By: 15 January 2014

‘No win, no fee’ agreements could be under threat after the Legal Ombudsman questioned the use of the popular term for conditional fee agreements (CFAs) in early January.


In a report outlining the complaints received by the ombudsman on CFAs, the watchdog asks whether the 'no win no fee' descriptor should be used any longer.


The ombudsman says that it has become increasingly concerned about the operation of ‘no win, no fee’ legal services after calculating that its has paid out £944,177 in compensation between 1 November 2012 to 30 November 2013.


"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," says the report.


It also suggests that many personal injury (PI) practices may be "forfeiting a robust vetting process" in favour of a high risk approach that sees them taking on cases with a low chance of success. The ombudsman says that 70% of complaints on CFAs are related to PI claims.


"We are seeing examples of very poor service in some of the cases that come to us and have made conduct referrals where service providers have failed to honour agreements with customers or have exploited loopholes in the contracts, with serious consequences for their clients," said the watchdog.


"These raise questions about the way that such agreements are structured and sold. There are signs that these cases may be representative of a wider problem with ‘no win, no fee’ agreements which, if unaddressed, may lead to significant market issues arising."


The report also refers to the conclusions reached by the Committees of Advertising Practice (CAP), which described 'no win no fee' as “potentially misleading, because it can imply that the client will be liable for no costs whatsoever”, which has led to the Advertising Standards Agency upholding complaints against firms.


The ombudsman has said that it wants to see firms taking the report seriously and to come up with proposals on how to bring a more uniform level of standards in CFAs across the legal sector. One suggestion made in the report is creating a new code of conduct that would make CFA and DBA follow a typical formula.


David Bott, senior Partner at Bott & Co urged the watchdog to tread carefully over the issue.


“There should be no problems using the term no-win no-fee to describe a service that has no charge if a case is unsuccessful and the client has kept to the terms of the no-win no-fee agreement," he said.


"To eliminate the phrase from the vocabulary of legitimate and ethical law firms because of the behaviour of a minority would be throwing the baby out with the bathwater.”