By Alec Hancock – Consultant Legal Executive
It can seem too good to be true, but no win, no fee does exactly what is says on the tin. Providing you following the advice of your personal injury lawyer, be honest and forthcoming and if you lose your claim you will walk away with no financial consequence. However many of our client’s want to know how a “no win, no fee” conditional fee agreement actually works.
What does No Win, No Fee actually mean?
A ‘no win, no fee’ agreement is actually called a ‘conditional fee agreement’. It’s a Personal Injury Lawyer’s way of funding a claim without the client having to pay the legal costs out of your own pocket. Although it is a big concession by a Personal Injury Lawyer (because they could put in hundreds of hours into a case and not get paid if it is unsuccessful) it allows clients to have access to justice because personal injury clients are not entitled to legal aid for their claim.
… surely that means if I am successful I have to pay a fee – what happens if the legal bill at the end exceeds the compensation I recover?
In principle you are responsible for Personal Injury Lawyer’s costs, however, the purpose of the no win, no fee agreement is to allow you access to justice without the costs risk.
If you are successful in your personal injury claim you are entitled to recover your reasonable legal costs from the Defendant. This means that your Personal Injury Lawyer will not be expecting you to pay anything out of your own pocket – their reasonable fees are paid for by the other side.
… and if I lose?
If you are unsuccessful in your personal injury claim then your Personal Injury Lawyer will waive the legal fees incurred during the course of your claim (i.e. no win, no fee). Effectively you will not pay anything out of your own pocket when it comes to legal fees, regardless if you win or lose. I would discuss with you beforehand if there is any possibility that you would have to pay anything at all and you would then have the choice of taking that risk or not.
What about the other costs that are not legal fees?
There are other costs involved in a personal injury claim that are not legal fees – these are called disbursements.
Disbursements, such as the medical report fee, Court fee, Barrister’s fees etc. do not form part of the legal fees but are costs incurred during the case. This also form part of your responsibility to pay, but your Personal Injury Lawyer will ensure that you will not be personally responsible for paying these costs out of your own pocket.
If you are successful (save for certain disbursements), the Defendant will pay the disbursements in addition to your Personal Injury Lawyer’s legal fees.
Your Personal Injury Lawyer will advise you about any disbursements that will not be recoverable – however they are very limited. Plus, I would discuss with you beforehand if there is any possibility that you would have to pay for it and you would then have the choice of taking that risk or not.
So what happens with the disbursements if my case is unsuccessful?
In the initial stages, your Personal Injury Lawyer will ensure you have some form of funding protection in place that will cover disbursements in the event that you are unsuccessful. As always, win or lose, you do not pay anything out of your own pocket.
The usual method is for your Personal Injury Lawyer to purchase an After The Event (‘ATE’) Insurance Policy on your behalf. An ATE policy is a very common form of insurance policy for litigation and, as it says on the tin, is set up after the accident occurred.
The premium is deferred so there are no costs initially. If you are unsuccessful, the ATE policy will pay the disbursements and the ATE premium is waived – there are no costs to pay out of your own pocket (please see below about what happens if you are successful).
You may already have a legal expenses insurance policy with a pre-existing Before The Event (‘BTE’) policy. These policies are usually included with home buildings or home contents policies. Your Personal Injury Lawyer will investigate this prior to setting up an ATE Policy. As you’ve already paid for this policy, the BTE policy will pay the disbursements (subject to their terms and conditions). If you have a BTE policy, it may be better to use that, rather than an ATE Policy.
What happens with the premium for the ATE policy if I am successful?
The ATE policy becomes payable once your case settles. So how does this get paid? Prior to April 2013, the Defendant would pay the ATE policy, however the government decided to reduce the amount of legal costs a Defendant would be responsible for in a Personal Injury claim and therefore made it impossible for a Claimant to recover the ATE premium from the other side.
Personal Injury Lawyers also charge a ‘success fee’ (to account for the risk they took in accepting cases on a ‘no win, no fee’ basis) which used to be recoverable from the Defendants however, after April 2013, the Government also stopped you from recovering the success fee from the Defendant – more about this later.
So who pays the ATE policy premium if I am successful?
The Government has now prevented Claimants (you, the person making the claim) from recovering all legal costs from the Defendant which means the successful Claimant contributes towards the legal costs from their compensation. A maximum of 25% will be deducted from the compensation.
Perhaps surprisingly, this is not that unusual – contingency agreements (such as the ones used in America) mean that the client pays a percentage of their compensation to contribute towards the legal costs.
Your ATE premium and success fee are paid from this maximum 25% deduction.
You obtain £3,000 in compensation. The maximum deduction is 25% of £3,000 which is £750 for the success fee and ATE premium, leaving you with £2,250 in your pocket.
In this example, if the ATE premium was £600, the 25% deduction would divided up as £600 for the ATE premium and £150 for the Personal Injury Lawyer’s success fee.
It doesn’t matter if the ATE premium exceeds 25% of the compensation, because Personal Injury Lawyers cannot deduct more than 25%.
As another example, you obtain £2,000 in compensation. The maximum deduction is 25% of £2,000 which is £500 for the success fee and ATE premium, leaving you with £1,500 in your pocket.
In this example, if the ATE premium is £600, but we can only deduct a maximum of £500, £100 remains outstanding for the ATE premium. However the Personal Injury Lawyer will bear the cost of the additional £100 from their legal costs recovered from the Defendant. Although it means the Personal Injury Lawyer has to contribute to the ATE premium, it means that you, the client, doesn’t have to pay the remaining £100 out of your pocket.
For more information, feel free to contact me on 01613 597167, Rebecca on 01613 597168 or email us on firstname.lastname@example.org.
* subject to Terms & Conditions. Providing you follow the advice given and you are honest through out you will have nothing to worry about.