of us lawyers may be misleading the public too: 'No win, no fee' under fire: SRA vows to stop law firms hoodwinking consumers | Law Gazette Why now is a mystery; the term has been a feature of daytime TV advertising for decades!

Are clients being hoodwinked? This blog takes a look at what information clients should expect when bringing or defending a civil claim on a ‘no win, no fee’ basis and the costs liabilities they may incur even if they do not win.

Firstly, a ‘no win, no fee’ agreement is known as a conditional fee agreement (CFA). A CFA covers legal fees a firm such as KN will incur on behalf of the client. It may also include the firm’s disbursements such as court fees and experts’ fees but potentially barristers’ fees too (unless they act on a CFA). The starting point: if the client does not win, then no legal fees (or potentially, disbursements) will be payable by the client.  

The fact there is a ‘starting point’ may be why the SRA view the marketing term ‘no win, no fee’ as misleading. However, a CFA and its supporting paperwork should set out the circumstances in which legal fees, disbursements and any other costs become payable.

Below is a brief overview of some of the most common.

Client wins

Great news, the client has won, and by the very nature of a CFA, the legal fees become payable.   

The firm will also be allowed to charge an uplift on their fees: a ‘success fee’. A success fee can never be more than 100% of the legal fees and it is calculated based on the prospects of success (a further statutory cap applies in clinical negligence and personal injury claims). The key purpose of a success fee is to compensate the firm for the financial risk they take for acting on a CFA basis. It is only payable by the client and cannot be recovered from the opponent.

Client loses

By definition, for every winner there must be a loser. In this event, the CFA should confirm that the legal fees are not payable (again, the disbursements may be included but sometimes they are not). In most if not all clinical negligence and personal injury claims, claimants are advised to purchase legal expenses insurance to cover the risk of paying disbursements.  However, these are usually self-insured policies meaning that the claimant will only pay the premium in the event they win their claim (as with insurance products generally, the need for transparency and honesty when purchasing a policy is important).

There appears to be a concern that the marketing is not clear enough that the ‘no win’ element ignores the potential risk of paying a successful opponent’s costs. The risk is dependent on the type of claim:

• Claims involving clinical negligence and personal injury: a court will not usually enforce an order for costs against a claimant unless (1) the claim is struck out; (2) the claimant is fundamentally dishonest; or (3) the claim includes a claim for the financial benefit of someone else. This is known as Qualified One-Way Costs Shifting (QOWCS) and firms will advise their clients of these risks.
• Other civil litigation: the loser may be ordered to pay a proportion of the winner’s costs.  The legal expenses insurance referred to above is a useful tool to protect against this risk, but the premium is not always self-insured.

Other circumstances

There are other circumstances in which costs may be payable:

1. On the way to winning or losing, the client may lose an interim hearing and be ordered to pay the opponent’s costs of that hearing.
    
2. The claimant may succeed at trial but the amount of damages awarded are lower than an offer previously made by the defendant. In this situation, the claimant may be ordered to pay the defendant’s costs from the stage at which the offer was made/expired.

For (1) and (2) and where the QOWCS rules apply, (subject to the exemptions above), orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for, or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.

3. CFAs contain various terms. If breached, the client may become liable for fees.
    
4. A CFA will terminate in the event the client dies, and many firms require the estate to pay their costs. However, many firms will continue to act for the estate in order to continue the claim.

Is the term ‘no win, no fee’ misleading?

Are clients being hoodwinked and is the marketing misleading to such an extent that clients do not understand what they are signing up to? Small print has long been a feature in marketing campaigns and lawyers seem to be held to a higher standard than other professional services providers. It is not for me to decide.

At Kingsley Napley LLP, we strive to present our clients with clear information and advice on funding options, including what it means to instruct us on a ‘no win, no fee’ basis. We act for claimants and defendants across a wide range of legal disciplines.  

Top-ranked in Chambers UK and Legal 500, our costs lawyers are instructed by other law firms but also their clients, and insurers and litigation funders seeking costs dispute resolution, costs advice or costs auditing services.