Jack Straw's plans to
clamp down on no-win, no-fee solicitors
may have little effect.
Last month, the
Ministry of Justice announced it planned
to clamp down on no-win, no-fee lawyers
who exploit vulnerable clients. No-win,
no-fee arrangements fall into two
categories:
-
Conditional fee
arrangements (CFAs) – where lawyers'
fees are calculated on the basis of
work done;
-
Damages-based
contingency fees (DBCFs) – where
lawyers' fees are calculated as a
percentage of compensation awarded
or paid.
Currently, CFAs are
permitted in most areas of litigation,
but DBCFs are not a permitted form of
funding for litigation conducted through
the courts. Nonetheless, the
classification of tribunals as
non-contentious means that DBCFs are an
available method of funding employment
claims.
As they are currently
unregulated, justice secretary Jack
Straw believes that DBCFs allow lawyers
to take a large proportion of damages as
payment for excessive legal fees. In an
attempt to rectify the situation, the
government has announced its intention
to regulate DBCFs and introduce the
following provisions in the Coroners and
Justice Bill:
-
A cap on the
percentage of damages that can be
recovered (the amount of the cap is
yet to be determined);
-
A requirement
that lawyers provide claimants with
information on total costs,
deductions used to pay their fees
for taking on the case and
alternative methods of funding.
Critics of DBCFs
argue that such regulation is required
as their use is currently open to abuse.
The disadvantages of DBCFs include
encouraging nuisance claims and making
access to justice limited to low risk,
high value claims.
DBCFs also have the
potential to create a conflict of
interest between claimants and their
solicitors, whose primary concern
becomes ensuring costs are recovered,
rather than acting in the best interests
of their client.
Another disadvantage
is that DBCFs frequently contain
settlement clauses providing that a
client who does not act on advice to
settle will have to pay hourly rates for
the duration of the case. This
effectively handcuffs clients to the
settlement advice of their solicitor.
However, some argue
that DBCFs should be permitted alongside
CFAs and regulated accordingly. One
advantage of DBCFs is that they are
simpler than CFAs and are often welcomed
by clients.DBCFs can also improve access
to justice.For those without legal
expenses insurance, and who are not
members of a trade union, DBCFs provide
an alternative method of funding
employment litigation.
For those unable to
afford to pay privately for legal
representation, or gain access to free
representation, DBCFs represent the only
practicable alternative to self-representation.Another
advantage is that DBCFs may actually
reduce spurious claims, as practitioners
are unlikely to offer DBCFs to clients
bringing speculative claims.
Irrespective of the
perceived advantages and disadvantages,
DBCFs have been a feature of the
employment tribunal regime for over 10
years and it is debatable whether the
proposed regulation provides any
additional protection to claimants.It is
arguable that a cap on the percentage of
recoverable damages is unnecessary, as
competitive market forces prevent abuse.
A study by Moorhead
and Cumming (2008) reported that
although the approaches to charging
DBCFs are inconsistent, there is no
evidence to suggest that excessive
percentage fees are charged.
Additionally, the
Solicitors' Code of Conduct already
requires solicitors to give clients the
best possible information about costs,
including discussing various methods of
funding.This suggests that as the
proposed regulation does not seem to
increase claimant protection, simply
codifying existing requirements and
practices, employers will still have to
deal with claims being brought on a
no-win, no-fee basis.
Key points:
-
DBCFs are no-win,
no-fee arrangements, which allow
lawyers to take their fees as a
percentage of damages won.
-
They are not
permitted in the civil courts.
However, such arrangements have
existed for many years in employment
tribunals.
-
DBCFs are
currently unregulated. The Ministry
of Justice wants to cap the
percentage of damages recoverable
from claimants, ensure claimants are
given full information on costs and
are told about different methods of
funding.
The Interactive
Law Group