LeO questions future of 'no win, no fee'

The Legal Ombudsman has questioned the future of the 'no win, no fee' terminology and revealed that it ordered firms to pay almost £1m in compensation, costs and reduced fees to clients in the year November 2012 to 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," chief ombudsman Adam Sampson said.

"A business model which consistently overvalues the chances of success can drive lawyers into unethical practice in order to avoid financial meltdown.

"This report raises genuine questions as to whether the 'no win, no fee' label should be used at all."

In its report, LeO said it had "begun to see cases where the fundamental promise which underpins the marketing of both CFA s and DBAs - that the consumer will not have to pay for losing cases - is being broken.

"Our cases show that people who have entered into 'no win, no fee' agreements have been hit with significant and unexpected costs when cases have failed. On occasions, we have also seen consumers who have won their case end up out of pocket."

Cases studies in the report included a man who represented himself after his solicitors pulled out, but still received a bill for £24,000 in legal costs after winning the case.

In another, a law firm failed to explain that under the Jackson reforms he would lose almost a third of his damages, which would be used to cover the firm's success fee and disbursements.

In a further example, a firm handling a medical negligence claim ceased trading, after the client had paid £10,000 for medical reports. LeO said the CFA agreement made no reference to the client paying these costs and suggested he contact the firm's indemnity insurers.

"Lawyers must explain the circumstances in which a losing case can incur a cost for a consumer and the limitations of the 'no win, no fee' promise must be properly set out before a customer signs up," the report concluded.

"And it isn't just at the start that problems from unclear terms and conditions can arise. 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."