September 12th, 2011 by Marie-Claire Clinton

I can still remember when “no win, no fees” first came in.  I was a trainee and I was asked by my then firm to look at what it would mean and whether I thought it would be a good idea for us to join Claims Direct, the original claims management company which subsequently went down the tubes in disgrace. http://www.accidentcompensation.com/ic3.htm

The idea at that time was that the arrangements would act as a replacement to legal aid, which was no longer available for personal injury claims, so that people who couldn’t afford a lawyer but who had a good case would still be able to pursue their case.

The success fee (the uplift that the lawyer charges) was to be calculated to compensate for the cases the lawyer took on but would lose.  This means that the cases which were won covered the costs of the ones which lost. In effect, it covered the risk the lawyer was taking in not getting paid along the way and the potential of not getting paid at all if the case did not win.

That was how it was meant to work.  Then came along referral fees, costs caps, fixed costs, insurers selling details of people who have had an accident, and the major advertising by claims management companies, which completely changed the landscape.

Instead of only people who would have qualified for legal aid being offered “no win, no fees” arrangements, now everyone expects to be given one irrespective of their means.

So that is the background.

One of the more controversial aspects has been referral fees.  When the “no win, no fees” arrangements first came in, solicitors were banned from paying or accepting referral fees by our professional rules.  This changed a few years in and that, in my opinion, is when it really started to go wrong.

I recently read an article, I can’t remember where so I can’t link it here, that said the solicitor receives fixed costs of £1,500 for personal injury claims up to £15,000, of which on average £400 is paid by the solicitor back to the referrer (the claim management company, insurer, etc).

As a business model, to me this seems completely bonkers.  The only one carrying the risk of the claim is the solicitor and to add insult to injury they then have to give more than 25% of their fees away.

I am extremely glad that they are moving to ban referral fees in the personal injury market http://www.bbc.co.uk/news/uk-14846666.  I would be even more happy if they abolished “no win, no fees” altogether and allowed us to enter into arrangements where we can take a % of the winnings instead.