CONTINGENCY FEES INTERNATIONAL PERSPECTIVES by Prof Fawzia Cassim

Size: px

Start display at page:

Download "CONTINGENCY FEES INTERNATIONAL PERSPECTIVES by Prof Fawzia Cassim"

Helena Jennifer Sherman
5 years ago
Views:

1 CONTINGENCY FEES INTERNATIONAL PERSPECTIVES by Prof Fawzia Cassim 1. INTRODUCTION A detailed comparative study of the contingency fee regime in foreign jurisdictions is necessary to ascertain how such systems compare with the position in South Africa. The aim of the comparative study will be to ascertain whether the South African approach toward contingency fees can be enhanced or improved upon, or whether the South African approach keeps abreast with international trends and or exceeds the international practices? I will examine the following jurisdictions: United States of America, United Kingdom, Australia, Canada, India and Brazil. 2. POSITION IN THE UNITED STATES OF AMERICA ( USA ) It has been accepted that contingency fee agreements have existed since the 18 th century. 1 Such agreements have been described as the poor man s key to the courthouse.. 2 The law in the United States is governed by Federal and State law, with each state adopting its own rules for charging contingency fees. The term contingency fee is known as a contingent fee or a contingency fee. If the case is successful, the attorney will receive a specific percentage of any money she has recovered for the injured client or a percentage of the damages recovered by the client. This percentage is usually 33%. Contingency fees are usually used in personal injury cases and they are rarely used in other types of litigation. Most jurisdictions prohibit the use of contingent fees in criminal cases or certain family cases. 3 US courts allow the client and his or her attorney to agree on a reasonable percentage to compensate the attorney for his time and services rendered. Contingency fees guarantee access to courts for the greatest number of citizens by transferring risks to legal firms. 4 However, courts have been known to strike down a contingency fee agreement that favours the attorney with an unreasonable large payment in comparison to actual work put into the case. 5 In most jurisdictions, contingent fees are required to be reasonable. This results in a fee of 33-45% in any recovery. It is rare that the contingent fee is equal to or more than 100% of the recovered damages. 3. POSITION IN THE UNITED KINGDOM ( UK ) 1 See Wylie v Coxe 56 US 415 (1853). 2 Matter of Estate of Weeks 627 NE 2D 736 (1994). 3 Rule 1.5(d) of the Model Rules of Professional Conduct of the American Bar Association. 4 J Albert et al Study in the Transparency of Costs of Civil Judicial Proceedings in the European Union 26 at 324. This project examines the costs of civil judicial proceedings in each member state. 5 Ibid. 1

2 There is a distinction between contingency fee agreements and conditional fee agreements. Lawyers enter into a conditional fee agreement or arrangement with their clients. It is a fee for services where the fee is payable only if there is a favourable result. Such fees are usually calculated as a percentage of the client s net recovery. In England and Wales, a conditional fee agreement ( CFA ) is used by lawyers where there is a 70% chance of success on the merits. 6 The solicitor takes on the case on the understanding that if he or she loses the case, there is no payment. If the case is won, the lawyer receives a normal fee based on hourly billing and a success fee. The percentage is not greater than 100% of the fee. 7 Conditional fee agreements are not allowed in family proceedings or criminal cases. 8 The attorney can calculate the usual hourly fee which is deducted from the total recovery amount. This amount and a small percentage comprise the success fee. The client will not pay upfront fees nor cover their lawyer s costs if the case is lost. If they win, they pay the success fee which is capped at 25%. In Scotland, it is lawful to agree that the lawyer receives payment only if the case is won. Although, the parties cannot determine a percentage of the client s winnings to be the amount of the fee payable, they may agree to a percentage increase in the lawyer s fee if the action is successful. It should be noted that the Jackson reforms introduced contingency fees for English civil litigation in April They are known as damaged based agreements or DBAs in commercial dispute work. In terms of the English DBA, a lawyer is entitled to a percentage of the amount recovered with a cap of 50%. The agreement may provide that the lawyer will receive no fee if his or her client s case is dismissed. Otherwise, fees can only be increased by 100% compared to the basic hourly rate usually charged by the lawyer. 9 Contingency fee agreements are not permitted in family law and criminal law matters. According to Gert Nel, UK law has incentivised attorneys to allow practitioners who were willing to risk speculative litigation to charge a normal fee (hourly billing plus profit element) and a statutory capped success (bonus or uplift fee) if the case was successful. 10 Thus lawyers have been charging contingency fees in England and Wales since These fees are used only when they provide clear financial advantage for lawyers equal to the risk taken. However, evidence shows reluctance by the legal profession to use contingency fees, possibly due to confusion about regulation and the impact of cost-shifting POSITION IN AUSTRALIA 6 Macfarlane BJF Study in the Transparency of Costs of Civil Judicial Proceedings in the European Union Cost UK study Id International newsletter 1/2018/2019: High Cost of Legal services as barrier to access to justice EU cost study Nel G Decoding s 2(1)(a) and (b) of the Contingency Fees Act De Rebus June at Contingency fees by Victoria Law Commission available at (accessed on 23 July 2018). 2

3 In Australia, there is no fee agreement to fix the lawyer s payment as a percentage of the court s award to the client. Although contingency fees are prohibited, attempts are being made to change this to increase access to justice. The Law Council of Australia has recommended in a recent report that partially- based contingency fee agreements should be introduced in Australia. 12 It is submitted that a percentagebased contingency fee agreement means that the law practice is paid a percentage of the amount recovered by the client in a matter. It has been contended that a contingency based funding model can no longer be regarded as being contrary to modern public policy and that the introduction of a percentage-based contingency fee agreement will be beneficial to users of legal services. 13 The report proposes that a percentage- based contingency fee regime should be used in personal injury matters, and it should provide NO cap or set a cap at 35% or 40%. However, it should not apply to family law, criminal law or migration law matters. The Victorian Law Commission was requested to report on whether removing the prohibition on law firms charging contingency fees would mitigate issues presented by litigation funding. 14 The Commission had to consider the question whether allowing lawyers to charge contingency fees will broaden the types of claims that would be funded, thereby enabling greater access to justice. The Commission concluded that only large law firms with significant capital reserves would have the financial capacity to conduct large-scale litigation on a contingency basis. They would also need litigation funders to underwrite large scale litigation. 15 While, it is possible that increased competition from lawyers charging contingency fees would lead to an increase in the volume of claims, lifting the ban on lawyers charging contingency fees would not necessarily create competition for the same services that litigation funders currently provide. Law firms operating under a no win, no fee agreement don t provide indemnity for any adverse costs, whereas litigation funders do provide security for costs orders or adverse costs CANADA Contingency fee agreements are allowed in some Canadian provinces, such as Ontario, British Columbia and Quebec. Each province has its own set of rules although they are basically similar. I shall consider the province of Ontario as an example. Contingency fees have been used in Ontario since However, contingency fee agreements are prohibited in in criminal and family matters. Safeguards have been introduced to determine the appropriate percentage or other basis of the contingency fee, such as inter alia, the likelihood of success, the nature 12 Percentage-Based Contingency Fees Agreements Law Council of Australia (May 2014) Ibid. 14 Litigation funding refers to the agreement between a third party and one or more claimants regarding litigation costs. It is common in class actions. See further, Contingency fees by Victoria Law Commission available at (accessed on 23 July 2018). 15 Ibid. 16 Ibid. 3

4 and complexity of the claim, the expense and risk of pursuing the claim, the amount of the expected recovery, who is to receive an award of the costs and the amount of the costs awarded. 17 It has also been held that a contingency fee agreement is void for not being fair and reasonable as there was no evidence that the lawyers had indemnified the client for an adverse cost order or their own legal expense if the proceedings were unsuccessful. 18 Thus, the test is one of reasonableness. The Law Society of Ontario, which regulates legal professionals in Ontario, has also ruled out using a cap on contingency fees as such an action would restrict access to legal services. 19 It should be noted that the Law Society believes in protecting consumers and promoting the public interest; hence their decision. 6. INDIA It should be noted that lawyers are prohibited from charging contingency fees in India. This is prohibited in terms of the Bar Council of India rules. 20 According to Rule 20, an advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof. The above Rule was upheld in the case of Ganga Ram v Devi Das. 21 The use of contingency fees is considered to infringe the professional ethics of lawyers. It is also regarded as a contract that opposes public policy; hence the prohibition against contingency fees. 7. BRAZIL Contingency fees are allowed in Brazil, where attorneys receive a percentage of the proceeds in exchange for services that are unpaid until the final decision is made. They are usually used for smaller claims. Usually the judge will fix a contingency fee for the successful attorney, awarding a percentage of the total monetary award as a reward despite the attorney been paid his regular hourly fees. 22 However, the Brazilian Bar Association is not in favour of contingency fees as it represents a potentially harmful practice leading to the depreciation of the work by attorneys. The Brazilian Bar Association favours the use of hourly fees over contingency fees. However, the Superior Court of Justice recently ruled that lawyers may be paid a fixed percentage of the final amount received by their clients Law Society of Ontario Contingency fees, available at (accessed on 15 October 2018). 18 Contingency fees by Victoria Law Commission available at (accessed on 23 July 2018). 19 Canada rules out capping contingency fees available at journal.com/canada-rules-capping-contingency-fees/ (accessed on 15 October 2018). 20 Part IV, Chapter II, Section II, Rule PR (1907). 22 See Brazilian Civil Procedure Code. 23 See STJ Resp No of October 2015 available at law reviews.co.uk/chapter/11522/brazil (accessed on 18 October 2018). A limit of 30% would be 4

5 8. CONCLUDING REMARKS It has been mooted that one can regulate the costs of justice by regulating lawyer s fees, as this will facilitate transparency of all costs. 24 Contingency fees have been criticised as they allow lawyers to support conflict financially; they encourage undesirable trials, result in excessive fees and the lawyer s profit sharing generates a conflict of interest with the client thus preventing a negotiated solution. 25 However, as the study on international perspectives demonstrates, clients should be protected against unfair, exploitive and harmful practices of overcharging by the legal profession, and measures should be introduced to increase access to justice. It is submitted that the use of contingency fees with proper safeguards built in, can protect clients against harmful practices, promote the public interest and facilitate access to justice. considered. See STJ No of March 2011 where a limit of 50 % was rejected as being excessive and unreasonable. 24 EU cost study EU cost study

Justice Committee Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill Written submission from the Association of British Insurers

Justice Committee Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill Written submission from the Association of British Insurers 1. The Association of British Insurers (ABI) is the voice