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‘No Win, No Fee’ Law Firm Held Liable for Clients’ Loans

In a cautionary tale for solicitors engaged in ‘no win, no fee’ litigation, a law firm that arranged loans for its clients so that they could afford to sue for personal injury has been found liable to repay substantial sums to the finance company who advanced the money.

The finance company had, pursuant to an agreement with the firm, entered into loan agreements with its clients so that they could meet the cost of its disbursements and pay premiums to after the event insurers. The finance company sought recovery from the firm of loans advanced to 69 of its clients whose cases were discontinued, dismissed or settled for sums that were too low to allow repayment of the loans.

The firm – which acted for the relevant clients under conditional fee arrangements – argued successfully that, due to a failure to comply with the requirements of the Consumer Credit Act 1974, the loan agreements were irredeemably unenforceable against its clients who were the nominal borrowers.

However, the High Court found that, on a true interpretation of the agreement between the firm and the finance company, the loans were recoverable in their entirety against the firm. The agreement had imposed a primary obligation on the firm to repay the outstanding loans and the obligation to make sure that the loans were enforceable as against its clients lay upon the firm.

The firm had argued that it should not be held liable as the loan agreements had been unenforceable from the outset; however the Court found that the firm bore contractual responsibility to repay the loans either in the event of default by the client or in the event that the agreements were unenforceable.

Although the finance company had itself provided the forms signed by the firm’s clients before the loans were advanced, it had given no warranty that the loan agreements would be Consumer Credit Act compliant.