What must your law firm know about conditional fee arrangements?
By Charlie Britten
15 Nov 2019
With conditional law fee arrangements (CFAs) working very differently since 2013, law firms need to be precise in how they market themselves.
Many law firms will have much experience with CFAs. Introduced in the UK in 1998 and often known as no-win, no fee arrangements, they were popular with litigants as they gave them an effective free shot at winning compensation, with no risk of financial loss.
While this was supposed to be good news, there was a downside to this, prompting legislation that means every litigation law firm needs to be careful in how they set up their marketing strategy.
Why did the old system need to change?
In theory, CFAs brought the benefit of allowing more access to redress by those who would otherwise have lacked the financial means to bring cases. However, the situation also gave rise to a plethora of claims, encouraged by specialist firms.
As a result, some unintended negative effects arose from the use of CFAs:
- It created the nuisance of cold-calling claims firms encouraging people to seek compensation, often for accidents they never had
- It developed the negative image of the ‘ambulance chasing’ law firm
- It meant more individuals and organisations were at risk of being sued, often frivolously
- It led to more injury claims arising from car accidents despite improvements in overall road safety, leading to large increases in motor insurance premiums
The last of these also led to more people illegally driving without correct insurance in order to save costs, either by fraudulent actions - such as getting a more experienced driver who could get a lower premium to ‘front’ a policy - or driving without insurance altogether.
What was the effect of new legislation?
In response, government legislation sought to curb the use of CFAs in a range of areas. In particular, Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 stopped law firms charging their ‘success fee’ for winning cases to the party losing the case.
This now means:
- Any firm or individual who has been successfully sued still has to pay compensation, but not an additional fee to the successful litigation firm
- Instead, the fee charged by the law firm will come out of the successful party’s compensation payment
- In the case of personal injury cases, this fee cannot exceed 25% of winnings
- However, the losing party would still pay disbursement costs incurred by the litigation firm in support of the client, such as transport costs and barrister fees
At the same time, in most instances a litigant who launched a case still does not have to pay any legal costs if they fail to win. However, there are some exceptions:
- The claim was made on unreasonable grounds
- Dishonest behaviour
- A case only brought to try to financially benefit someone else
These measures are designed to act as a deterrent to frivolous claims, such as opportunistic whiplash claims from people who have emerged from road accidents unharmed.
What exceptions have there been to these legal changes?
There have been a few exceptions to the 2013 arrangements, the one still in force being mesothelioma claims.
However, there have also been some cases in other categories still being heard at High Court level arising from claims prior to 2013 where the old CFA arrangements are still being permitted by the courts. So, for now, it is important for law firms not to forget completely about the old system since a few cases may still arise.
How should litigation law firms now market themselves?
While there are these lingering exceptions to the 2013 changes, litigation firms now need to ensure that their legal advertising is done with balance and restraint and their communication with clients is of a high standard. This means:
- There must still be an appeal to a potential client that a legal solution exists to their problem
- This message must not conceal the fact that the changes to the law place constraints on litigation
- These should not pursue opportunistic or unreasonable litigation due to the cost risks for a claimant
In all this, attention should be paid to new regulations such as those provided by the Solicitors’ Regulatory Authority, which requires greater transparency in pricing. In this case, the matter of where the ‘winning fee’ comes from is a matter any potential client should know about before any case commences.
Nonetheless, while these caveats exist, the fact remains that litigation law firms can still potentially reach a large number of potential clients with a good legal content marketing strategy.
How can BeUniqueness help?
At BeUniqueness, we know the importance of ensuring that a strong digital marketing strategy reaches the right people. We know that the 'buyer persona' of your target market can change, not least when the law does. With our help, you can maintain a flexible and up-to-date marketing strategy to ensure you communicate accurately and in a compelling way what you can offer potential clients.