No Win No Fee Explained
History of the Conditional Fee Agreement (No Win No Fee)
Up until the 2000s the system used to be that if you used a solicitor you would receive a monthly bill for their fees. Generally, the loser pays the winner’s costs, so if you won your case you received your compensation (known as “damages”) and reimbursement of your legal expenses as well.
Following government reviews in the late 1990s it was appreciated that this system could prevent people less well off from pursuing legal matters because even if they had a good case they could not afford to bring the case. A decision was made to introduce a new system being the “conditional fee agreement” or more commonly known as “no-win-no-fee”.
With no win no fee, the solicitor does not require you to pay a monthly bill but keeps a record of the costs spent on the case. If the case wins the solicitor can recover those costs from the losing party; if the case does not win the solicitor has to cancel their bill and therefore makes a loss.
The no win no fee system therefore transfers the risk from the client to the solicitor.
Technically, and from a legal perspective, even though the client does not receive monthly bills they still owe the solicitor the money spent on the case as to recover their costs from the losing party the solicitor has to be able to prove their client owes them their fees. For this reason please do not worry if your no win no fee agreement contains phrases such as “what you have to pay” and hourly rates – although this is confusing, it is legally correct. The key part that protects the client is the part of the no win no fee agreement which states if the case does not succeed the fees will be cancelled.
Therefore, the combination of the fact the defendant will reimburse your solicitor for your legal costs if you win, and the fact the solicitor has agreed to cancel their fees if the case does not win, means the client is protected.
Changes to the No Win No Fee agreements
In 2012 however, following pressure from the insurance industry lobby, the Government introduced far reaching changes to no win no fee agreements including:
- Whereas previously the solicitor could recover an extra fee on top of their bill for taking the risk (the added fee covered the solicitor for the cases that did not win) from 2013 this added fee was now to be paid by the client, set at up to 25% of the compensation recovered (it is not strictly always 25% but the calculations are too complex for this article – your solicitor will explain further). If no compensation is recovered it follows there is no deduction.
- If the client takes out a legal expenses insurance premium (your solicitor will advise as to whether this is necessary), the premium is deducted from your compensation at the end. If the case does not succeed the premium is cancelled.
1. Thomas brings a personal injury claim following a car accident.
He does not take out a legal expenses insurance premium but does have a no win no fee agreement with a 25% deduction. His case succeeds and he recovers £5,000 in compensation. Whilst Thomas at no time pays any solicitor bills, 25% of his compensation is deducted and he receives £3,750.
2. Richard brings a personal injury claim following a medical negligence incident.
He takes out a legal expenses insurance premium at £500 and has a no win no fee agreement with a 25% deduction.
His case does not succeed and so he recovers no compensation.
He has not paid anything nor is he required to pay anything.
3. Harry brings a personal injury claim following an injury at work.
He takes out a legal expenses insurance premium at £300 and has a no win no fee agreement with a 25% deduction.
His case succeeds and he recovers £12,000 in compensation.
Harry has not paid anything to his solicitor but after deductions he receives £8,700.
Things to watch out for:
There are a number of law firms who are adding extras onto the 25% deduction such as VAT or other fees. This is illegal – the 25% deduction is all inclusive and the maximum
Many firms have commissions from legal expenses insurance premiums. A number of large, national personal injury firms are pressing all clients to take out legal expenses insurance policies with large premiums, sometimes over £1,000, which are then deducted from their compensation at the end. Not every client will need a legal expenses insurance policy and even if they do, for lower value accidents they should only be a few hundred pounds. Be wary of this and question your solicitor as to whether you need one and whether the firm receives a financial benefit from the policy
The law states the 25% cannot be applied to future losses. For example, if someone suffers a serious injury and has say £10,000 injury compensation but £100,000 future loss of earnings compensation, the 25% is £2,500, not £27,500! It has come to our attention that there are many law firms in the country, including a number of large, national firms, who are applying the 25% to the entire compensation figure. Remember this is not permissible and so you should question this.
A number of firms seek to lure clients in with promises of 0% deductions from their compensation, but then have alternative means of recovering that money (remember, the law firm needs to make a profit!) such as inflated insurance premiums or other hidden charges. Remember, if it sounds too good to be true it probably is!
Common questions – no win no fee explained:
Do I have to pay anything if I lose?
In most instances all that happens is the file is closed and there is nothing to pay. There are exceptions such as if the case is found to be fraudulent/dishonest in which the Court can order a fraudulent client to pay the defendant’s legal expenses. Remember, if you are always fully honest with your solicitor then there is nothing to fear. There are also some potential risks if a good offer is made which you do not accept and then receive less at court but your solicitor will advise you carefully regarding any offer made to ensure you are protected at all times.
Do I have to pay the legal fees at the end if I win?
As explained above, if you win your solicitor can recover the legal fees from the losing side (usually their insurance company). The only deductions permitted from your compensation are the 25% and any legal expenses insurance premium.
Do I have to pay anything upfront?
No, not usually.
My solicitor says I have to pay for the cost of medical reports and court fees?
Sometimes, if a case is very risky, the solicitor might only be able to offer a partial no-win-no-fee agreement in which his or her fees are not paid by the client but the client has to pay the case expenses such as court fees, medical reports and such like. This all depends upon the case and the particular arrangement in place. Your solicitor will need to make this clear at the outset.
The no-win-no-fee agreement says I am responsible for the legal fees – is that right?
As explained above, legally the way things work is that for the solicitor to be able to recover the fees from the losing party he or she needs to be able to show that the client legally owes him the money – so the agreement needs to state that the client owes the solicitor the fees. The system is confusing but this is how things are. If you have any concerns then discuss further with your solicitor.
Any more queries?
Just give us a call on 0800 999 6661 or email us at email@example.com
Ayoub grew up in Bury before graduating from the University of Lancaster. After then completing his Post Graduate Diploma in Law at the College of Law, Chester, he joined a prestigious London magic-circle firm where he worked on a multi-million pound product liability claim, being the highest value claim of its type in the world. He then returned to the North West where he joined a leading practice before leaving to start his own specialist practice. To contact Ayoub, visit the contact page.