US-Style Contingency Fees in England and Wales June 17, 2009
Posted by Richard Moorhead in : Contingency, Costs, Jackson Review, no win no fee , trackbackThe introduction of damage-based contingency fees into litigation, where a lawyer is paid nothing if they lose and a percentage of damages if they win is a live issue again. Jackson’s preliminary report gives a short but well-balanced summary of the arguments for and against damage-based contingency fees. The tenor of the report suggests they are under serious consideration.
The descriptions of practice in other jurisdictions are generally supportive of contingency fees being used. Jackson perceives, accurately in my view, a general hostility towards contingency fees in parts of the profession (para.3.1, page 192) but suggests this is less strong if US-style costs rules are not also adopted alongside contingency fees. In my view these views are generally based on misapprehensions about how the US system works (see the report I wrote with the Senior Costs Judge, Peter Hurst). Jackson also casts doubt on some of the reasons for hostility to contingency fees. The tenor then, whilst emphasizing Lord Justice Jackson’s mind appears to be far from made up on the matter, is that contingency fees should be contemplated, perhaps (unlike in the US) with some cost shifting (either on an hourly fee basis, as in Ontario, or on a contingency fee basis). Jackson summarises arguments in favour of contingency fees as follows (para. 3.2, page 192)
- “The principle of no win – no fee has been established by CFAs, so there can be principled objection to contingency fee agreements.
- Contingency fee agreements are simpler than CFAs. They are easier to understand and would avoid some of the problems of CFAs.
- Contingency fee agreements offer less scope for conflicts of interest than CFAs.
- Many clients would prefer contingency fee agreements to CFAs.
- If CFAs are permitted as well as the existing funding mechanisms, this can only increase access to justice.
- Under a contingency fee agreement, the fees payable to the lawyer are always, and by definition, proportionate.
- Contingency fees give the lawyer a direct incentive to maximise recovery for his client.
- There is no danger of contingency fees creating a US type situation here. In England and Wales (a) juries do not assess damages and (b) judges are not elected.
- Contingency fees would “remove from a reluctant judiciary the difficult task of seeking to regulate costs on a case by case basis”.
- Contingency fees work well in employment tribunals. They also work well in appeals to the VAT and Duties Tribunal.
- There can be no possible objection to sophisticated clients (e.g. large plcs with inhouse counsel) entering into contingency fee agreements, if that is what both they and their solicitors want to do.”
And arguments against (para 3.3, p.193):
- “Contingency fee agreements are liable to give rise to greater conflicts of interest between lawyer and client than in the case of CFAs.
- It is wrong in principle for the lawyer to have an interest in the level of damages.
- If CFAs and contingent fees co-exist, lawyers would conduct lower value claims on CFAs and higher value claims on contingent fees. This dual system would maximise recovery for lawyers and give rise to a conflict of interest between lawyer and client.
- If part of the contingent fee is not recoverable from the other side (as is the case in all jurisdictions where contingent fees are currently permitted), then clients will lose part of their damages. This is unacceptable in personal injury cases – especially in so far as damages represent the cost of future care.
- Contingent fees create an incentive to settle a case early.
- Contingent fees will only be viable if the level of general damages for personal injuries increases. That is not going to happen, as is apparent from the nonimplementation of the Law Commission’s 1998 report.”
Jackson appears to see the need, however, for contingency fees to be regulated (para. 3.4, page 194), suggesting the debate to be had is between requiring clients to take independent advice before they enter into a contingency fee or detailed regulation of agreements.”
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