'No win, no fee'

'No win, no fee' agreements (the correct term is 'conditional fee agreement') have mostly replaced legal aid as a way of paying for compensation claims. The principle is that if you do not win your case, you do not have to pay your solicitor's fees. But many people wrongly believe that, win or lose they will have nothing to pay. This isn't true. If you lose, you won't have to pay your solicitor's fees - but you will usually have to pay your opponent's costs.

Insuring against losing your claim

If you decide to claim compensation under a 'no win, no fee' agreement you must make sure that you won't face a huge bill for your opponent's legal costs if you lose your case. Most people take out insurance, called after-the-event (ATE) insurance, to cover them for this.

However, just because you have decided to claim compensation, does not mean you will automatically be able to buy after-the-event insurance. An insurance company will consider your chances of winning before deciding whether to offer you insurance.

If you do go ahead with a claim and you win your case, you should be able to get back most of the insurance premium and your legal costs from the other side.

Some forms of after-the-event insurance give the insurer the right to:

• force you to accept an offer of settlement from your opponent (even if it is less than you would like)
• use a medical expert they choose to prepare an expert report on your injury or condition
• stop you from beginning court proceedings.

Under other after-the-event policies, your solicitor makes these decisions with you. Your solicitor should explain all this to you.

How much you will pay for after-the-event insurance can vary considerably and will depend on several factors, including:

• the amount you are claiming
• your chances of winning
• how soon after the event you are making your claim and
• whether you are paying the premium upfront (i.e. at the start of your case) or deferring (putting off) payment until the end.

You may have to pay a few hundred or several thousand pounds for insurance. Claims after road traffic accidents are generally cheaper to insure than, for example, claims for medical accidents or arising from a work-related disease. You should discuss any quotation you get and how to pay the premium with your solicitor.

As well as the initial premium some insurance companies also charge a 'renewal' premium on the anniversary of the insurance.

This means that if your case takes a long time, perhaps because it is complex, you will have to pay a percentage of the original premium on each anniversary of the insurance until the claims has been dealt with. Other companies charge an additional premium when your case gets to court if it complicated or may involve large sums of money.

If you can't afford to pay the insurance premium upfront, your solicitor may pay this (and any other expenses relating to your case) for you, as long as you keep to the terms of the conditional fee agreement. In these circumstances the premium will be paid by your opponent if you win your case or may be paid by the insurance company if you lose. If your solicitor won't do this for you, you may want to arrange a loan to enable you to pay the insurance premium and expenses. Claims management companies and some solicitors may be able to arrange a loan for you, but they will charge you for doing this.

What might I have to pay under a conditional fee agreement?

Working out what you could receive or pay under a conditional fee agreement is complicated - and certainly not as straightforward as the expression 'no win, no fee' suggests.

Here, we'll look at the example of Betty, who broke her arm badly resulting in a permanent disability and what would happen if she lost her claim or if she won it. In Betty's case, she took out a loan to pay for the after-the-event insurance and other expenses.

If Betty wins her claim

The loser will pay:

• Betty's compensation:.....£25,000
• The insurance premium and the cost of the medical report and other expenses. However, the court can choose to reduce the amount her opponents will have to pay towards these expenses; if it does Betty may have to pay the difference out of her compensation.
• ATE insurance:.....£450
• medical reports and other expenses ('disbursements'):.....£1,000
• Betty's solicitors' basic charges. However, if Betty's opponent thinks these are too high, the court can decide how much they should pay. If it is not the full amount, Betty may have to pay the difference out of her compensation.
• Solicitor's basic charges:.....£10,000
• Part of the success fee, which is the extra the solicitor charges you if you win your case. Betty should have been told at the outset by her solicitors how much of the success fee she can expect to get from the loser if she wins and how much she will have to pay out of her compensation.
• Success fee is 20% of basic charges = £2,000
• Losers pay 90% of this:.....£1,800

Betty will pay:

• the interest on the loan Betty took out to pay the insurance premium and the expenses:.....£250
• that part of the success fee the loser does not pay, 10% of £2,000 = £200]So Betty will receive her compensation less the two amounts above, giving her £24,550 in total.

If Betty loses her claim

Betty's opponent will pay:

• nothing to Betty or her solicitors

Betty will pay:

• nothing to her own solicitors:.....£0
• nothing towards her opponent's legal costs and expenses, because these are covered by the ATE insurance policy:.....£0
• interest on the loan for the insurance and disbursements:.....£250

Betty may also have to pay:

• for her own medical report and disbursements:.....£1,000
• the After-the-event insurance premium:.....£450

This will depend on the terms and conditions of Betty's after-the-event insurance policy. In many policies the disbursements (often including the insurance premium) are refunded if the case is unsuccessful but sometimes only if a letter of claim has been sent or court proceedings have been started.

So Betty will have to pay at least £250 and possibly even as much as £1,700, depending on the terms of her policy.

March 2007