Written by Menh Hua (Dec 2004)

Introduction

Conditional fees are becoming an ever increasing popular method of funding personal injury cases. They are otherwise known as “no win no fee” agreements, which as the name suggests, if they do not win, they do not pay, simple as that. It is now very common to see companies specialising in these sort of cases, frequently advertising their services on daytime television.

As this essay question seems quite complex and lengthy, I have decided that it would be most appropriate to answer each question separately, providing detailed information in key areas.

What is a conditional fee?

A conditional fee is an agreement drawn up by a solicitor and a client who wishes to make a claim. Before a claim is filed, the solicitor must provide clear and full written information about the costs of taking a case. The conditional fee agreement will guarantee that unless the solicitor wins the case for the client, the client would not be required to pay the solicitor any money for their work. Therefore, in the best interest of both parties the solicitor wins the case, and the claimant is awarded his damages.

Conditional fees were set up following section 58 of the Courts and Legal Services Act 1990. Since the beginning of conditional fee agreements it has been estimated that over 50,000 cases for claims of personal injury have now been used in the courts. At the time the use of conditional fees were only limited for cases involving personal injury, insolvency and human rights cases. It was not until 1998 that the use of conditional fees was extended to all civil cases. Certain regulations have prohibited the use of conditional fees in relation to criminal proceedings and virtually all family proceedings.

In terms of seeking justice, conditional fees dramatically expanded the services of funding legal help and representation. They were primarily introduced to encourage people with poorer means, and limited disposable income, access to justice that they otherwise would may not have pursued. Prior the launch of CFA and still evidently existing in the British culture is the problem, where people are put off from using a solicitor, because they feel intimidated. Contributing to this huge problem is the fear of the potential costs that could arise from bringing a claim. This is known to potentially develop into hundreds of thousands of pounds, especially common when a case is brought before a High Court. In the light of modern society, in public interest, and with constant emphasis on equality, citizens, regardless of their financial status, should be able to qualify for legal aid, and pursue their fundamental cases. Now with legal help it will become affordable in disputes with banks, builders and insurance companies, provided that the lawyer judges that s/he merits of the case justify a conditional fee agreement.

The government has made it clear that civil proceedings involving personal injury, or negligence through someone else’s negligence was once qualified for legal aid. Now, the government has excluded these problems from government funding, and insists that these types of cases can be funded by conditional fees. The government claims that by eliminating the huge number of cases, the state can benefit by being able to direct more resources to areas which require extra funding. Suppliers of free legal assistance such as the Citizens Advice Bureaux and Law Centres across the country are examples of where the extra money is being concentrated on.

The benefits of conditional fees, persuades people to pursue in their claim knowing that apart from their insurance premium, they will not have to fork from their pockets out any more money if they lost. Therefore anyone who can persuade the solicitor that their case is worth the risk, and who can afford to insure against losing the case, will be able to bring or defend a case for damages.

Claim firms

These types of firm very much operates in the same way as conditional fee agreements and their solicitors. They are responsible for negotiating a deal of compensation on behalf of their client against an individual or organisation. Their main criticism facing claim firms is that they have been known to charge very high rates of insurance cover. However, these claim firms do provide a service where people rather not approach a solicitor and should they not be able to settle a deal on negotiating compensation, they would refer you to directly to legal representation.

Success fees

As mentioned, the solicitor and client must first assess the case, and then agree on a normal fee which the solicitor would normally charge for such a case. The lawyer then automatically agrees not to charge a fee if the case is lost. If the case was successfully won, the lawyer would receive a higher mark-up fee than normal. In the agreement, it would state what the solicitors’ “success fee” will be. A success fee is an additional fee that the client is required to pay as part of the reward for the solicitor having won the case. This success fee can be a maximum uplift of up to 100 per cent above the normal fee, otherwise normally the solicitors will not take more than 25% of the damages awarded if the case is won. Theoretically, solicitors will therefore be encouraged to take on more of these cases, because on top of the normal fees they are also awarded a success fee. In the case Callery v Gray (2001), it was established that the court could order success fees to be recovered, where an action had been settled before substantive proceedings had been commenced. However, in normal cases the recoverable success fee will be limited to 20%. The benefits of this ruling means that the winning party will receive the full percentage of the compensation

Insurance

People must beware of the fact that on a CFA even though you are not required to pay your solicitors cost if you lose the case, one may still find themselves in financial difficulties. This is due to the fact that the losing party has to pay the incurred costs of the case for the other party, which could potentially develop into thousands of pounds. However, there is now the option that claimants or defendants can purchase insurance against their case if they lose. This like any other insurance policy must be paid in advance of the proceedings, and the premium is assessed and based on the circumstances surrounding the case and whether the case is likely to succeed. The advantage of the insurance is to ensure that the only costs that the claimant will incur if they lose the case was the insurance premium. The insurance company will then be responsible for covering all the damages awarded. Disadvantages of insurances would be, that it is too expensive and may act as a deterrent to poorer people. However, this issue will be discussed more fully in part (b). The amount of the insurance premium will be decided upon the circumstances surrounding the case. In the case Callery v Gray the Court of Appeal decided that an after-the-event insurance premium could be recovered as part of the cases cost by the other party under s29 of the Access to Justice Act 1999. This also led to the interpretation of Rule 44.12A of the Civil Procedure Rules on costs in pre-action settlement. This enabled pre-action costs to be recovered where an action had been settled before substantive proceedings had been commenced. However, the cost of the premium had to be reasonable.

Other ways of funding legal advice and representation for civil claims.

Obtaining legal services from the legal profession, and paying for those services privately is only one of the options open to someone with a legal problem. There are a number of other providers and sources of funding available. More commonly the state will provide legal aid which will enable a vast majority of the public to free legal advice and representation.

Since 1st April 2000 the Legal Services Commission replaced the Legal Aid Board and took over its responsibilities. The Legal Service Commission is set up by s1 of the Access to Justice Act 1999 and manages the Criminal Defence Service dealing with criminal matters and the Community Legal Service for civil matters.

The Lord Chancellor is responsible for providing a budget for the Legal Services Commission. Out of the two services the Criminal Defence Service will get priority over funding because here they are dealing with people who are at risk of losing their liberties.

The Legal Service Commission also has a quality mark and is able to make contracts to all other legal services providers, including solicitors and advice centres. However, each firm or organisation must meet the specified quality standards set up by the Commission, in order for them to be awarded. On top of this, the Legal Services Commission has also set up its own website www.justask.org.uk. This site provides a wide range of legal advice, and is extremely beneficial to those in rural areas and those confined to home by disability.

The Community Legal Service.

The money to pay for this service is met by the Community Legal Service Fund. Their main aim is to secure value for money, and provide financial assistance by making grants or loans to individuals who can then purchase services themselves.

The Lord Chancellor will set out the annual budget for the CLS (section 5 of the 1999 Act), working on figures within the budget given by the government. This means that there is a set budget for the fund and in the old system of legal aid, it was worked on a basis of demand led. This system faced intense criticism including: lawyers having no incentive to deal with cases quickly and efficiently, because they were paid by the work claimed. However, under the new system, there is a cap on the amount of money available. The disadvantage of the new system implies that in some cases, it is possible that some people will not be entitled to funding simply because the money has run out. In year 2001-2002, the budget was set at £732 million, but the Lord Chancellor indicated proposals of decreasing this already tight figure in the following years.

Generally, money will be allocated annually to different services for different areas of England and Wales, according to the amount identified as necessary for that area. It has been acknowledge, that this has resulted in some places having necessary funding, whilst in other areas there is not enough.

Legal aid

Legal aid was first introduced in 1949 following the Legal Aid and Advice Act 1949. Since then there has been a massive increase in the cost of the essentially demand-led state provision for legal aid and advice. By 1999, figures suggests that legal aid reached excess figures of £2,041 million for criminal and civil cases. The Lord Chancellor had to put a cap on this level of expenditure.

In general, it appears that whether pursuing legal proceedings, or obtaining legal advice, they will be highly unpopular unless the state can provide some form of subsidy. The costs involved in any case whether civil or criminal can be prohibitive to a rich individual or a poor individual.

Legal aid is available in most civil proceedings in the following courts: House of Lords, Court of Appeal, High Court, county court and the magistrates court. Some of the matters excluded from funding by the Community Legal Service Fund include: defamation, conveyancing, and the making of wills.

Eligibility

Every individual case is assessed on the basis of a means and merit test. Taken into account is the likelihood of whether the case is likely to be successful. The client must have reasonable grounds for taking a case to court, before any public money is made available for it. The cases now must are subjected to a wider test in favour of government priorities and the available resources. An application for legal aid may be refused where, the client is only going to gain a diminutive advantage from such a proceeding, or the nature of the proceedings is such that a solicitor would not normally engage on. Therefore it is reasonable to say that, even though a poor person is legible to qualify for legal aid, it does not mean that they will automatically be granted legal aid. Those whose income or capital fall above certain limits will have to pay a contribution towards certain legal services, assessed according to means. One must bear in mind that those who pay the most tax are the least likely to be recipients of legal aid.

There is also the necessity of making a formal application for legal aid, which could in practice take weeks or even months before legal aid is granted or refused.

Law Centres

There are about 50 law centres located in London and other major metropolitan areas. Law centres offer a free non-means tested service to members of the public and they aim to give out free legal advice to people with legal problems so that everyone is allowed access to justice. Their work covers a wide range of topics including matters such as welfare law, immigration, planning and environment, discrimination and children‘s rights. These centres are staffed by trained lay people and qualified solicitors who volunteer to do free work. In general, law centres have been praised for the work that they have provided, as they try to offer a service which is easily accessible and not intimidating. However, lack of funding subsidised to law centres will threat their future operation.

Citizens Advice Bureaux

These advice centres were first set up in 1938 and at the moment there re approximately 2,000 outlets across Britain. They are frequently situated in high streets and other accessible locations such as health centres. Their role is similar to that of the law centres, and frequently they deal with problems concerning social welfare and debt. However, they are not restricted to these topics and should they feel that legal representation may be needed for that particular case, they may refer you to a solicitor who specialises in that area of law.

CAB are staffed by volunteers and occasionally a solicitor may also sit in and provide free legal advice. The volunteers are given general training and many become quite experts in certain fields. It is estimated that the CAB deal with approximately 6 million enquiries per year, of which it is estimated that around one-third involve legal issues.

The Benson Commission in 1979 viewed CAB as excellently placed to provide a preliminary advice and referral service. They also stated that they should receive extra government funding, but until now funding is still patchy.

Pro bono work

It is definitely an offer that you cannot refuse when something is free. Regarding access to justice, both branches of the profession, solicitors and barristers has kindly established various schemes and services free of charge, to assist people with presenting their cases. They believed that it was an important aspect of their duties and tried to raise awareness of this type of work. For this reason, they have decided to replace the term pro bono with “law for free”.

Free Representation Unit schemes was first introduced since 1992, helping people mainly who are ineligible for legal aid. Figures suggests that over 2,000 cases per year are handled this way.

Other advice agencies

The legal profession could not cope with providing legal advice to everybody who needs it and it is inevitable that other organisations will play a part. Law centres and the Citizens Advice Bureaux are the main two organisations which are popular and which provide help in a wide range of legal topics. However, there are many more advice agencies which specialise in a particular topic. These include: Trade unions which offer general advice to members on employment law issues. Charities, such as Shelter who offer advice to people with housing problems, Child Poverty Action Group and the National Association of Victims Support Schemes. Other charities offer information particular to their areas of work. Local authority advice units typically cover housing problems, benefits and consumer issues. The motoring organisations, both the AA and RAC offers advice to members involved in traffic matters.

Part (b) - Criticism of conditional fees and other methods of funding.

As with most things in life everything has its advantages and disadvantages, not many things in life including rules and humans are perfect. The same could be applied to conditional fees and other methods of funding. By this I mean that although the majority of people will benefit from CFA, it also has its down side.

Conditional fees

When the Lord Chancellor announced he was abolishing most civil legal aid, leaving people to rely on conditional fee agreements, there was an uproar among the legal profession. The profession argued that it would be a straight denial of justice, often pointing to specific clients, such as victims of police brutality or clinical negligence. Cases of clinical negligence are known to be very difficult to win and for this reason they have been kept within the state funded system. The success rate for clinical negligence cases are estimated at about 17% compared to 85% for personal injury cases.

Some critics including Michael Zander have accused the Lord Chancellor of being motivated purely by cost cutting. The point made is easily understood and accepted, but one must bear in mind the other benefits that the saved money is producing and will be funding.

The common usage of Conditional Fee Agreements have highlighted the opportunity for solicitors in become more choosy over the types of cases they were accepting. It was likely that they would only accept them if there was a clear case and a clear opportunity for profit. This would be demoralising for claimants especially with a risky case, because this meant that they would have to shop around for a solicitor who was prepared to take the case. Adding to this problem was the frustration felt by people living in rural areas, and who has no choice but to travel miles to access a solicitor

Another criticised financial issue regarding conditional fees was the fact that lawyers tended to underestimate the likelihood of winning the cases, therefore they manipulated the clients fear into their favour by charging higher success fee. Clients lacked the knowledge of assessing the case, and lawyers tended to charge what they could get away with. This to me is totally evil and inappropriate, especially for a professional to do such a thing, when normally a victim, has had the courage to go and approach a solicitor asking for help. A report by the Policy Studies Institute identified two major areas crucial to the success of conditional fees. Firstly from the litigants point of view, they were not working well and secondly, the average uplift was 43%. In turn litigants thought that they were being “ripped off“. Some could argue that this is not all bad as this promoted the solicitors to work harder for their financial interest in the case.

In some cases especially from those involving proceedings of personal injury at work, required an enormous amount of work to be done. In 1998 research from the Sheffield University found that this meant that it was difficult to estimate the cost of the case, and such cases had cost solicitors more than 100% uplift fee.

Insurance premiums

Insurance schemes are proving to become increasing popular in its own right. Those financially capable of purchasing this assistance are likely to do so. However this leaves those with poorer financial means at the disadvantage position of having to take out loans, or seek other financial remedies to pay the premium if they decide to take one. As evidence suggests, in 1998, research by Sheffield University pointed out that:

“The poorest clients were not able to afford insurance premiums or disbursements”.

Quote from The English Legal System.

In cases where there was a less certain outcome solicitors preferred such cases to be covered by an insurance policy which would pay both sides costs.

Law Centres

Law centres are financed by their local authorities. Although they are providing a very productive service, they were found to be biting the hand that fed them. In other words, they were acting and making claims for people which suffered bad public housing problems. The local authorities therefore aware of these situations have retaliated indirectly and refused these centres extra funding. The funding of law centres were sporadic and sometimes they would have to close temporarily or for some permanently.

Citizens Advice Bureaux

These centres also faced problems of lack of funding like law centres. They are not budgeted sufficient funding, and often this leaves no option, but to open only a few hours a day, a few days a week. Generally, the times that they open are at office hours of between 9am-5pm. Consequently, this will eliminate a huge proportion of people working at this time of attaining free legal advice from the CAB, which has proved more popular than solicitors.

Contingency fees

“CFA are proving so complex and problematic that I would predict they will abandoned eventually in favour of contingency fee”

Quoted from Eddy & Darbyshire on The English Legal System.

Such arrangements of contingency fees have long been common in the USA. This system is similar to conditional fees but their lawyer conduct litigation and in return, if the case is won, they are awarded an agreed percentage of the damages.

Conclusion

In conclusion, it would seems that conditional fee agreements are proving very popular. Consequently, encouraging more people to take their personal injury cases before the courts to seek access to justice, but like anything else it has its advantages and disadvantages. As a result of CFA the state has made huge savings on its expenditure on legal aid, and fundamentally important is also the fact that these savings are being concentrated on prioritised areas and legal advice establishments, such as Law Centres and the Citizens Advice Bureaux.

Conditional fees arrangements yet remain prohibited in family and criminal cases. However, it is now widely accepted that they are now to be the normal method of financing personal injury actions, except in complex cases. The main problematic question set for critics of CFA is: “how can the legal system best help people who are ineligible for the CLS fund but cannot afford High Court action?”

Bibliography

Eddy & Darbyshire on the English Legal System - 7th edition by Penny Darbyshire

The English Legal System - 3rd edition by Jacqueline Martin

Hogan, Seago & Bennett: “A” Level Law - 4th edition by Brian Hogan, Peter Seago & Geoffrey Bennett.

A Level and AS Level Law - 2nd edition by Martin Hunt

Nutshells - English Legal System - 5th edition by Penny Darbyshire

“A” Level Law - 4th edition by AM Dugdale, VM Bermingham, MP Furmston, SP Jones and CH Sherrin.

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