What future for “no win – no fee”?

Many people may have missed last week’s news of the Government’s green paper, with proposals for reform of civil litigation costs. The good news for personal injury victims is that “no win – no fee” funding of personal injury claims is here to stay. The bad news for most successful claimants is that they will lose a large slice of their compensation to pay for it.

Currently, firms like Brachers who specialise in personal injury work can guarantee claimant clients that provided they keep to their side of the agreement they will not need to pay a penny for legal costs, win or lose. We can offer clients that service because although we have to write-off our time if we lose, in most cases where our clients win, we can recover from the defendant/insurer a “success fee” for taking on the risk that we might not get paid. The success fees on the winning cases make up for the cost of the losing cases. It’s like a legal aid scheme funded not by the government, but by defendants who have failed in their legal duties.

Without success fees solicitors could only afford to take on the most straightforward risk-free cases, which could significantly restrict access to justice for some people.

Under the current system, there is a risk of the claimant having to pay for medical reports/other fees or the defendant’s costs if they lose, but this can nearly always be insured. Any insurance premium is also paid by the losing defendant or written off if the claimant loses (again working on a “no-win, no fee” basis). The problem with the current system is although it provides access to justice for the claimant, it is often very expensive for defendant/insurers. A lot of those costs result from our adversarial legal system and often defendants themselves can increase costs by disputing liability or taking doubtful points too far before they eventually settle. However, there is no doubt that the no win no fee system as it is currently set up contributes to the heavy costs bill. In many cases, particularly in clinical negligence and public liability claims, solicitors are allowed to double their money by charging the defendant a 100% mark-up on their basic costs. This can even apply where the defendant admits liability quite early on. In addition, because of the need to insure against the possible risk of paying the defendant’s costs if the claim fails, litigation insurers often charge very high insurance premiums which defendants have to pay if they settle (even though claimants only rarely end up paying defendant’s costs).

The main reason why the Government is concerned about this is because it (and local councils) are quite often the losing defendants who have to pay out and this is often in the sort of cases where the current system creates the most disproportionately high costs, ie clinical negligence and public liability claims. The Government’s current proposals have taken their cue from a report by Lord Justice Jackson published in January. The headline proposal is that rather than defendants/insurers paying the solicitor’s success fees and litigation insurance premium, claimants should pay this out of their compensation. In most cases, this would reduce the costs that Government/other defendants have to pay in personal injury claims. Unfortunately, at the same time it will deprive most claimants of a large chunk of their compensation.

The amount that could be taken from their compensation would be restricted to 25% of the damages for the injury and past losses, but that’s still a large slice. The effect of this would be moderated slightly by increasing the claimant’s injury damages by 10% to help pay these costs.

It is also suggested that insurance premiums could be reduced by mostly removing “the loser pays” rule for claimants so that the claimant would not need to insure against the cost of losing. However, recent studies have shown that these two adjustments would still leave most personal injury claimants worse off.

Is this fair? It must be remembered that, unlike for example in the United States, personal injury awards in the UK are compensatory rather than designed to punish and the sums allowed are relatively modest. The damages are meant to put the injured person back in the situation they would have been in but for the defendant’s wrongdoing. If injury victims lose up to 25% of their damages to pay for their legal support, they will no longer be put back into that position. There is a genuine need to control excessive costs promoted by the current system, as we are well aware from the defendant clinical negligence work that Brachers also does. However, our view is that a much fairer option would be to reform and significantly reduce the level of success fees and insurance premiums, including using lower staged success fees and tackling the very high hourly rates currently recovered by some lawyers, particularly in central London firms.

Unfortunately, what the Government is currently proposing will reduce both the quality of and access to justice for injured claimants. The Government is consulting over its proposals until 14 February. Whatever reforms it then takes forward, the main proposals would require the approval of Parliament. It does seem clear that changes to “no-win, no fee” litigation are on the way, although exactly what final form that will take is not yet set in stone. Any changes are unlikely to take effect until 2012. In the meantime, anyone with a potential personal injury claim would be well advised to seek legal advice now to avoid the future risk of losing part of their compensation to pay for their legal costs.

This content is correct at time of publication