News that Milly Dowler’s parents are negotiating a sizeable compensation sum under a ‘no win, no fee’ deal from Murdoch and News Corp, and that they have written to David Cameron asking that he reconsiders abolishing such schemes, has forced this issue back on the political agenda.

Irrespective of whether one agrees with size of settlement offered in the Dowler case as compared to, say, less evocative cases, or the taking of Murdoch’s money in such circumstances, or indeed the Dowlers being persuaded (or as some have said manipulated) to write in support of ‘no win, no fee’ agreements, such agreements are now part of the legal landscape.

Even if you have never made or thought about making a claim, ‘no win, no fee’ or conditional fee arrangements (CFAs) are familiar through saturation ‘Where’s the claim, there’s a blame’ style TV advertising. They were introduced by New Labour, under the Access to Justice Act 1999. The previous government enthusiastically encouraged their use to relieve them of the burden of paying legal aid for all accident claims. So when Jack Straw complains of the ‘lucrative and self-serving merry-go-round’ of referral fees paid in accident cases as he did last month, readers ought to take with a shovel full of salt.

But, moving on, ‘no win, no fee’ a good or bad idea?

CFAs enable a lawyer to conduct a case without charging their client any fees, recovering their costs from the losing party only if they are successful. According to the usual ‘loser pays’ rule on costs in the courts, if you lose you pick up your costs and the other side’s. The lawyer takes the risk that if their client doesn’t win, then they will not be paid. This, in theory, imposes a natural filter, ensuring only cases with good merits and prospects of success are pursued.

This government’s Legal Aid, Sentencing and Punishment of Offenders Bill would change the CFA model. It would abolish the recovery by successful claimants from the losing party of what’s known as the ‘success fee’ and the ‘after the event’ insurance premium. The success fee is the sum a solicitor can charge in the event of a successful result which can be as much as double his fees – this is to reward the risk of not being paid if he loses; the insurance covers the the expense of the other side’s legal costs. If the Bill becomes law, and you win, then you will have to pay a big chunk of your compensation to cover those costs.

Arguments in favor of the current system invariably centre on ‘no win, no fee’ opening up the possibility of justice for thousands of people of modest means where they have suffered some form of personal injury. Before their introduction many people simply would not have considered claiming because the risks and costs were too high. Access to ‘no win, no fee’ deals changed this mindset: people were able to claim compensation at no cost to themselves and without the risk of having to pay costs if the claim failed.

Allied to this argument is that CFAs represent a shift in the balance of power: away from big corporations, towards the individual. The absence of ATE insurance would mean you would most likely face bankruptcy if the case is lost. Libel and privacy claims will, the arguments go, once again become the preserve of the very rich.

To be fair it is not only claimants and their lawyers who see their benefit. Recently, three costs judges in the senior court costs office reflected that ‘the CFA has undergone many changes and improvements since implementation. Having taken a decade for these to have been achieved, now is not the time to make radical changes which give no guarantee that access to justice at reduced cost will be delivered’.

However CFA costs have, become a big press and political target. Jack Straw, a modern day Jeremiah, has made great play of lawyers, insurers and the police being in cahoots in order to sack the state and its corporations of their very last pennies. But, frankly, many more astute commentators are concerned that such fee agreements have fueled a ‘compensation culture’.

Most people would not begrudge somebody claiming compensation for injuries caused by car accidents. But the eye-watering sums offered to victims of phone hacking and libel claims have led to criticisms that, by eliminating the risk involved in making a claim, this in turn has led to both an increase in the number of false claims being made and to a completely artificial ramping up of damages beyond any real loss actually suffered. So Graham Taylor, the Professional Footballer Association Chairman, received £700,000 in settlement of his phone being hacked but if he had lost both arms in a work accident (maybe a flying Joey Barton tackle) he would receive less than £200,000.

Again, and linked to CFAs as an access or inhibition of justice, is the idea that such agreements have become a lawyer’s charter to print money. When ‘no win, no fee’ was substituted, lawyers were instead allowed to double the fees claimed against the respondent when they won – a sharp incentive to do such work, knowing that a win would help pay for other cases lost. However it also means that firms and individuals (not always with pockets anywhere near as deep or as grubby as Murdoch and News Corp) risk fighting cases where they might be saddled with punitive costs – to pay lawyers, not plaintiffs. This creates a perverse incentive to litigate, allowing groups like ‘claim farmers’ (firms that sell promising cases to law firms for a cut) to flourish.

Ministers want to deal with this through mediation. They plan to increase damages by 10% to compensate for the increased costs, while the lawyer’s reward (or ‘success fee’) is to be capped at 25% of damages.

As with most things in life the arguments for and against aren’t always clear. Whilst the number of claims has increased since the introduction of ‘no win, no fee’ claims, this is not necessarily a bad thing. Without claiming compensation through a ‘no win, no fee’ claim, many more people would suffer in silence and may end up in financial hardship due to their situation. However there are no sound reasons why suggestions as to the capping of legal fees should not be tried or why alternatives to litigation should not be considered.  Ministers could and should look at immediately replacing the toothless Press Complaints Commission with something that the press might actually notice and fear. This would meet the persuasive argument that CFAs, and the punitive costs they generate, provide the only effectuie form of proper regulation (as well as being a nice little earner for part of the legal profession) to press excess.