Check My Legal Fees News
Not All "No Win, No Fee" Agreements are Equal
We think most users of legal services are either told or allowed to assume that "no win, no fee" agreements offered to them by lawyers, particularly for personal injury work, are pretty much the same : a "standard" model, adopted industry wide, with little to differentiate one firm from another and no need to shop around on price.
Our analysis of 925 retainers from 249 firms from 2013 to 2021 however reveals a very different picture
The analysis was undertaken jointly by Checkmylegalfees.com and JG Solicitors Limited, the leading firms dealing with challenges to deductions under "no win, no fee" agreements. Full detail of the analysis is available in downloadable form at the end of this article.
Over the course of several years both firms have undertaken an ongoing analysis of available historic retainers that have been supplied either by clients, or by solicitor opponents in the course of claims . There has been no "selection" in that the data includes claims that - in terms of challenges against deductions of legal fees - have ended up being won, lost, are still ongoing, or have not been pursued at all. It includes retainers that give clients very little information, and some that provide full and detailed information about both how the solicitors charge, as well as how costs are recovered from the opponent in the event of a win so that the client has a good idea what the net cost of proceeding with a claim or dispute is likely to be.
97% of "no win, no fee" agreements within the analysis are a formal "Conditional Fee Agreement" but beyond that there are some fundamental differences :
- 12% of retainers are express CFA lites, which are the most cost effective solution for a client who wins his or her case (because only a "success fee" - which are highly regulated - is ever payable out of damages, and the client is not responsible for any balance of "unrecovered costs", an element that is largely unregulated)
- The range in hourly rates is surprising : £118 to £545 for a "grade A" fee earner (a solicitor who has been qualified for more than 8 years) and £90 to £540 for a "grade D" fee earner (the most junior member of staff, who may not have any legal qualifications at all)
- An average success fee (the amount by which the hourly rate is increased if the case is won) of 64.25%
- The top rates, including success fees, are therefore £895.16 pus VAT for the most experienced solicitors, and £886.95 plus VAT for the most junior, potentially unqualified staff members
- Average rates including success fees are £424.98 plus VAT for a "grade A" and £326.97 plus VAT for a "grade D"
Why does any of this matter if it is "no win, no fee"?
There are two very important reasons why this matters.
Firstly the outcome of a claim dealt with under a "no win, no fee" agreement is not binary. If the claim "wins" the other side usually pays part or all of a client's costs (except for the success fee) and if the claim "loses" then there is no fee payable to the solicitors. But what about where a client changes their mind after the cooling off period? Or rejects an offer that the solicitor thinks they should accept? Or wants to instruct a different solicitor, becomes insolvent or even dies during the course of a claim. Or where the solicitor accuses the client of being in breach of the agreement. In those circumstances virtually all "no win, no fee" agreements require the client, or their estate, to pay the costs (excluding the success fee) there and then. So the hourly rate in a Conditional Fee Agreement can have a drastic and unexpected impact if things do not go to plan.
There are plenty of real world examples of cases that "did not go to plan" : An ordinary family faced with a bill for more than £17,000 following a holiday sickness claim conducted on a "no win, no fee" agreement when the solicitors assumed - quite wrongly - that the clients had not been truthful. Or a businessman faced with a bill of more than £16,000 on a professional negligence claim dealt with on a "no win, no fee" basis when his solicitors argued that, by making a complaint about various delays, the client had had terminated the agreement and had to pay in full. It is simply not the case that all "no win, no fee" cases end up neatly with a win or a loss. Clients in our view need to properly understand what they might be letting themselves in for. If that was understood we do not think any client would be willing to agree to payment of such extraordinarily high rates.
Secondly - unless it is a "CFA lite" - no win no-fee agreements require the client to pay the difference between the full costs and the costs that have been recovered from the opponent. The rules as to costs that can recovered from an opponent when a client wins their case are complex. They usually restrict the recoverable costs to an amount that is "proportionate" to the value of the litigation and in most personal injury claims worth less than £25,000 they are at fixed amounts set by the court rules.
The higher the rates, the higher the likelihood that there will be a significant difference between the solicitor's bill and the recovered costs, with the shortfall between the two - subject to any contractual cap set by the solicitor - being deductible from any compensation or damages obtained for the client.
The average rate for junior staff members in our analysis (£326.97), which goes back over eight years, is nearly 2.6 times higher than the current guideline rate (for 2021) published by the Courts and Tribunals Service for that level of fee earner outside of London.
Whether the rate set by the solicitors is more than the guideline rates is emphasised by a ruling of the Court of Appeal yesterday (6th April). In Samsung Electronics v LG Display Lord Justice Males said -
"If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided"
Any rate in your no win, no fee agreement that is higher than the guideline rates is likely to leave you with a shortfall to pay at the end of the case as well as any success fee.
Road Traffic Accident Claims (and other cases where the costs payable by the opponent are "fixed")
Since 2013, following an overhaul of court rules and procedure, the vast majority of road traffic accident claims (along with accident at work claims and "public liability" accident claims - for example slipping when shopping in a supermarket) have been funnelled through the claims portal.
The portal is an online "dispute resolution" system - subject to court rules and protocols - whereby the claim is entered electronically, the opposing party (usually an insurance company) responds electronically with an admission or denial of liability. Where liability is admitted the claimant, having obtained medical evidence - which is also driven by the portal - puts forward settlement proposals through the system, suggesting an amount of compensation and - following a short period of negotiation - that is either agreed and the claim resolved without any formal court involvement or, if it cannot be agreed, the claim goes to court simply for a decision as to the amount of compensation.
It is only if liability for the accident is disputed, or if one of the parties does not follow the rules, that the claim exits the portal and proceeds through the traditional court process.
Claims that started in the portals account for 98.27% of the retainers analysed.
In all such cases the costs payable by the opponent are fixed by the court rules. You can see an example of how the fixed recoverable costs rules work in road traffic accident cases here. As the recoverable amounts are fixed, the hourly rates charged by the solicitors are all the more important.
If the recoverable costs are £500, a client who is being charged £540 per hour will inevitably face a higher deduction from their compensation than one who is being charged £90 per hour, because after the first hour there will already be a "shortfall". The £90 per hour lawyer on the other hand can do 5 and a half hours before there is any possibility of a "shortfall" that would need to be met by the client.
But even a client who is being charged £90 per hour may face a higher deduction from their compensation than one who has been offered a "CFA Lite" (because under a CFA lite the solicitor accepts for their "hourly rate" charges whatever amount is recovered from the losing party, so there can never be a "shortfall" that needs to be paid by the client no matter how much time was said to have been spent).
Key Findings on Road Traffic Accident Claims that settled in the "Portal"
- The use of formal Conditional Fee Agreements is almost ubiquitous
- "Damages Based Agreements" (where the solicitor takes a straight % of compensation, but then gives credit for costs recovered from the opponent), and which are regulated by legislation, are not used at all
- Conditional Fee Agreements tend to say that they are not a "contentious business agreement" (which is a particular type of agreement under s.59 of the Solicitors Act 1974) but not all of them do
- "After the Event Insurance" is commonplace (54.9% of cases that settle in the portal) at an average cost to the client of £231.60 (with a range of £26.50 to £980.00), the cost of which will be deducted from clients' compensation in addition to any deduction for the solicitor's charges and disbursements
- Average rates are surprising : £255.43 for a grade A and £199.34 for a grade D. The grade A rate is not particularly high but this type of work is done predominantly by junior fee earners. The average for junior staff is well in excess of the guideline rates.
- The average success fee is 60.57%, so clients who win are charged (subject to any contractual restrictions) at £410.14 plus VAT for a grade A fee earner and £320.08 plus VAT for a grade D fee earner.
- Base costs said to have been incurred (time spent at the hourly rates above) average £3,469.84 thus an average shortfall (the difference between actual costs said to have been incurred and the fixed costs recovered from the opponent) of close to £3,000.00. This means that on average there is an available "pool" of over £6,000 inclusive of VAT in "unrecovered costs", so that - even where there is a contractual cap on the amount that the solicitor can deduct from compensation - a deduction of 25% can be "justified" in all but the most serious of RTA cases
- There is a small but significant number of "CFA lites", which means that in modest cases (worth up to £10,000) the maximum that could be deducted from a client's compensation for the solicitors' charges is between £90 and £135 (assuming a success fee at 15% of the "base costs"); in higher value cases (greater than £10,000) the maximum that could be deducted is between £120 and £189 (assuming the same 15% success fee). That is a very significant departure from the deduction of "25% of compensation" that the client may have been led to believe was legitimate.
- Less than 40% of agreements notify the client that the costs payable by the opponent will be fixed
- There is a small but significant number of CFAs (3.1%) that not only mention that the costs that will be paid by the other side are at fixed levels, but explain how those fixed costs rules work, and explain that what the solicitors will be charging is more.
- Many agreements involve a "contractual cap" on compensation. This is not to be confused with the "statutory cap" which provides that in all cases no more than 25% of a client's general damages can be taken as a "success fee". A "contractual cap" actually widens the damages that are at risk, because it allows the solicitor to take fees from future financial losses as well as general damages, it avoids the statutory maximum of 25%, and is said to justify taking a shortfall in overall costs recovery as well as / instead of just a success fee. The range of contractual caps is wide : from 50% to 15%.
- Some agreements (15%) impose no contractual cap at all. As a result the client is at risk of losing all of their compensation to the solicitors, absent a non-contractual "goodwill" gesture by the solicitors to limit the extent of the deduction
Conclusions and Open Questions
- From a clients' perspective these agreements are, we think, utterly baffling. They are around 30 pages long on average, often in small print. They are often provided in electronic form only and - sometimes - signed up to in a single call without proper opportunity to digest them (see our report on the Turnbull case for an example)
- The range of potential charging outcomes on an identical case is huge and, frankly, unjustifiable
- The rates and success fees are, in our opinion, set on average at an artificially high level, with a view to ensuring that solicitors can take the maximum possible deduction from compensation in every case
- On a £5,000 damages RTA case that - as many do - settles at portal stage 2, the client could lose anything from £90 to £2,500 or more depending on which solicitor they approach (or which solicitors happens to be put before them first : many clients are funnelled through to specific solicitors either by their insurers - as in the Turnbull case - or by a claims management company)
- If verbal explanations are given to clients at all before entering into these arrangements, in our experience they differ wildly from the actual contractual terms. "The law changed in 2013 and says we can take 25% of your compensation and that is what all solicitors do" is not only wrong in law, but woefully lacking in the detail that a client needs in order (a) to know that they should read their documentation in detail, and (b) to look around for a better deal before signing up
- Only a tiny proportion of clients are given the information that we think that they should have in order to make a properly informed choices about how to fund their litigation, and how it should be dealt with
How will such arrangements possibly operate successfully when the new portals, the extended fixed costs regimes (for litigation cases worth up to £100,000) and the "online court" arrive?
"After the Event Insurance"
- The recommendation of After the Event Insurance - at an average cost of £231.60 - in the majority of portal cases is a major cause for concern.
- After the Event Insurance traditionally covers the risk of losing the case and having to pay the opponent's costs. But since the overhaul of the system in 2013 that risk no longer exists unless there is a finding of "fundamental dishonesty"
- If the client loses the claim at the portal stage, then there is nothing to pay his own solicitors, but they might have to pay "disbursements". In the vast majority of RTA cases the sole disbursement at portal stage is a medical report at a fixed cost of £216.00 inclusive of VAT.
If clients are being sold insurance policies for an average cost of £231.60, to insure against a small risk of having to pay out an average of £216.00, how is that not the worst insurance deal in history?
Full detail of the analysis is available below. Firstly in .pdf form, secondly as a .zip file which will extract into an Excel spread sheet
The .zip file was checked for viruses and malware immediately before uploading but, as with any compressed file we recommend you undertake your own checks after downloading.