No win, no fee. But will justice be the loser? with 'no win, no fee'?

"No win, no fee" may offer a reassuring sound to accident victims reluctant to sue because of the high costs of litigation. But the arrangements for conditional fees, due to come into force later this month, have not been universally welcomed.

Conditional fees are part of the Lord Chancellor's strategy on funding legal services. Their introduction has been strongly opposed by the Bar Council, senior judges and others, who believe they could lead to conflicts of interest between lawyers and clients and to American-style litigation bonanzas. The proposals were approved by the House of Lords last month by only a narrow majority. The Lord Chief Justice, Lord Taylor, called conditional fees "an alien creature in our justice system".

There are those who object to the principle of conditional fees and others who are opposed to elements of the scheme. Those in favour of the arrangement, such as the Law Society, stress the difference between conditional fees and the contingency fee arrangements used in the United States.

On a contingency basis, a lawyer winning a case receives a percentage of the damages awarded to his client. Under the scheme being introduced here, the lawyer receives his usual fee plus a percentage uplift, or "success fee". In practice, however, this will come out of the damages, and has been called a distinction without a difference.

The limit of that success fee - the proposals allow a 100 per cent uplift, ie the successful lawyer may charge double his usual fee - is what has exercised the objectors to detail. Lord Ackner, a former Law Lord, tabled two amendments to the conditional fee proposals in the House of Lords, saying that, as they stand, they will lay clients open to exploitation. He proposed either a restriction of the uplift to 20 per cent or a cap on the proportion of the damages the lawyer can take. The amendments were defeated by just five votes.

The Law Society, which is enthusiastically embracing conditional fees, is recommending a 25 per cent damages cap to solicitors. But it maintains its support for the 100 per cent maximum uplift, which it says is necessary for it to be financially viable for solicitors to take on cases with a 50-50 chance of success. The society stresses in its guidance to solicitors, however, that the uplift in an individual case should be proportionate to the risk involved: 100 per cent is the maximum, not the standard, amount.

For the time being, conditional fee arrangements will be restricted to personal injury claims, European human rights cases and insolvency. In combination with an insurance scheme being introduced by the Law Society, it will mean that people ineligible for legal aid will for the first time be able to sue without financial risk.

According to the society, only a quarter of the 3 million people who are injured every year in accidents consider making a claim for compensation. The majority are deterred by the cost. Even with a conditional fee agreement, unsuccessful litigants would still be liable for costs in the shape of the winning side's legal fees, expert witnesses' fees and court costs. The society is introducing an insurance scheme, with a one-off premium of under pounds 100 to cover these expenses. This insurance - Accident Line Protect - will run in conjunction with the society's Accident Line scheme, in which a free telephone helpline puts accident victims in touch with specialist personal injury solicitors who offer a free initial consultation.

Apart from the removal of anxiety about cost, the Law Society says that conditional fees arrangements have the additional benefits of first demonstrating a solicitor's confidence in a case and second, acting as an incentive for him or her to pursue a claim effectively.

The society plays down fears that "no win, no fee" will lead to excesses following the US model. For one thing, it says, the characterisation of the US system as one where juries set astronomical damages from which lawyers reap equally high fees is a distortion of reality. Huge damages that hit the headlines are sometimes awarded, but frequently reduced later by a judge, and such cases are often "misreported and misunderstood".

In the notorious McDonald's "coffee spill" case, for instance, in which a jury awarded a woman scalded by coffee $2.7m damages, the plaintiff was in fact disabled for two years as a result of her injuries. Evidence brought to court showed that McDonald's coffee was served at abnormally high temperatures, and in 10 years, more than 700 customers had complained about coffee burns. In addition, the jury's award was subsequently reduced to $480,000.

The major difference between conditional fees here and the US contingency fees is that in this country it is judges who set damages in personal injury cases, not juries. Judges, who will not necessarily know that the case is being run on a conditional fee basis, will not increase the amount of compensation simply because the client will pay the lawyer a success fee out of the damages.

And, the Law Society points out, the fact that in England and Wales losing parties pay the winners' costs reduces the risk of so-called nuisance litigation. In the US, plaintiffs with flimsy cases may be paid off by defendants with strong cases, simply because they cannot recover their costs even if successful. Lawyers won't be tempted to encourage flimsy cases to go ahead, because with a maximum success fee of 100 per cent, it would be uneconomical for them to take on a case with less than a 50 per cent chance of success.

But many remain unconvinced. Speaking in the House of Lords debate, Lord Ackner raised fears of "occasions when this country will exceed the worst excesses of the United States". The Bar points to "strong evidence" from the US that conditional fee systems can lead to disputes between lawyers and clients who fail to agree when a win really is a win. It has, however, accepted that conditional fees are a fact of life and is sending guidelines on their implementation to barristers.