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Cardiff research prompts government regulation

15 Gorffennaf 2009

Three people talking

Research by Professor Richard Moorhead and Rebecca Cumming at Cardiff Law School has prompted government proposals for a new power to regulate contingency fees to protect consumers.

In two reports (‘Something for Nothing’ and ‘Damage-Based Contingency Fees in Employment Cases’) they identify a series of concerns about the complexity of ‘American style’ contingency fee agreements in employment tribunal cases, what the government now calls ‘Damage Base Agreements’ (DBAs). The reports look at how and when lawyers provide DBAs and how the clients perceive that and other methods of providing legal funding (such as trade unions and legal expenses insurance).

The Ministry of Justice draws on the Cardiff Law School research reports extensively in a consultation paper accompanying the introduction of a new clause into the Coroners and Justice Bill last week.

The use of the controversial Agreements in employment cases is one of the few areas of law in England and Wales where such fees are permitted. Contingency deals allow lawyers to take their fees from damages won for their clients, meaning that payment is only received if the claimant is successful.

Professor Moorhead and Rebecca Cumming suggest that regulatory bodies, such as the Solicitors Regulation Authority and the Legal Services Board, should take a more active role in regulating the permissible approaches to litigation funding.

Their research found that no-win no-fee agreements were more complex than clients realised. This could lead to them being charged considerably more than they expected. Lawyer use of unfair settlement clauses in contingency agreements meant client’s lost control over their cases without realising it.

Professor Richard Moorhead said: "Contingency fees are advertised as no-win no-fee agreements but the client often ends up paying more than they expect, win or lose. Contingency fees provide access to justice to clients who cannot afford to pay for lawyers any other way but this research suggests the rules need tightening to stop the abuse of client ignorance."

As well as problems with contingency fees, the reports highlighted problems with lawyers funded by trade unions and legal expenses insurers. The research found that clients did not exercise any informed choice over their lawyer or how they paid that lawyer. Advice on alternative costs arrangements was either not understood or not given by the lawyer, even though this is required by professional rules.

The government is now seeking regulation in the following areas:

  • the provision of clear and transparent information to consumers under damage based agreements;
  • a maximum % of the damages that can be recovered in fees from the award; and
  • the use of unfair terms and conditions (such as unfair settlement clauses)..

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