The End Of No-Win-No-Fee (Claims Management Companies)?
Claims Management Companies usually offer to pursue a claim on the basis that if they are unsuccessful there will be no fee – only if they are successful will they charge a fee usually expressed as a percentage of the amount obtained.
These companies are regulated by the Financial Conduct Authority. From 1 March 2022 they will have to limit what they charge and the charge must be reasonable based on the work that the company has done. There is no mention of a “fee uplift” being possible and this article considers that point..
For some years firms of solicitors have been able to increase their normal fees, based on the work they have done, by up to 100% when they have been successful. The limit was debated by Parliament who at first thought a 20% uplift was an acceptable limit – a sort of “bonus” for success. But the other side of the coin is that if a claim is unsuccessful the solicitors get nothing to pay for the cost of the work they have done. The solution that was then reached, after further debate, was to increase the 20% limit to 100% because this would enable solicitors to take on work on a no-win-no-fee basis if they thought the chance of the claim being successful was 50% – if the costs for each of two cases was say £10,000 each and only one was successful the solicitor would receive nothing for one case and, with a 100% uplift. £20,000 for the other so between the two cases he would be able to cover his costs. The motivation was to ensure that the services of solicitors to make a claim were available to as many people as possible.
This approach has not been followed by the Financial Conduct Authority – they probably do not have the same motivation that Parliament had. If claims management companies continue to offer no-win-no-fee agreements they will be paid their reasonable costs for the cases that they win but nothing for the cases that they lose. The question arises how they can balance their books.