Condittional Fea Arraangementt (CF.A) (spelling mistake is meant so that this article is unsearchable) was introduced by the Access to Justice Act (AJA) 1999 as an attempt to transfer legal funding from the treasury to the private sector. This occurred as a result of an increasing and ridiculous growth in the cost of legal aid, namely from a few hundred million to well over 2.1 billion pounds from the 1980s to 2000. Moreover, it was not because demand was growing. Rather, number of cases relying on legal aid had decreased. Due to the need to control budget, CF.As are used to fund many civil cases which legal aid now excludes, and the issues brought about by CF.As have been debated over the last decade.
Admittedly, based on my research, the only groups of individuals who have really benefitted from this scheme are the lawyers, the claims management companies (CMCs), the banks and the insurance companies, which, is typically the supplier base for this system. In contrast, the consumers themselves have little but complaints, even though the CF.As were targeted to helping them in the first place. The introduction of Lord Justice Jackson’s report this year 2010 is new and the effects have not been visible in the current market, though we may look at the theoretical and legal implications that such an upheaval in the CF.A this would bring.
Firstly, we look at the advantages.
In terms of access to justice, CF.As have provided for many who could not qualify for legal aid. From 2000-2005 alone, personal injury cases saw a jump in a million[1] consumers seeking redress through CF.As. This is likely because of a few reasons. For one, the strict means test introduced by the AJA 1999 has led to the middle income group not qualifying for legal aid, but they are not able to afford legal services either. Secondly, the AJA 1999 has taken away certain civil cases from its funding, personal injury as an example. Thirdly, CMCs have been actively educating the masses as to seeking redress for personal injury cases especially, thus promoting a culture that citizens fight for their rights, and the CF.A is one avenue that they can do it for free. The statistics[2] speak for themselves. Especially in road traffic accidents, sometimes it is not proportional the damage to apply for legal advice but now it is made possible without the burden of bearing those legal costs. CF.As have increased accessibility to justice in a way that legal aid with a budget can never provide.
In terms of cost, in particular the success fee, it has been said to be an incentive, the only incentive for lawyers to ever enter into a CF.A. A huge risk of not being paid a cent should equally mean that there should be a larger chance to earn more[3]. Lawyers themselves are taking this risk and in order to maintain a supplier base, a success fee is a must. Currently, the success fee stands at any bonus amounting to up to 100% of the normal legal fees. However, it does not mean that it is up to the lawyer’s whims and fancies to set the percentage. This sum is decided in an agreement between the lawyer and the insurance company, based on the chance of success in a case. Opposition to this has argued that the success fee leads to perverse profits, but statistics show otherwise. Since implementation of CF.As, two large firms of CMCs have gone bankrupt within a short span of 4 years[4] and this makes us wonder whether doing CF.As are way more profitable than regular legal work.
Next, we look at the disadvantages.
The quality of justice has been described by the CAB (Citizens Advice Bureau) as appalling ever since the CMCs have started to act as middlemen for lawyers and clients in setting up a CF.A in personal injury cases. CMCs use hard-selling marketing tactics which pressures victims into entering into a contract with them. Often, they start by saying that they do not need to come out with a cent in seeking compensation but later on in some tiny footnotes they would write that the client may be subject to some payment. Essentially, not paying a cent is true, where legal costs is concerned, but damages are not always enough to pay back the interest rates of applying for a bank loan, which was meant to supply the insurance premiums. Because of the straightforwardness of some cases, some lawyers also take advantage of the situation to drag the case so that they may be paid more legal fees. Many consumers have complained that CF.A cases are so inefficient that they find it hard to resume their daily lives. Some straightforward cases were said to take up to months[5].
The one-way cost shifting is also a disadvantage for the defendant. If the defendant has failed to take up BTE (Before the event insurance), then he might find himself burdened with high legal costs from the other party when he loses[6]. What is worse is that he also has to pay the other party’s success fee, which means he could be paying up to 2 times the price of a normal fee. This is not fair to the defendant[7]. Another issue is that the defendant cannot control the legal costs of the other party and explained earlier this could be abused. Statistics have shown that the market for BTE is still very premature and hence defendants ending up bankrupt as a result of CF.As are a reality[8].
Next, we look at the former aims of CF.As. CF.As were meant to help those who were too poor for legal advice but failed the means test for legal aid. Recent cases such as Campbell v Mirror Group Newspapers Ltd[9] have seemed to imply that CF.As are available to just about anyone. This issue was brought up in the London Seminar as they said that for “
Looking at the efficacy of the CF.A also brings shivers down one’s spine. While it is meant to provide claimants an avenue to seek compensation so that they can use the damages awarded to resume their daily lives or seek medical treatments, most of them end up having to pay for medical fees by themselves. Statistics showed that after the interest rates deduction, claimants were left with a meagre 10-15%[12] of the total damages awarded. Some even had to pay more. This does not seem to be a system to help the poor!
Lastly, on the point of abuse, it seems that lawyers doing CF.As are paid better hourly rates than a normal lawyer. Based on statistics, a CF.A lawyer easily earns 103-115%[13] of the normal lawyer fee based in
The Jackson Report this year has led to many changes to the CF.A scheme and though the effects have not been felt there has been much feedback.
For one, the Condittional Fea Ammendment Act 2010[15] aims to reduce the success fee from 100% to 10% maximum. This is something targeted to help the defendant as there has been much feedback that success fees are perverse to a point of landing people into bankruptcy. However, many such as the Law Society and the Manchester Law Society have spoken up for the lawyers saying that the 100% success fee should maintain. Many lawyers also seem to object to this move[16]. This goes on the grounds that it is important that there are incentives for lawyers to do CF.A work. After all, if they lose the case, they are not paid, and these lawyers are really gambling out there. Based on my opinion, what this amendment does will cause severe repercussions. This will not stop the problem of cherry-picking. Rather, it will result in more cherry-picking because there is a tendency to do almost no-risk work. Also, this would mean that many people would lose the option to enter into a CF.A as supplier base would probably decrease due to less sure-win cases. Next, to look at the problem of dragging cases to increase profits, this might actually persist and get worse in order to earn more. Hence I would feel that this is an effort, despite its good intentions, that would be difficult to bear fruit.
Secondly, there is a proposal to shift costs from the defendant to the claimant. Rather than bearing the full cost, it is suggested that the success fee be paid by the claimant. Courts have shown an apprehensive attitude towards this as the adversarial system has always been one that has a principle that the losers should pay the winner’s cost. This again is a move aimed to help the defendants. However, having this in play would mean that the claimants have less damages to recover. Yet, to look at it from another perspective, this would mean that lawyers can now no longer abuse success fee setting. It would shift the demand of this market to the hands of the claimants. In a way, this provides competition, keeping success fees low and efficient. It would also solve the problem of case dragging, since lawyers would be pressured by claimants not to take so much time. Although this means more lawyers would exit the market because of low profits, I would feel that it is still an advantage as it increases efficiency and cost.
In conclusion, there are many disadvantages and little advantages of the old CF.A system as I have researched and analysed but the new reforms by the Jackson Report might actually be able to solve some of those disadvantages so that CF.As become a good substitute for legal aid.
[1] No Win No Fee No Chance - James Sandbach, Dec 2004
[2] As from FN 1
[3] Win first, Pay later - Bob Maynard 2009
[4]
[5] Opinions expressed and reported by CAB based on 385 evidence reports between Jan 2002 to Sept 2004
[6] see Callery v Gray - [2002] All ER (D) 233 (Jun) Lexis case search
[7] Cardiff Seminar 2009, speech by Sir Anthony May
[8] The Trade Union Congress submission in the Lord Justice Jackson's Final Report
[9]
[10] The
[11] Conditional Fee Arrangement & Freedom of Expression – Thomas Gibbons, 2005
[12] Civil Costs Newsletter 2010
[13] Segmental Analysis Report by Ministry of Justice, data for 2008-2009
[14] The Review of the Regulatory Framework for Legal Services in
Review’), Sir David Clementi, March 2004
[15] Lexis Legislation search
[16] Access to justice:
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