As housing and other social welfare lawyers face the prospect of legal aid being withdrawn from their sector under the government’s reforms, many are looking at whether their practice could adapt to operate under ‘no win, no fee’ agreements instead.
No doubt the Ministry of Justice is hoping that the successful move from legal aid to conditional fee agreements in personal injury cases back in 2000 - with the huge savings that created for the legal aid budget - will be replicated in other areas. But speaking to personal injury lawyers who themselves made the transition from legal aid to conditional fee agreements (CFAs) in 2000, it is clear that times were very different then.
For one thing, the CFA rules introduced in 2000 were (and, for the time being, still are) quite favourable for claimants, with lawyers’ success fees and clients’ after-the-event insurance premiums recoverable from the losing party, that is to say the insurer. Indeed, some would argue that this was actually too advantageous for the claimant side, ultimately prompting the pendulum to now swing right back to favour insurers through the Jackson reforms, which will abolish the recoverability of success fees and ATE premiums.
Not only were the right rules in place to assist claimant lawyers back in 2000, but the economic environment was also good for firms, and - for better or worse - legal costs were going up, meaning more cash for lawyers. So everything fell into place to make CFAs very successful for claimant lawyers in personal injury cases.
But in 2012, those housing, social welfare, and other legal aid lawyers seeking to rely on CFAs once legal aid is abolished in their sector face a very different set of circumstances. Not only will the CFA rules themselves be less accommodating, but there will be other difficulties as well.
One crucial issue for firms will be cash flow. They can kiss goodbye to Legal Services Commission payments on account (despite the notorious LSC payment delays, guaranteed cash flow remains one of the key benefits of legal aid work); instead, if they want to use CFAs they will need good capitalisation and a large overdraft facility.
Back in 2000, banks were happy to lend to the legal services sector, which was considered a safe bet. But as anyone who has followed the high-profile Halliwells collapse will know, that is no longer the case. Banks will not necessarily want to provide the finance required, and it certainly won’t come cheap.
Compounding the problem, the small high-street firm which is the mainstay of legal aid does not tend to have high levels of capital within the firm. As readers know all too well, once profitable conveyancing work has still not returned, and even income from client account interest (previously a valuable source of additional income for many small firms) has tumbled as a result of record low interest rates. Many firms are already in a precarious state, and it is not uncommon for partners to pay themselves less than their own fee-earners to keep things going. These practices are in no financial position to start offering CFAs.
But if CFAs cannot fill the gap left by the removal of legal aid in social welfare law, the result will be a crisis in the provision of legal advice that will hit some of society’s most vulnerable.
Rachel Rothwell is former Gazette news editor and a freelance writer
Follow Rachel on Twitter
No comments yet