Contingent fee
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A contingent fee in the United States or conditional fee in the United Kingdom is any fee for services provided where the fee is only payable if there is a favourable result. In the law, this is the "no win, no fee" system. If the lawyer wins the lawsuit for the client, the outcome is different between the jurisdictions. In the U.S., the lawyer's fee is a percentage of the amount recovered. The client is also responsible for the costs of the case. In the U.K., the lawyer is entitled to the normal fee (based on hourly billing plus a profit element) plus a success fee. Costs are recoverable from the losing party. If it appears that the losing party has inadequate funds, the lawyer may deduct the costs from the damages recovered before accounting to the client.
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Discussion
In principle, a lawyer's "stake" in a civil case might take one of three main forms:
- No charge if the case is lost. It might be agreed that the normal fee will be reduced or waived in full if the client loses. This category is sometimes called the "speculative fee" system.
- Nothing charged if you lose; normal fee and success fee if you win. This is the standard type of conditional fee. The client need pay no fee to his lawyer unless the case is won, but he is then liable for normal fees plus a success fee. The amount of the success fee is limited to 100 per cent of the normal fees. Most lawyers charge a success fee which is much less than this, for example, between 25 and 50 per cent. In English law these two possibilities are now lawful, subject to compliance with the statutory scheme. The lawyer must take great care to satisfy the statutory formalities, notably the need for him and his client to sign, and the need to explain carefully the contract to the client.
- The fee is contingent on success and is calculated as a share of the damages. This is the system operating in the U.S. and it allows the attorney to recover a percentage of the value of any eventual judgment (or settlement) won by the client. This system is invalid under English common law.
Advantages
- In those countries that operate some system of legal aid, i.e. state support for civil litigation, permitting this system may reduce the state's expenditure.
- It will allow those who fall outside the scope of state-funded legal aid schemes, but cannot afford the high fees charged by many lawyers, access to the system.
- Because lawyers are risking their own money if the case is lost, it will tend to reduce the number of speculative or unmeritorious cases.
Disadvantages
- This creates a conflict both between a lawyer's duty to his client and the lawyer's private interest, and between the lawyer's private interest and his primary duty to the court and to the interests of justice. For example, a conditional fee agreement might induce a lawyer to settle a case for too little because the lawyer wants to make a guaranteed return on the firm's investment in a particular case. This ignores the client's right to receive the highest possible level of compensation for the loss and damage suffered. However, a contingent fee based on the size of the judgment (as in the U.S.) may induce an attorney to go to trial for an outside chance at a large "jackpot" award when it is in the client's best interest to settle for less, even though that sum may not be profitable to the attorney.
- There may be problems of over-charging because lawyers faced with prospective clients desperate to litigate may be able force an agreement for extravagant success fees. Although a success fee can be challenged by the client or, more likely, by the losing defendant who becomes liable to pay, this does not happen often. The system can also reward lawyers for devoting excessive hours to a case because the "success element" is often calculated by reference to the number of chargeable hours. Further lawyers hoping for promotion, wish to be seen as profitable, a particular risk where lawyers charge by the hour, rather than agreeing a lump sum in advance for the whole job.
- An improvement in access to justice is not guaranteed. Litigants with good cases may be refused because lawyers and insurance companies prefer to "cherry-pick" only the strongest claims which are "near certainties". Not all cases are immediately transparent. Some require extensive investigation before the chances of success can be properly assessed. Such cases might be turned away because even the initial assessment of their strength is costly and risky. This is a serious problem because there is no general safety-net for cases which do not attract conditional fee support.
- If the level of recoverable costs increases in more cases, this increase has to be borne by members of the public and companies who pay premiums for liability insurance.
Conclusion
Conditional fees are a pragmatic response to a social and political problem, namely that the majority of people are unable to afford full access to the civil justice system due to the costs involved. This system has both benefits and drawbacks and there is no clear agreement between jurisdictions on whether it is a real solution to the problem.
The UK law
In English law, conditional fees were introduced by the Courts and Legal Services Act 1990, but the relevant statutory instruments were not made until 1995. Initially, the success fee was not recoverable from the losing party, but on 1 April 2000 section 27 of the Access to Justice Act 1999 amended the Courts and Legal Services Act 1990 to allow recovery of success fees from the losing party. The regulations that accompanied this change in the law (the Conditional Fee Agreements Regulations 2000) were far from clear, and the result was that a great deal of satellite litigation took place. On 1 November 2005 these regulations were revoked, and now it is much easier to enter into conditional fee agreements than was previously the case.
North America
In North America, contingent fee agreements are legal in the United States and Alberta. In other Canadian provinces, an attorney may collect a percentage of recovery in case of a victory, but must charge an hourly fee otherwise. Contingent fees are entirely barred the Province of Ontario. Many countries prohibit contingent fees as entirely unethical. Most jurisdictions in the United States prohibit working for a contingent fee in family law or criminal cases. In the United States, contingency fees are the standard among plaintiff's personal injury lawyers. Their fees range from 25% to 50% of the amount recovered, although 30-40% is the most common.
Proponents of contingent fees point to the fact that they allow persons seeking civil remedies to obtain legal assistance without having the money to pay a lawyer up front, thereby increasing access to the courts.
However, critics of contingent fees point out that many lawsuits seem to be brought only to generate fees for lawyers without giving any benefit to the vast majority of clients. For example, recent class action suits were settled for no monetary benefit for the members of the public, but generated large cash fees for the lawyers. The Class Action Fairness Act of 2005 prohibits this practice in class actions commenced after February 2005. In addition, many critics point out that some lawyers will settle a case quickly to generate a larger profit, even when going to trial would most likely be in the best interests of the client.
Some tort reform proposals in the United States seek to further regulate contingent fees. Florida passed a law limiting contingent fees in medical malpractice cases. Some object to these laws as an unfair restriction on freedom of contract.
References
Andrews, Neil H. A. "English Civil Procedure: Three Aspects of the Long Revolution" [1]
