Advantage and Disadvantage of Conditional Fee Agreements

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A conditional fee arrangement is basically a form of risk sharing whereby if the lawyer loses the case, the client does not have to pay. However, if the case is won, the lawyer can be recompensed through a success fee, which is worked out as a percentage of his cost. In the US, many cases have been funded this way but in English legal system conditional fee arrangement had been banned until the enactment of the Courts and Legal Service Act 1990.

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Under the Access to Justice Act 1999 conditional fees form an important part of the government strategy for funding civil cases.

There are advantages and disadvantages of conditional fee arrangement, in this essay I would like to explain about this issues. As with many, if not all, aspects of law everyone has an opinion. It is these opinions that help make up the advantages and disadvantages, in this case, of conditional fee arrangement (or conditional fee agreement) The main advantage is cost to the state.

Conditional fee agreements cost the state nothing – the costs are entirely borne by the solicitor or the losing party, depending on the outcome.

By removing huge number of personal injury cases from state funding and promoting conditional fee agreements for them instead, the government claims it can devote more resources to those cases which still need state funding, such as tenants’ claims against landlords, and direct more money towards suppliers free legal advice, such as Citizen’s Advise Bureaux. Another advantage is wider access to justice.

The government believes that conditional fee agreements will allow many people to bring or defend cases who would not have been eligible for state funding and who could not previously have afforded to bring cases at their own expenses.

As long as they can afford to insure against losing, and can persuade a solicitor that the case is worth the risk, anyone will be able to bring or defend a case for damages. Performance incentives also another advantage, that supporters claim conditional fees encourage solicitors to perform better, since they have financial interest in winning cases funded this way. Conditional fee agreements are allowed for defamation actions, and cases brought before tribunals, two major gaps in the provision of state funding.

So this wider coverage is another important advantage of conditional fee agreement. Public acceptance is another advantage of conditional fee agreement. The Law Society suggest that clients have readily accepted conditional fee agreements in those areas where they have been permitted in the past. Within two years of the agreements being introduce, almost 30,000 conditional fee agreements had been signed, and by 1999 around 25,000 were in operation. This shows public acceptance of conditional fee agreements. Fairness to opponents is another important advantage.

There are restrictions on the costs state-funded clients can be made to pay to the other side, which can give them an unfair advantage, particularly un cases where both sides are ordinary individuals but only one has qualified for state funding. The requirement for insurance in conditional fee cases solves this problem. There are criticisms or disadvantages of conditional fee agreements. Most of those who have criticized the legislation on conditional fee agreements accept that they are a good addition to the state-funded system, but are concerned that they may not be adequate as a substitute.

In particular, critics – including the Bar, the Law Society, the Legal Action Group and the Vice-Chancellor of the Supreme Court, Sir Richard Scott – have expressed strong concerns that certain types of case will lose out under new rules. They suggest that solicitors will only want to take on cases under conditional fee agreements where there is a very high chance of winning. It was for this reason that medical negligence cases have been kept within the state-funded system. Read about highlighting gaps in provision

Another area which could be hit is that of cases which have enormous public importance, but which need large amounts of work, are difficult to win, and may attract relatively low levels of damages even if successful. These include some types of action against the police and Government, such as complaints by prisoners about their treatment. The Act does address these issues in that it provides for cases in excluded categories to be funded in exceptional circumstances; it remains to be seen whether this will be sufficiently flexible in practice.

Another disadvantage is unfair trials. Where legal aid is refused, a trial may prove to be unfair of one party is represented but the other is not. This is potentially a breach of Article 6 of the European Convention of Human Rights (ECHR), which guarantees the right to fair trial. In Steel v UK (2005) (or common known as the McLibel Two), Ds were environmental campaigners who were charged with defamation for disturbing leaflet criticizing nutritional content of McDonald’s fast food. Ds were refused legal aid because it is not generally available for defamation cases.

They were unrepresented (save for limited assistance from sympathetic lawyers) whereas McDonald’s was represented by a team of lawyers. Ds were found liable. They challenged the fairness of UK proceedings in the European Court of Human Rights. The challenge was successful. The European Court held that the Ds had not had a fair trial in breach of Article 6 and there had also been breach of their right to freedom to expression under Article 10 ECHR. This case and the ruling of the European Court shows that the government cannot expect the conditional fee system to buffer the cases that it does not wish to fund.

There are cases of public importance that cannot be left to the chances of the conditional fee system. Another disadvantage is claimants misled. The Citizen’s Advice Bureau has issued a report entitled ‘No win, no fee, no chance (2005). This express concern that consumers are being misled by the term ‘no win, no fee’. Often consumers find that system costs them more than they gain. Consumers are subjected to aggressive and high-pressured sales tactics from unqualified employees of claims management companies.

These companies receive a free from solicitors for passing them case. Consumer can be subjected to inappropriate marketing tactics; for example, accident victims have been approached in hospital. Consumers are not informed clearly of the financial risk that the legal proceedings will involve, and are misled into believing that the system will genuinely be ‘no win, no fee’. In fact, consumers may need to take out an insurance policy to offset any legal expenses incurred if they lose the case and required to pay the other side’s costs.

If the claim is, for example, against the council for failure to repair a council flat, a building surveyor may need to be paid as well as the lawyers. These legal expenses can be artificially inflated by unscrupulous claims management companies. The consumer can be encouraged to take out a loan to pay the monthly installments of the insurance policy. The consumer frequently discovers that these expenses have wiped out any compensation they win. The injured person does not as a result benefit from the compensation they are entitled to.

In some cases, the consumer even ends up owing money. In one case handled by citizens’ Advice Bureau a woman was left with just ?15 from a ?2150 compensation payout, and in another case a man received compensation of ?1250 for an accident at work, but owed nearly ?2400 for insurance relating to the litigation. In brown and ten others v Bridgend County Borough Council (2004) the litigation had arisen when employees of a claims could be made. An action was brought against the council for failing to carry out housing repairs.

The claimants had taken out loans to pay for insurance policies to cover any legal expenses they incurred. The average compensation paid to claimants was ?1631, but the claimants’ solicitors sought an average of ?8,000 in costs against the local authority. In fact the court only ordered ?250 to be paid, holding that money of the legal fees were unjustified and not payable. The government has issued a consultation paper, ‘Making simple CFAs a Reality’ (2004). This is at how conditional fee agreements can be improved.

It is also intending to improve the regulation of claims management companies through provision contained in the Compensation Act 2006. Insurance cost is another disadvantage. There are concerns that insurance against losing can be expensive. In the area of personal injury, the Law Society provides an affordable insurance scheme, but in other areas the only suppliers are private insurance companies, who, charge according to risk, so that clients with cases where the outcome is uncertain may be faced with very high premiums.

Despite the high premium, such insurance is expected to be more common as conditional fee arrangements increase in popularity. Financial involvements of lawyers are another disadvantage. The Bar Council has criticized the idea of allowing lawyers a financial interest in the outcome of a case. In a letter to the Lord Chancellor, the Bar Council argued that since clients generally lack the knowledge to assess their chances of success, lawyers will be able to charge whatever they think they can get away with. At present, the average uplift in fees is about 43%.

Pressure to settle is another disadvantage

Insurance companies may pressure claimants to settle and some have been known to threat to withdraw their cover if clients refuse to accept offers of settlement that the insurance company consider reasonable. Fundamentally, the interest of the insurance company is to avoid pay out, even at the expense of clients’ interests. Abuse in defamation proceedings are concerns that conditional fee agreements are being used inappropriately in defamation proceedings, and thereby threatening the right to freedom of expression.

Following a critical newspaper article, it is easy for a person to bring proceedings for defamation at no expense to defend such a claim. While it may be clear that a newspaper article damages the reputation of the claimant, the burden of proof will pass to the defendant to show, for example, that the article was true or fair comment. As a result, there needs to be strong case management by judges in defamation cases and the capping of costs where appropriate. In conclusion these appear to be conditional fee arrangements are one of the best service available to the public in order to allow them access to justice.

However having analysed the advantages and disadvantage of conditional fee arrangement that I have described, there appears to be a lot of room for improvement. Because of the problems that the other legal funding agencies face, Conditional Fee Agreements appear to be the best option open to individuals. However even with CFAs, there is a major problem for less well off people because they are not able to afford to make the agreement, especially if their claim is likely to be sent to the High Court.