Personal Injury Costs
- ‘NO WIN NO FEE’ is standard.
- ‘NO WIN NO FEE’ does not mean you are free to ignore costs risks.
- You win, the losing party must pay legal costs.
- BUT: legal cost paid by losing party cover part of legal costs.
- Success fee is charged by your legal team when you win.
- Success fee is charged against your damages.
- Success fee is capped at 25% of damages.
- ATE – after the event insurance – is charged against damages.
Success fees – How they work
What is the success fee?
This is the fee charged by your legal team on top of what are called “basic costs”.
Your legal team have earned the success fee.
Because costs paid by the other party are much less than they used to be, the success fee is not a bonus, but a supplement to make up the shortfall of the legal costs.
The example at the end of this post, shows how this works and why your legal team need to charge the success fee.
Why is the success fee paid from my damages?
This is a good question!
From 2013 onwards the success fee has been charged against damages. Before this, the success fee was paid by the other side.
More or less everyone – other than the insurance companies – believed it was fair the damages were paid to you, the Claimant, in full. However, in 2013 the Government changed the rules.
The change in the rules mean insurance companies do not pay the success fee.
Theoretically, to make sure you, the Claimant, would not lose out, the level of damages was increased.
The Government has listened to insurance companies, and not to lawyers, for some years. This lead to the introduction of Fixed Costs which apply to most personal injury cases.
When we say the other party must pay legal costs when you win, what we mean most of the time, is the other side must pay Fixed Costs.
Fixed Costs have nothing to do with the amount of work your legal team has done on your case. If your legal team work on your case for 2 years, incur £2,000 of legal costs, for most cases Fixed Costs will be a few hundred pounds – see the example below that shows how this works.
As well as paying a fixed fee for the legal costs of your legal team, the other party must pay the disbursements (medical expert fees, for instance, or Court fees if your case has required Court proceedings).
What are “basic costs”?
When you signed up with your legal team, you will have signed an agreement to accept the terms of business.
“Basic costs” are the charges incurred by your legal team when working on your case.
The “retainer” document you signed explains how the charges of your legal team are calculated.
How are my legal team paid?
The document you signed when your legal team took on your case, is called the “retainer”.
The “retainer” explains what how the legal team charge for work on your case. When the case is finished, assuming you win, the time spent on the case is added up. This becomes the “basic costs”. Let us assume this is £2,000. And let us assume your damages are £3,000.
The success fee will be £2,000 (it is usually 100% of “basic costs”).
Because the success fee is capped at 25% of damages including VAT, the total success fee charged will be £750.
The Fixed Costs £500 – assume the case is an Road Traffic Accident.
- Total legal costs (basic costs + success fee) £4,000 + VAT = £4,800.
- Legal costs paid by you = £750 (including VAT).
- Fixed costs paid by the other side £600 (including VAT).
- Total costs paid to your legal team, including VAT = £1,350.
Your legal team are paid partly from the other side – Fixed Costs – and partly from the success fee.
In this example, although the total of the “basic costs” and the success fee come to £4,000 plus VAT, the total sum paid is only £1,350 including VAT.
What is After the Event Insurance (ATE) and who pays?
ATE is insurance for legal costs.
It covers your disbursements and costs of the other side you are ordered to pay by a Judge.
Usually, ATE is funded with a deferred premium, which is then charged against your damages if you win, this will be in addition to the success fee.
Most ATE premiums for most cases are modest, around £300 for RTAs, and £500 for non RTAs.
Net damages paid to you
Using the same example, this is how it works:
- Damages agreed £3,000.
- LESS success fee £750 (including VAT).
- LESS ATE premium £300.
- Net damages to you £3,000 – £750 – £300 = £1,950.
How much do I pay my legal team?
If you win your case – the other side agree to pay you damages, or a Judge awards you damages – expect to receive 75% of the total award.
The success fee charged by your legal team will usually amount to 25% of the damages (including VAT).
As well as the success fee of 25%, the ATE premium will be charged against your damages.
Always remember, the success fee is capped at 25% of your damages.