How to use No-Win-No-Fee holiday ownership claims firms to your advantage

What are the hidden motivations and benefits of No Win No Fee (NWNF) claims firms?

No Win No Fee

For many people mis-sold by a caravan, lodge, holiday park or even a timeshare company, the idea of seeking justice is extremely alluring. However because of the often significant amounts of money they have already lost, these people often feel averse to the idea of potentially 'throwing good money after bad' and losing even more of their savings despite their need to seek compensation.

Realistically, we all know that there is legal work involved in making a compensation claim. Work that has to be paid for by somebody.

NWNF firms would appear to present the perfect solution. You don't risk anything! You only pay if you win, and out of the compensation you are awarded. If you were to lose, you don't pay a penny. What on earth could be wrong with a sweet deal like that?

Surely there would be no reason to ever pay upfront to make a compensation claim?

Paying your legal fees in advance

Generally claims firms need you to pay some of the legal fees in advance.

Professional claims firms can help to keep legal costs low for their clients by enjoying the economies of scale of shared legal expenses. For example, before litigation commences many solicitors would recommend or insist on a legal opinion from counsel. Such opinions can often cost anywhere from £5,000 to £20,000 or more depending on the complexity of the opinion. If an individual makes a claim, they would need to fund 100% of the cost of this opinion, whereas where a claims firm has thousands of clients, they only need to pay for that opinion once and the information benefits all clients. There are many similar economies of scale that benefit clients of a large claims firm to keep the legal costs down.

However costs can still amount to several thousand pounds, and the case can often take over a year to complete. The claims firm has to pay the legal fees throughout the course of the process, so if a business like ECC, with thousands of clients did not charge upfront it would mean tying up millions of pounds of operational cashflow during the process. Most businesses, let alone claims businesses, simply can't afford those sorts of amounts being tied up for that amount of time.

European Consumer Claims, for example, could not operate with the success it does if it offered NWNF services.

Reading this article you may well be scratching your head, and wondering: "Why is ECC talking themselves out of my business? If NWNF is so much less risky, then why would I not use a NWNF firm instead of them?

The cost of risk

The trouble with risk is it costs money. Not just in some intangible way either. When a NWNF claims firm agrees to accept cases, it knows that it has to pay the cost of the legal work in advance, whatever the outcome. That means expense that it has to absorb if it were to lose any cases. It is important to understand that many NWNF firms are reliant on funding.

So how does a NWNF firm (and if relevant their funder) mitigate the cost of that risk? They usually set conditions in order to to maximise profit, and do so in two ways:

1. They charge higher commission on successful awards.
   NWNF firms can charge up to 50% of compensation awarded (sometimes even more). The high success fee they charge, in the NWNF business model, is to mitigate the risk of losses they incur on cases they don't win. Also where the NWNF case is backed by funding, the funder will want their money back and some! Funders are taking all the financial risk and therefore the reward has to be worth it. The uplift return they will enjoy on successful cases will depend on the deal stuck with the funder but can be two or even three times their investment. Therefore it is not a surprise that such a high success fee is charged.
2. NWNF firms use extra strict criteria to identify claims they think are guaranteed to win. They only take what they think are slam dunk cases. They are not interested in taking a case that is good, they want the cases that are perfect. If they take your case, it is an extremely good bet that they will win that case.

The cost of the legal work of all cases (winners and losers) is being shouldered - some would say unfairly - by the people who win.

Another point to note is that NWNF claims are not totally without cost to the claimant. Buying ATE insurance (to protect against having to pay the opposition legal costs in the event of losing) is normally a condition of the claim, and will usually cost several hundred pounds. Also NWNF firms are within their right to charge the client for certain third party disbursements. So make sure you read the small print.

So how do I use this knowledge to my advantage?

Groucho Marx once said "I would never join a club that would have me as a member." By that same logic, you should always think twice before giving a compensation case to a firm who is eager to handle it on a NWNF basis.

If the NWNF firm has said yes at 50% or 60%, with the fees to be paid after the case is won, then interests may not be best served by you signing paperwork with that firm.

Take your great case, and reap the benefits for yourself. Why give away your well-deserved compensation money to support other, weaker cases?

Expert comment

"Many people assume that claims firms who offer No Win No Fee services are doing so to be kind, or as a way of altruistically enabling people to make claims, who wouldn't otherwise be able to afford to," explains Greg Wilson, CEO of European Consumer Claims (ECC), the company leading the fightback against rogue holiday ownership businesses. "If we are being generous we can say that there may be an element of that, but realistically NWNF claims firms are as profit driven as any other company. They believe they make more money by charging a higher fee in arrears, and only accepting the 'certain' cases."

"There are definitely situations where NWNF is a lifeline for people. If you have a strong case, but there is just no way for you to raise the money to pay the fee upfront, then NWNF can solve that problem.

"I find an appropriate comparison to be payday loans. The cost of borrowing that cash for a short period is high. But in an emergency when no other credit is available, it can theoretically be better than going without the money altogether.

"Similarly if your compensation case is strong enough, but you can't afford to fund your own claim, a NWNF firm may be your only option. You get less money, but it is better than no money."