There is no doubt that without the No Win No Fee arrangement available to those pursuing personal injury claims the vast majority of claims would never reach the courts. It is estimated that around 75% of all personal injury claims are pursued on this basis. So not only does this ensure that those without finances are not discriminated against but it allows negligent third parties to be held to account.
The specific legislation covering legal costs and “success fees” has changed over the years. We will now take a look at the issue of success fees, what they are, who pays them and why they are so important.
Success Fees Explained
When a personal injury solicitor takes on a personal injury claim there is a degree of risk that the claim may be unsuccessful. If this was to happen they would be left to cover their own legal costs, assuming a No in No Fee arrangement had been agreed, so to reduce this risk solicitors charge a success fee. The standard rate for a success fee is 25% and while before 2013 this was covered by the defendant the regulations have changed. Even though legal costs in a successful prosecution will still be covered in part or whole by the defendant, depending upon the court ruling, the success fee is now paid for out of the claimant’s compensation award.
If you have a valid personal injury claim, and you approach a personal injury solicitor about a potential prosecution, you will be advised of the No Win No Fee arrangement and the matter of success fees. All law firms, solicitors, claims management companies are obliged by law to make you aware of all costs, financial risks and liabilities going forward as well as any payments in the event of a successful compensation claim. The vast majority of claimants work on the basis that without a compensation claim they would have no money so it is better to have 75% of the compensation award than nothing whatsoever. This seems a fair assessment and in many cases a win-win situation for all parties when you consider the specific risks.
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Legal Aid, Sentencing And Punishment Of Offenders Act 2012
Over the years there have been significant changes to the legal aid system and 2013 saw the transfer of liability for success fees move from the defendant to the claimant. In the vast majority of cases all legal expenses would still be paid by the defendant in the event of a successful personal injury claim but the success fee agreed between a personal injury solicitor and their client would now be paid out of any compensation awarded.
Even though the No Win No Fee arrangement offered by many in the legal profession has received criticism in the past it ensures one of the fundamental principles of English law, giving everyone equal access to justice. As the legal aid system was restructured it became apparent that the No Win No Fee arrangement available today, together with an additional success fee as well as expenses, would be the best replacement. The legal aid system has not been abolished completely but the number of people eligible is more controlled today than ever before.
Mitigating The Risk Of Failure
When you approach a personal injury solicitor with information about your personal injury claim, they will assess the situation in great detail, call on their previous experience and third parties who can offer additional assistance. There are many cases which seem like an open and shut case on the surface but the legal intricacies of UK law are not always as straightforward as they should be. Therefore, there is no such thing as a certainty in the world of personal injury claims which is why the 25% success fee was introduced.
If you consider for example a personal injury solicitor taking on 10 relatively strong personal injury claims on a No Win No Fee basis – how many would be successful? This is an open question because it is impossible to say without the details of the specific cases but if for example they were successful in 8 out of 10 cases, without the success fee they could be out of pocket. They would be able to recover their expenses for the eight successful cases but left to cover their own expenses for the two unsuccessful claims. If these two unsuccessful claims were relatively long drawnout affairs then they could in theory negate any profit on the successful cases. This type of business model is not viable therefore the introduction of a 25% success fee makes the situation more palatable.
Maximum Success Fee Allowed By The Ministry Of Justice
When the regulatory changes were introduced back in 2013 it was assumed by the authorities that this would encourage competition between solicitors and a reduction in the standard 25% success fee. This fee is the maximum allowed under the Ministry of Justice regulations and charged by many law firms because they need to increase their revenues and balance the risk/reward factor.
At this moment in time there is relatively little in the way of competition with regards to success fees with the standard rate still quoted at 25%. Many people automatically assume that a reluctance to reduce standard success fees is simply a money grab by the legal profession, but this is simply not true.
Road Traffic Accidents
We know that the vast majority of personal injury claims relate to road traffic accidents to differing degrees. Recent changes to the personal injury claims regulatory system have capped the standard legal fees recoverable from a defendant in the event of a successful claim. This is referred to as “fixed recoverable costs” and was brought in to counter abuse of reclaimable legal fees by some claims management companies. The vast majority of claims management companies abide by the letter of the law but scams in relation to for example whiplash claims were leading to legal cost charges often larger than the compensation awarded to the claimant!
As a consequence, the vast majority of claims management companies would not be able to accommodate the large number of road traffic accident personal injury claims without the 25% success fee. Even though the system has been streamlined to keep legal costs and disbursements as low as possible they can still add up to a significant amount and that is before we even consider unsuccessful claims.
Large Compensation Awards
While the vast majority of personal injury solicitors will have specific expertise in the more general personal injury law, there are others who have specific knowledge in areas such as medical negligence. Medical negligence can be extremely complicated and compensation claims can run on for many weeks, months and even years. They can also result in compensation in the hundreds of thousands of pounds or even millions of pounds depending on the specific circumstances. Some law firms may have the ability to trim their success fee from the traditional 25% level assuming they have a high success rate, are able to keep their costs down and have connections with expert third parties for specific advice.
There are other areas of the personal injury law which can also attract large compensation claims and there may be some scope to reduce the success fee slightly. However, when you take into account the long-term cost of legal advice in some of these cases and the fact that not all are successful, at best you might expect a slight trimming of the traditional percentage rate. In the vast majority of cases there is a need to maintain the 25% level simply to make the business model viable and available to the wider public.
Any individual approaching a personal injury solicitor about pursuing a claim for compensation will have no knowledge of the firms risk/reward ratio and long-term returns. On the surface some may feel that a 25% success fee, alongside reimbursement of their legal expenses, is unfair. However, as we have mentioned above there are many other factors to take into consideration such as the firm’s long-term success rate and running costs.
As we touched on above, there will be isolated occasions where the success fee may be trimmed but in reality the vast majority of law firms would not be able to operate economically without such income. In many ways this is the long-term cost of a No Win No Fee system which has proven to be extremely popular in the personal injury claims market. It is also worth noting that the more companies able to offer such services the more competition in the industry which will help to maintain competitive legal fees.