The short answer: no – whilst there are a number of common principles such as the success fee being limited to 25% of past losses inclusive of VAT, and legal expenses insurance premiums having to be reasonable and proportionate, there are other factors that can vary between firms.
Many of these variable factors are not obvious when first speaking to a law firm and so it is very important to ensure you fully understand what the deductions will be. Below we provide a detailed explanation and, at the end, some things to watch out for as some firms are, in our view, not handling these things particularly well.
The detailed answer: the basic idea behind no-win no-fee agreements (the actual legal name is “Conditional Fee Agreement”) is that in return for having to cancel their fees if the case does not win, the lawyer is entitled to charge an uplift on their fees if they do win i.e. a reward for having taken the risk of recovering nothing for their fees. This is known as the “Success Fee”.
Prior to 2013 the Defendant had to pay that uplift, as well as the client’s own fees, but from 2013 onwards that uplift/Success Fee unfortunately became payable by the client, provided the case succeeds of course.
The law however states that the maximum Success Fee is 25% of past losses, inclusive of VAT.
By “past losses” we mean those elements of a person’s compensation that reference losses they have already suffered. For example:
Someone recovers £100,000 of compensation broken down as follows:
£20,000 for their injuries
£20,000 for lost earnings whilst they were unable to work
£5,000 for care and assistance provided by others
£5,000 for medical and travel expenses
£30,000 for future treatment needs for example private surgery; and
£20,000 for future lost earnings
As the 25% deduction can only apply to past losses (being the top four items above), the maximum Success Fee chargeable is £12,500 inclusive of VAT i.e. 25% of £50,000.
However, Success Fees are not the only deduction typically taken from a person’s compensation: there could be a legal expenses insurance premium and a deduction for any shortfall in recovered costs. Let us look at both in turn.
The legal expenses insurance premium:
Whilst the no-win-no-fee agreement protects you from your own legal fees in the event you lose, there are other costs at play in claims which clients need to be protected from. Some costs are on your own side so to speak such as medical report fees, court fees etc, but the more concerning thing is the potential for having to pay the Defendant’s legal costs. Whilst these days there are only limited circumstances in which you would be ordered to pay the Defendant’s legal fees (the main one being when you recover less compensation at trial than a defendant’s offer), the risk is still there and so lawyers must protect their clients.
Legal expenses insurance exists to protect clients against both their own expenses (doctors’ fees, court fees etc) and any defendant legal costs if things go wrong. The downside however is that there will be a premium to pay from your compensation at the end (but the good news is that if the case does not succeed the premium is cancelled).
Most policies these days have premiums matched to the amount of compensation recovered ranging from say a few hundred pounds for compensation up to £10,000, to a few thousand pounds for compensation of £100,000 or more. Aligning the size of the premium with the compensation recovered is therefore a useful way of avoiding disproportionate deductions from compensation.
Shortfall deductions (bear with us, this bit is more complex):
The law only entitles people to recover a proportion of their legal fees from their opponent if they succeed. For example, say your lawyer incurred £10,000 worth of fees winning your case, it might be that he or she is only entitled to recover £7,000 from your opponent. What happens to the missing £3,000?
Whilst outside of personal injury law firms (e.g. contract law/commercial firms) would typically charge that missing amount to the client, for whatever reason it became the culture or “norm” in personal injury circles not to charge those missing amounts to clients.
However, from around 2011 the Government has increasingly reduced the amount personal injury law firms can recover from their opponent if they succeed. This has made life very difficult for personal injury firms and a great many have closed down or been absorbed into larger firms.
For instance, the maximum amount a lawyer can recover from an opponent for a road traffic accident matter valued up to £10,000 that could take years to settle, is only £500(!).
In 2023 the Government introduced even further restrictions on the amount of costs injured people can recover from their opponent, setting the fees to approximately 50% of the typical costs incurred.
So, what do law firms do: try to survive at 50% of the actual costs required to run a file, often therefore running cases at a loss, or charge shortfall deductions to clients?
Most firms have had to move to a system of charging some degree of shortfall to a client, though most firms will cap the amount they take to protect the client.
For example, say the actual legal fees incurred in a case are £15,000 but the maximum the losing opponent has to contribute is £7,500, the law firm might take an extra £2,000, to “cushion the blow” so to speak. The law firm will still be losing a significant amount but they can at least operate at a profit.
Things to watch out for:
Here’s the basic problem: many law firms realise that clients may simply shop around and choose the law firm with the smallest deduction at the end.
They also therefore appreciate that to be open about all of the potential deductions could result in the client going elsewhere. Here are some of the things we have been told by clients who have telephoned us looking to transfer from other firms:
– “The law firm is charging VAT on top of the 25% Success Fee despite other law firms saying that cannot be done”
This is somewhat of a “sneaky one”! What the law firm is likely doing in this situation is charging a 5% shortfall (which is equivalent to adding the VAT on top i.e. 20% of 25%). The “small print” on the no-win no-fee agreement will likely say that the 5% is a shortfall and not the Success Fee, which thereby makes it (probably) legal, but the downside is the client is left confused because the law states the 25% Success Fee is to be inclusive of VAT and so the client tends to arrive at the belief the law firm is acting outside the law.
Why this is a popular approach for some firms is that it allows them to simply answer “25%” when the client asks how much they deduct at the end. In our view this is an unhelpful approach and often leads to client confusion and concern.
– “They said it would be 25% but it’s turned out to be 50%”
Again, it can be difficult trying to explain the “shortfall” to clients and why firms often need to charge one to run a case at a profit. Given the amount of clients who are surprised by firms’ deductions at the end we suspect those firms are potentially brushing over that in the initial discussions, or perhaps simply leaving it in the small print.
Furthermore, for commercial reasons most firms will leave new client interactions in the hands of junior and/or unqualified staff which in our view is a mistake as they can lack a full understanding of how legal costs work and are instead reading from a script. Aston Knight Solicitors ensure that a senior solicitor takes conduct of a case from the initial discussions through to the very end and we are always 100% transparent about the deductions we take.
– “The legal expenses insurance premium is very high yet my compensation was low so now I am not being left with much”
A little known fact is that sometimes law firms receive a commission from the legal expenses insurance premium. For example, the premium might be £1,000 but the law firm receives £500.
Predictably, this then increases the size of the insurance premium.
Aston Knight Solicitors do not receive commission on any legal expenses insurance premium and will only advise taking one out if we genuinely feel it is in your best interests.
– “The firm would only use medical experts connected to their own inhouse medical agency”
Some law firms have their own inhouse medical agencies. So, say you need to be seen by an orthopaedic surgeon as part of your claim, the firm will then choose an orthopaedic surgeon who works with their own inhouse agency. The surgeon might charge the agency say £500 for their report, but the agency adds an uplift of another £500 on top.
Whilst this therefore provides a useful source of additional revenue to the law firm, the concern we have with this model is: what happens when the most suitable medical expert for a case will not work with medical agencies? In our experience not all experts accept instructions from medical agencies – some require the law firm to instruct them directly. Furthermore, some experts have their own agencies which then poses a problem as there would be two sets of agency fees, and sometimes agencies cannot agree terms with particular experts.
At Aston Knight Solicitors we will always instruct the best expert in your case regardless of such factors.
Do not be afraid to ask questions. If the law firm seems evasive about potential deductions, or whether they receive commission from legal expenses insurance premiums, then that should in our view be a red flag.
Speak to a senior solicitor if needs be. Any quality law firm will not hesitate to transfer you to a qualified and experienced solicitor if you have any concerns. Remember that just because a law firm prefers to save costs by employing unqualified staff that should not come at your expense.
Never feel pressured. You generally only get one chance to bring a claim and so it is important that you choose the solicitor right for you. Furthermore, any quality or reputable firm will leave you to decide in your own time and without pressured sales-type follow-up calls.
Look at the big picture – sometimes a larger deduction is worth it. Say for instance a firm with a poor success record and/or generally lower compensation values offers to cap their deductions at 20%, but a stronger firm proposes 35% – which do you choose? That extra 15% will not mean much if the first firm cannot win the case, or secures a lower settlement. There can often be added value in instructing a better and/or more specialised firm.
Keep in mind whether you are getting added value for any larger deduction. For instance, if you agree a larger deduction of say 35% but your case is then passed to a junior solicitor are you getting the added value you are paying for? At Aston Knight Solicitors we ensure every case is handled throughout by an experienced solicitor with a proven case success track record.
We hope this guide proves to be of use but please do not hesitate to reach out to us for an informal, confidential and no-obligation discussion at either info@astonknightsolicitors.co.uk or 0800 999 6661.
