Over 1,000 clients a month are choosing to fund cases under the “no win, no fee” agreements introduced 15 months ago.
The next few years are likely to see a big increase in the role of conditional fees in civil litigation in personal injury, insolvency and human rights cases.
But while the arrangements are still something of an unknown quantity, the response among lawyers ranges from evangelical to suspicious.
S58 of the Courts and Legal Services Act in 1990 brought in conditional no win, no fee arrangements in all areas except crime and family cases.
But it was only in July 1995 that the Lord Chancellor, Lord Mackay, introduced their limited use under the Conditional Fee Agreements Order. He promises a review next summer that could extend the arrangements to other civil litigation. He also indicates in his white paper on legal aid that conditional fees could replace legal aid in personal injury cases.
Lord Woolf, in his Access to Justice report, acknowledges that conditional fees and legal expenses insurance have made litigation more affordable. But he argues that their success depends on implementation of his reforms to cut costs and delays. He says: “They cannot in themselves deal with the underlying problems of excessive and unpredictable costs…They will only become more generally available if costs are controlled in the ways I am proposing.”
Lawyers may charge a success fee or uplift of up to 100 per cent of their costs, subject to a voluntary cap of 25 per cent of the damages for solicitors and 10 per cent for barristers.
Plaintiffs remain liable for defendants' costs if they lose, so the Law Society has set up the Accident Line Protect insurance scheme. It offers £100,000 cover to meet losing costs for an £85 premium, excluding medical negligence cases. It also pays for the plaintiff's disbursements, except counsel's fees. More than 1,000 people a month have taken out a policy.
Richard Pearce, head of the Law Society's Services to the Profession Unit, says the number of claims has been minuscule. “The scheme is only available to Accident Line members who are on the Law Society's PI Panel and they are unlikely to take on a case unless they are fairly certain they are going to win,” he says.
“It is why the premium is so low compared with other schemes on the market, which cost about £300 to £400. As far as the insurers are concerned, they know the business they are getting is almost being underwritten for them.
“We are also putting the final touches to a disbursement financing scheme to be launched in the next few weeks. This will mean clients will not have to pay the insurance premium or any disbursements until the case is completed.”
Russell Wallman, head of professional policy at the Law Society, says it is happy with the way the arrangements are going.
Take-up has varied across the country. “In some places solicitors have taken them up as a worthwhile way of funding cases to generate additional business from people who can't afford the risk of losing,” says Wallman.
“In other areas, where solicitors are already overflowing with work, they are not necessarily as keen to seek new ways of attracting more business.
“Our approach is that conditional fees should be made available throughout civil litigation, particularly for commercial and defamation cases.”
Kerry Underwood, a principal of St Albans-based Underwoods and a member of the Law Society's PI Panel, is an authority on conditional fees and a keen advocate.
His firm of five solicitors, one trainee solicitor and two legal executives has almost doubled the number of fee earners in the past year, mainly because of the increase in PI work taken on a no win, no fee basis. It has taken about 110 cases, mainly road accidents and “slipping and tripping” cases.
Underwood is astonished that few solicitors have increased PI case loads by embracing the arrangements and accuses barristers of dragging their feet.
He says: “Any problems are with lawyers who are frightened of anything new. I think the reason for their reluctance is fear of being paid by results and having to back that judgment with their own money.”
He dismisses concern that conditional fees are wrong because they give lawyers too great a financial interest in the outcome. “Anyone working under a legal aid certificate granted in the past two years has already been operating on a conditional fee basis,” he says.
“If you lose you get £65 an hour. If you win and recover costs from the other side, you recover about £100 an hour in the county court and significantly more in the High Court.”
Underwood points out that US-style contingency arrangements, based on a straight percentage cut of the damages, has long been allowed in non-contentious cases, including industrial tribunals. He says his firm aims to take 25 per cent of general damages in addition to costs recovered from the other side. The irony is that by sticking rigidly to the 25 per cent cap, the 100 per cent success fee that they could have charged had actually ranged from between 8 per cent and 29 per cent.
While committed to legal aid, Underwood argues that in its cash-strapped, block-funded, means-tested state, it cannot compete with conditional fee arrangements in giving people access to the best lawyers. “If the white paper is implemented, it will effectively end legal aid in PI cases,” he says.
Roger Smith, of the Legal Action Group, takes a more cautious view. He says: “It would be precipitate of the Lord Chancellor to say their use should be extended and that they should replace legal aid in PI cases.
“We need research into whether the mechanics of a conditional fee arrangement affects the way solicitors act for clients and whether solicitors are biased by where they are in terms of the likelihood of getting the fee and whether they settle for less to be certain of getting it.”
The Lord Chancellor's Advisory Committee on Legal Education and Conduct has asked the Policy Studies Institute to carry out research into the arrangements and report in the spring. The institute's Stella Yarrow says it will send a questionnaire to 300 solicitors specialising in PI cases shortly. It will ask how success was defined in the agreement, the level of uplift, how disbursements were paid and how disputes with clients over the bill were resolved. It will also see if take-up differs regionally and among different-sized firms.
The Bar has been more cautious. Guy Mansfield QC, vice-chair of the Legal Aid and Fees Committee of the Bar Council, says: “While a lot of solicitors may have signed up, not many agreements have been taken up by the Bar. I view them with a certain amount of suspicion – they may be fine for straightforward PI work, but I doubt they are viable in medical negligence cases, where it is difficult to get cheap insurance against defendants' costs.
“I am also anxious that conditional fees are not used as an excuse to deprive people of legal aid. If you exclude medical negligence, PI costs the legal aid fund remarkably little – a 10 to 15 per cent outlay for an 80 to 90 per cent return.”
Dan Brennan QC, chair of the Personal Injury Bar Association, says it will review counsels' experience of the arrange- ments and the model agreement drawn up with the Association of Personal Injury Lawyers (Apil) next term.
He says: “We view them positively but cautiously as we do not treat them as an inevitable replacement for legal aid. I am not aware of a determined refusal to do them by the Bar. As far as I know, chambers are willing to do these cases, with a competent risk assessment.”
Geraldine McCool, a partner at Leigh Day & Co, is considering taking on two group actions involving medical devices on a conditional fee basis. She says: “Accident Line Protect has been extremely helpful. There would not be £100,000 cover per case but their security is that I am prepared to take it on.
“They do not bat an eyelid in the US about the scale of financial investment involved, given they can take up to 40 per cent of any damages on a contingency fee basis. But I've seen firms go bankrupt even when they have had a cracking case because cash-flow problems in the seven or eight years it took to conclude drove them under.
“The main thing to look at here is if, with the 25 per cent cap, there is financial incentive to make the risk worthwhile. You may be looking at up to a quarter of the damages, but these are generally quite small in this country. In class actions we would have to take the full 100 per cent uplift, subject to the cap, because these cases can take years.”
Michael Napier, chair of the Law Society's Civil Litigation Committee and co-author of Conditional Fees – a Survival Guide, says there is no logical reason why conditional fees should not extend to civil cases where damages are recoverable.
Caroline Harmer, president of Apil, agrees that conditional fees should be extended to help middle income groups not eligible for legal aid. But there have been problems.
She says: “The main one is the way PI cases are defined. The understanding in the Law Society and Lord Chancellor's Department was that PI claims would include professional negligence. If you had sued a defendant on a conditional fee basis but your solicitor had done the work badly and you had to sue him, you should be able to do that on the same basis. The Bar has taken the view that the definition does not include these cases.
“This uncertainty is unsatisfactory. It can be resolved by taking it to appeal or the Lord Chancellor can refine the definition. Leaving it until next year's review is too long. Solicitors have already entered into these agreements and while this doubt goes on they do not know what to do.”