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 CFA