Law firms are increasingly attracting litigation clients with their 'no win no fee' arrangements in the post-Jackson era of increasing costs pressures - but at what risk to firms?
The Legal Ombudsman (LeO) has reported increasing concerns about the operation of 'no win, no fee' agreements - or conditional fee agreements (CFAs) - over recent months. Its concerns should not be ignored, particularly given that it has ordered firms to pay £1m worth of compensation, reduced fees and costs of putting things right to consumers aggrieved with the sub-standard service they have received (Nov 2012 to Nov 2013).
CFAs give consumers a welcome opportunity to pursue otherwise cost prohibitive litigation at minimal financial risk to themselves. However, the potential financial risk to legal services providers who take a lackadaisical approach to such agreements is increasingly stark.
The LeO reports an increase in what it describes as "very poor service" where some service providers have not honoured their agreements with clients - or have exploited loopholes in the contract. The Chief Ombudsman, Adam Sampson, describes the 'no win, no fee' market as “increasingly aggressive” and says: "A business model which consistently overvalues the chances of success can drive lawyers into unethical practice in order to avoid financial meltdown".
The Committees of Advertising Practice has already warned that the phrase 'no win no fee' is itself potentially misleading (implying the client will not be liable for any costs) - a stance the Advertising Standards Authority has also taken. LeO is therefore questioning whether the phrase 'no win, no fee' should be used at all to describe such agreements; and urges the regulators to monitor and review their use.
CFAs are currently regulated under LASPO but the LeO has urged the SRA to consider further regulation. It has also recommended the use of a transparent, standardised CFA by claimant solicitors.
What Can You Do?
To minimise the risk to both firms and clients, litigation practitioners should take on board the LeO's advice, notably:
- Carefully explain to clients the conditions attached to such agreements
- Make clear the circumstances where the client may incur legal costs
- Exercise due care before agreeing to take on a case to ensure it is well founded
Communication with the client is clearly vital. In addition, review your CFAs to see if there are any 'structural weaknesses' allowing you to pass the risk of unrecovered costs onto your client.
How Can We Help?
We are the leading experts specialising in advising law firms on their risk management solutions. If you are a litigation firm with concerns regarding your existing CFAs, why not contact us to discuss how you can best manage the risks.
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