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Conditional fee arrangement (CFA) is a form of risk sharing agreement between a client and a solicitor that is drawn up when the client wishes to make a claim whereby solicitor can offer the client a fee structure which means that while they will receive a success fee if they win the case, if their case should be unsuccessful then no fee will be charged. Thus, it is also known as a “no win, no fee” arrangement.
They were first introduced under section 58 of the Courts and Legal Services Act 1990 in personal injury, insolvency and human rights cases. By 1998, the use of conditional fees was extended to all civil cases except family cases. Moreover, the Access to Justice Act (AJA) 1999 also enables the court to order the losing party in a case to pay the other side costs and the uplift under any conditional fee agreement. Conditional fee agreements also made available under AJA1999 for all types of civil cases except medical negligence.
As a result, they have become more far-flung since 1998 as they created a far greater access to the courts than previously by allowing anyone to get compensation for an injury which was not their fault. Other than that, another reason for CFA to become increasingly popular is due to the concept that if the claimant is unsuccessful they will not have to pay the solicitor for his service.
CFA plays an important role in the current legal aid system by filling in the gaps to give opportunity to those who are not qualified under the legal aid system and had insufficient means to finance to bring their claims to court. This means that a legal claim for compensation is no longer the preserve of those who can afford the services of a good lawyer, but rather based on the extent of the injury may have suffered.
In addition, since the funding of this system is totally borne by the solicitor or the losing party, depending on the outcome, this reduce the expenditure of the government allocated in the legal aid system since all personal injury and business disputes (except clinical negligence) have to be brought under CFA.
However, research conducted by the Local Government Association (LGA) and Zurich Municipal showed that 212 councils in England and Wales reveal that 85 per cent of local authorities say that the CFA have increased their annual costs.
Furthermore, it would appear that when we analyse the cost factor from the perspective of a potential claimant, the advantage from the perspective of government turns into a disadvantage for claimant. For instance, although a claimant may have the benefit of a CFA with his solicitor, he will, in all probability, be ordered to pay his opponent's costs on a standard or on an indemnity basis if he is unsuccessful in the litigation or arbitration. Even if he is successful, the client may also have to fund his own disbursements such as fees of counsel and expert witnesses which will not be covered by the CFA. Other than that, the legal costs may be quite high when they are involved in a compensation claim against an employer or large company these associated, and thus normally they will be required to take out an insurance policy to cover any payouts that need to be made in this instance. Moreover, the loan financed insurance premiums sum up with other legal costs, can often reduce the value of claimants' compensation.
In some cases it turns the whole claims process into a zero-sum gain for consumers and denies effective access to compensation as consumers even owe money at the end of the process.
Another significant advantage followed by the introduction of CFA is that it expanded the access to justice of the public since it allowed the claimants who are not qualified under the legal aid service to continue bringing their case to the courts. However, in 2004 the Citizens Advice Bureau(CAB) published a report No win, no fee, no chancewhich showed that only 31 per cent of around 2.5 million people who have accidents each year actually claim compensation using legal processes. Moreover, research conducted by the Local Government Association (LGA) and Zurich Municipal showed that 68 per cent of councils have experienced an increase in the number of tenuous claims they have received since the introduction of conditional fee agreements (CFAs). This means that CFA is no longer mean access to justice for those of low incomes, rather than an unfettered growth in the number of dubious claims.
Besides, a person with a good case may also not be able to find a solicitor to take up the case where the estimated award of damages is not attractive enough since the payment to the solicitor is based on the success fee of the case. As a result, lawyers are refusing to take on good small claims which may nevertheless be of enormous financial and personal significance to the client, thus denying access to justice.
On the other hand, the CFA also encourage lawyers to manage their work efficiently as they can have the ‘uplift' or ‘success fee' once they won the case. Nonetheless, this advantage again turns into a disadvantage as it must be remembered that some claims management companies and solicitors are subjected to significant commercial pressures and there is a real risk that some of them might allow these additional financial pressures to influence their judgment and advice to clients.
To illustrate: some claims management companies are focussed on getting the consumers to take out a conditional fee agreement without considering whether claiming compensation through a CFA is the best option for them.
For example, a West Midlands Citizens Advice Bureau (CAB) reported a case where a claims management company had advised a wife to sue her husband who was driving her in her Motability car when he had an accident in which she was injured. In the end, it was the so-called professionals involved who gained from the legal action taken rather than the couple. The wife was awarded £2,500 in compensation, but received only £1,100 after the deduction of fees and £800 insurance would be sought from the husband. This meant that between them, they would only be £300 better off.
Other than that, the poor quality of service from solicitors also can be seen in a case reported by a CAB in Bedfordshire that an elderly woman was encouraged to take out a £850 loan to pay for a conditional fee agreement to pursue a personal injury claim that was weak. With interest, the debt had risen to £1,800. The client told the bureau that the solicitor had asked her to ignore the statement from the loan company as the solicitor said that she will be paid once she won the claim. However, at the end, the claim was rejected and now she has to pay a large bill.
Moreover, from the government's point of view, certain types of cases that it rather not fund under legal aid can be brought under CFA, for example, the cases of defamation, personal injuries and disputes arising in the course of business. However, for the potential claimants, this may be seen as a method of excluding whole-sale certain categories of cases without regard for the merits of the case or means of the litigants. This in turn also gives rise to the public perception that the government had simply washed their hands clean from certain cases that it does not wish to fund. As a result, any advantage that the government claims in respect of the CFA is viewed as an excuse to push the problem to the private sector. Therefore, potential claimants could hardly be expected to view this system enthusiastically and embrace its feature advantages.
Nevertheless, a trial may prove to be unfair of one party is represented but the other is not where legal aid is refused. This is potentially a breach of Article 6 of the European Convention on Human Rights (ECHR), which guarantees the right to a fair trial. For example, in Steel v UK, the European Court of Human Rights held that the defendants had not had a fair trial in breach of Article 6 as the defendants were refused legal aid because it is not generally available for defamation cases but their opponent was represented by a team of lawyers.
In a nutshell, there is no absolute measure whether the CFA is still a good system to supplement the inadequate means of the current legal aid system though we can see from above that the disadvantages of this system is more than its advantages. This is due to the fact that the same factor that seems to be an advantage could be considered as a disadvantage when it is viewed from another perspective. In spite of the government's effort to show this as a win-win solution, it would appear that the problems associated with legal aid funding are merely contracted out to other agents under the CFA. The one clear disadvantage to all parties, government and citizens alike, is that in a long run, the CFS may encourage a litigation culture. For instance, the research conducted by the Local Government
Association (LGA) and Zurich Municipal showed that 68 per cent of councils have
experienced an increase in the number of tenuous claims they have received since
the introduction of the CFA. Hence, there are several reforms which could be made to solve these problems mentioned above. For instance, the claim managers, intermediaries and organisations introducing consumers to legal processes should be subject to independent regulation. The regulation should cover quality, competence, costs and secure a proper focus on protecting the consumer. In addition, the Office of Fair Trading and the Financial Services Authority should produce a joint policy on how they will regulate sales of linked insurance and credit products designed to fund legal actions. A market study into the market for conditional fee arrangements, to establish whether this market works effectively for consumers should also be conducted by The Office of Fair Trading.