The Legal Ombudsman (LeO) last year ordered remedies totalling nearly £1m in complaints relating to 'no win, no fee' agreements – a result it attributed to the harsh post-Jackson operating environment for law firms.
LeO called on frontline regulators to make the use of transparent, standardised conditional fee agreements (CFAs) a matter of professional conduct, and queried whether the ‘no win, no fee’ label should continue to be used.
A report published today said LeO ordered a total of £944,177 in financial remedies between 1 November 2012 and 30 November 2013, including compensation and fee reductions.
While acknowledging that CFAs were welcome as access to legal aid diminished, and they could “offer customers an affordable and simple solution”, it said there was evidence that firms operating in an “increasingly aggressive” market were prioritising volume over the rigorous vetting of cases.
Altogether 600 CFA-related complaints were made to LeO – 6% of the total. Of these, 70% were in personal injury
LeO revealed it had warned regulators that 'no win, no fee' presented significant potential risks to consumers: “A business model which consistently overvalues the chances of success can drive lawyers into unethical practice in order to avoid financial meltdown.
“It is for these reasons we have made referrals to regulators; to assist them in looking for patterns and risks so they can inform future action to prevent market distortions and consumer detriment.”
Many consumers were not aware, for example, that costs may have to be payable from damages, following the removal of recoverability in the Jackson reforms. “We have seen cases where people have been hit with surprise costs after winning their case. Usually, this entails confusion around the amount payable towards a success fee, but can also involve payment of disbursements and the other side’s costs.”
LeO highlighted the Law Society’s model CFA for use in personal injury and clinical negligence cases as a basis for good practice. Due care on the part of firms should be “standardised… perhaps by enshrining it into regulatory codes of conduct, while universalising” CFA and damages-based agreement contracts.
In what it called “one of the worst cases seen by the ombudsman”, Paul Stacey, aged 42, was told to pay £24,000 to a firm that had pulled out of his case, after it found out that he had represented himself in court and won.
The firm had dropped his case half way through, stating it had no chance of winning. LeO ruled Mr Stacey should pay nothing, and also be compensated.
Other case studies presented in the report included a woman who was charged £15,000 after her PI claim was unsuccessful, despite a CFA being in place; a woman who faced £30,000 in costs in a PPI mis-selling case, after a firm failed to take out an insurance policy on her behalf; and a woman who was compensated after a firm withdrew from her PI case unfairly.
Chief ombudsman Adam Sampson said: “The ‘no win, no fee’ market has become increasingly aggressive, with many law firms competing for cases and sometimes prioritising sourcing a large number of customers over a careful selection process…
“This report raises genuine questions as to whether the ‘no win, no fee’ label should be used at all.”
Lynsay Taff, director of communications for the Advertising Standards Authority, said: “‘No win, no fee’ claims can be misleading because sometimes the client is liable for undisclosed costs, such as insurance, if they lose their case. That’s unfair and can be financially damaging to a consumer.
“We’ve banned ads that have failed to give that kind of information upfront and we advise any advertiser making such a claim to ensure that the commitment is genuinely without cost.”