What are the real incentives behind No Win No Fee (NWNF) holiday ownership claims firms – and how can you use them to your advantage?
No Win No Fee: why it appeals
For many people who feel they were mis-sold by a caravan, lodge or holiday park operator – or even a timeshare company – the idea of pursuing compensation can be hugely appealing. But after losing substantial sums already, many people understandably worry about ‘throwing good money after bad’ and risking even more savings in legal costs.
And the reality is simple: a compensation claim involves legal work – and someone has to pay for it.
That is why NWNF can look like the perfect answer. You don’t pay unless you win, and any fee is taken from the compensation you receive. If you lose, you pay nothing. On the face of it, it sounds like a risk-free deal.
So why would anyone ever pay upfront to bring a claim?
Why many claims firms ask for fees upfront
In practice, many claims firms need clients to pay some legal fees in advance.
Established claims firms can often keep overall legal costs lower for clients by using economies of scale. For example, before litigation begins, many solicitors recommend (or insist on) obtaining a legal opinion from counsel. These opinions can cost anywhere from £5,000 to £20,000 or more, depending on complexity. If you bring a claim on your own, you would have to fund 100% of that cost yourself. But where a claims firm has thousands of clients, it may only need to pay for the opinion once, and the guidance can help inform many clients’ cases. Similar shared efficiencies can reduce costs across a larger caseload.
Even so, legal costs can still run into several thousand pounds, and a case can take a year or more. The firm must pay legal fees as the claim progresses. If a business like ECC, with thousands of clients, did not charge any upfront fee, it could mean tying up millions of pounds in operational cashflow for long periods. Most businesses – including claims firms – simply cannot operate with that level of money locked away for that long.
European Consumer Claims, for example, could not operate with the success it does if it offered NWNF services.
At this point, you may be thinking: “Why is ECC talking themselves out of my business? If NWNF is less risky, why wouldn’t I choose a NWNF firm instead?”
The cost of risk
Risk has a price – and not in an abstract sense. When a NWNF claims firm takes on a case, it knows it must fund the legal work upfront regardless of the outcome. If it loses, it absorbs those costs. It is also important to understand that many NWNF firms rely on external funding.
So how does a NWNF firm (and, where relevant, its funder) manage that risk? Typically, it sets conditions designed to protect profit, mainly in two ways:
- Higher commission on successful claims
NWNF firms can charge up to 50% of any compensation awarded (sometimes even more). In the NWNF model, a high success fee helps offset the losses on cases the firm does not win. Where a case is backed by funding, the funder will also expect its money back – and a return. Funders are taking the financial risk, so the reward has to be worth it. The return on successful cases will depend on the deal struck, but can be two or even three times the investment. It is not surprising, then, that the success fee can be so high. - Stricter selection of cases
NWNF firms often apply tougher criteria to identify claims they believe are virtually guaranteed to win. They are not looking for cases that are merely good; they want cases they consider close to certain. If a NWNF firm accepts your case, it is usually a strong indicator that it thinks it will win.
In other words, the legal cost of all cases (the winners and the losers) is effectively carried – some would say unfairly – by the people whose claims succeed.
It is also worth noting that NWNF claims are not always completely cost-free for the claimant. Buying ATE insurance (to protect against paying the other side’s legal costs if you lose) is commonly a condition of the claim and will usually cost several hundred pounds. NWNF firms may also be entitled to charge for certain third-party disbursements. Make sure you read the small print.
How to use this to your advantage
Groucho Marx once said, “I would never join a club that would have me as a member.” By the same logic, it is worth thinking twice before handing your compensation claim to a firm that is keen to take it on a NWNF basis.
If a NWNF firm has said yes at 50% or 60%, with fees taken after the case is won, it may be a sign that your interests are not best served by signing with them.
Instead, a better strategy may be to take your case to a company that will charge much less to handle it. If a NWNF firm is prepared to risk its own money on your claim, that is often a clue that it believes your case is strong – and that can be a reason for you to consider funding a claim yourself (if you can), so you keep more of any compensation.
Take the strong case, and keep more of the benefit. Why give away a large share of your compensation to subsidise 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 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.”
“At ECC we take a hybrid approach, where some of the fee is paid upfront and some is taken as part of the settlement. We consider all claims on a case-by-case basis and, in some instances, can look at options to absorb more of the risk ourselves and require less financial commitment upfront from the client. And candidly speaking, if we offer to do that, your best interests are served by keeping as much of the claim for yourself as possible. Our consultants are completely open about this.”
“It is always your choice as the customer whether to pay less of the claim fee upfront, in return for ECC receiving more of the compensation when it is paid out.
“In the end, the overwhelming motivation for most claimants is to gain financial compensation. If you are not in a position where you have to give that money away, why should you do so?”
