Ackers: There are many good firms out there
Relationships with litigation funders are destabilising some high-volume consumer claims law firms, the Solicitors Regulation Authority (SRA) has warned.
Onboarding, ATE insurance and how cases are run are the other main areas of focus in the early findings from its thematic review of the sector, according to Jennifer Ackers, the SRA’s deputy executive director of investigations and enforcement.
Speaking at last week’s Legal Futures Housing Condition Conference in Manchester, Ms Ackers laid out the extensive work the regulator has been doing in the area – including warning notices and guidance, disciplinary action and ongoing investigations into more than 60 law firms separate to the thematic review.
The SRA has intervened into four firms dealing with housing disrepair work in recent months. “There was an insolvency issue at one of those firms that we say was linked to third-party funding and the creation of an unstable business model,” she said.
“And the other three firms, we found significant breaches of both our account rules and principles.”
Ms Ackers told delegates: “There’s no doubt that, when done to high standards and high quality, ‘no win, no fee’ arrangements are an excellent way for the public to gain access to justice.”
“In housing disrepair claims specifically, changes around not only the litigation funding model but also the law, and new firms entering the market, have really seen an opening up of these particular claims.”
But the contrary was true too: “We’ve seen things like unstable business models that are really being driven through that third-party funding arrangements and that’s driving poor behaviours and wrong incentives for firms and solicitors.”
Ms Ackers continued: “We’ve also seen inappropriate relationships between the third-party funders, the ATE [after-the-event insurance] providers and experts involved, with money moving quickly around those different parties and little if no action on client files.”
Often there was a “commonality of individuals” involved in these businesses, including solicitors.
“We’ve seen clients signing funding agreements with the third-party funder rather than firms, and we would challenge whether that can ever be in clients’ best interests.
“We’ve seen firms prioritising their commercial interests when taking on that litigation funding without giving sufficient thought to clients’ interests – so arranging the litigation funding without explaining to the client what that means and, in the housing disrepair market, without necessarily telling the client that there are alternative funding options.”
There were failures as well to give clients best possible information about the cost of their case and not mentioning alternatives – in disrepair claims, these could be housing association and local authority internal complaints schemes, as well as the Housing Ombudsman.
The collapses of SSB Legal and Pure Legal prompted this stream of SRA work, Ms Ackers said, while the increase in online onboarding has allowed firms to “pile claims high”. This meant that, if things went wrong, there could be “massive consumer detriment”, as the failure of those two firms showed.
Ms Ackers noted that consumer-facing guidance on conditional fee arrangements published by the SRA in December garnered over 100,000 views in a matter of weeks. “This shows there’s definitely a gap in information out there and also massive interest in information for consumers.”
Onboarding issues included cold calling and “a lack of due diligence on both the client and the claim at the start of the matter”, as well as the marketing materials used to attract clients, including in housing disrepair impermissably “targeted” leafleting.
She stressed the importance of firms monitoring the activities of their referrers, particularly in housing disrepair where they must be regulated by the Financial Conduct Authority, and home visits or inspections were often part of what they did.
“Any in-person contact raises the risk of undue pressure being placed on clients.”
This spoke to a wider need for firms to ensure they were acting in clients’ best interests when setting up referral arrangements.
The SRA has also seen firms misleading disrepair clients about their affiliation with either charities or housing associations.
With ATE, many of the problems were solicitors’ lack of awareness of their regulatory obligations – such as the need to register as either an exempt or authorised professional firm – and a failure to keep the ATE provider and client updated with issues that could invalidate the policy.
A lack of supervision and ensuring continuing competence of managers and staff were among case management concerns, especially with so many firms moving into new areas.
Ms Ackers added: “We know that there are many good firms that are committed to getting the best outcomes for their clients and to working in the highest possible standards. And in our thematic review we saw some really good evidence of that.
“We saw things like carrying out spot checks on referrers or speaking to clients to get their feedback about how the onboarding experience worked for them…. giving clear, simple explanations of the CFA to clients in a language that they understand, giving them options, giving them opportunities to ask questions, and also telling them about other funding arrangements.”
Many firms also had “a good awareness of the vulnerability of their clients”, which was “particularly important” in the disrepair market.
Ms Ackers said the SRA has been “reprioritising” to ensure it has sufficient resources for this work, and was working with the government, FCA, insurance companies, regulators, funders and expert witnesses.
“We know that the importance of that holistic approach is the best way to address the risks in the consumer market that we’re seeing.”
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