This article is written by Anushka Singhal, from Symbiosis Law School, Noida. In this article, she discusses the concept of contingent fees and their scenario in various jurisdictions.
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“No win, no fee.” This is exactly the concept of contingent fees in litigation. In a contingency fees agreement, the advocate is paid only if he wins the lawsuit otherwise he gets nothing. This concept benefits those who are not able to pay for their suits. This concept is widely used in tort litigation throughout the globe but is not used in criminal cases. Civil cases involve only money while in criminal cases, life is at stake. Therefore, contingent fees contracts are only made for civil cases. Let us discuss how this concept is used throughout the world.
Types of contingency fees agreements
There are as many as four types of contingency fees agreements. In all the four types, only one thing is common i.e. if there is no win then there are no fees. Apart from this commonality, these agreements differ in other instances. Following are the four types of contingency fees–
Here the lawyer charges his fee according to the number of hours he worked for the case. If an advocate wins the case, he will charge his hourly fees.
This type of fee is also called the ‘uplift fees’. In this form of the fee agreement, a lawyer adds a certain percentage premium on winning the case. So, in this type of agreement, a lawyer would get his normal hourly fees plus a certain percentage of ‘uplift’.
Percentage contingency fees
In this type of agreement, the lawyer retains an agreed-upon portion, usually a third, of the money recovered by his client.
Agreed contingent fees
Here, an already agreed-upon amount is paid to the advocate after successfully winning the case. It is not necessary that the contingent fees agreements fit in either of these water-tight compartments. An agreement can be a hybrid of these four types. Various combinations can be made and each of them has its own advantages and disadvantages.
Contingency fees agreements in different jurisdictions
In India, an advocate-client relationship is considered to be a relationship of ‘uberrimae fidei’ i.e. of ‘utmost good faith.’ A client relies solely on the expertise of his advocate. On the other hand, the profession of an advocate is one of the noblest professions and thus the lawyers try to do their best for their clients. The conduct of the advocates in India is controlled by the Bar Council of India and by the Advocates Act, 1961. In India, the Bar Council of India prohibits advocates from accepting contingency fees. Rule 20 of Section II, Part VI of the Bar Council Rules lays down that ‘An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.’ These contracts are said to be against public policy and thus under Section 23 of the Indian Contract Act, 1872 they are valid.
Ganga Ram v. Devi Dasi (1907) is a landmark judgment on the concept of contingency fees. The Court held contingent fees void and said that such a fee was against the concept of public policy and went against the ethical conduct of the lawyers. The case of V.C. Rangadurai v. D. Gopalan,(1978) aptly explains the need for ethical behaviour among lawyers. A disciplinary suspension of a lawyer upon professional misconduct was held valid by the Court. The Hon’ble Court said that the freedom of profession under Article 19 of the Indian Constitution and the Advocates Act does not only assure an income to an advocate but also comes with “a commitment to the people whose hunger, privation and hamstring human rights need the advocacy of the profession to change the existing order into a human tomorrow.”
In the case of Kathu Fairam Gujar v. Vishvanath Ganesh Javadekar (1925), the Hon’ble Court held that giving an advocate a part of the property as a reward upon winning the case is against the public policy. Therefore, Indian advocates cannot enter into contingent agreements. But as per the case of Jayaswal Ashoka Infrastructures v. Pansare Lawad Sallagar (2019), a person not admitted as an advocate under the Advocates Act, 1961 and representing his client as a ‘counsel’ can charge contingency fees.
United States of America
In the United States of America, Contingency Fee Agreements (CFA) are considered to be valid. In the middle centuries, such agreements were considered void but as time passed, they became a ‘necessary evil’. In 1858, there was a case in which one of the High Courts said, “ what was illegal and disreputable has now become lawful if not respectable.” A lawyer can ask for money only upon successfully winning the lawsuit if he has entered into a contingency fees agreement. The CFA’s have been widely used in America since the nineteenth century and often they are considered as the ‘key to the courthouse door’ as they enable the poor litigants to fight for their cause. These contracts were traditionally used for employment and personal injury litigations but now they are being widely utilized in cases related to Intellectual Property Rights (IPR) and commercial disputes. Not only the poor but the big firms are also entering into CFA’S.
For example, Willey Rein LLP, a law firm, got $ 200 million for a case that they fought on a contingent basis for the plaintiff against Research Motions Ltd. Similarly a firm called Kirkland and Ellis LLP received $70 million for a contingent fee agreement. The American Bar Association (ABA) has promulgated the Modern Rules of Professional Conduct, 1983. Rule 1.5 of the same lays down that an advocate should charge a ‘reasonable fee.’ Therefore, a lawyer can enter into a contingent fee agreement but he has to ensure that his fee is reasonable.
Judicial control of contingent fee
America is one of the best markets for CFA’s. With a number of contingent contracts being entered into each day, there arose a need for regulation. The American Courts have tried to control this area with the help of various approaches–
The freedom of contract approach
Most of the courts do not interfere with such agreements as they feel that such interference would affect the freedom of contract of two independent parties.
The ethical approach
In this approach, the Courts see the ethical propriety of the contract. They observe whether the attorney has worked within the confinements of the Model Code of Professional Responsibility. The Courts ensure that the attorney does not charge exorbitant rates after the success of a case in a CFA.
The reasonableness approach
This is another standard of observing the validity of a contingent fee agreement. The Courts look after the reasonableness of the contract as well as the fees. If it feels that the terms and conditions are not reasonable, it can show a red flag to the contract.
In Singapore, Section 107 (1) (b) of the Legal Profession Act lays down that no lawyer shall: “enter into any agreement by which he is retained or employed to prosecute any suit or action or other contentious proceedings which stipulates for or contemplates payment only in the event of success in that suit, action or proceeding.” The Legal Profession (Professional Conduct) Rules, 2015 also provides provisions for maintenance and champerty. In the case of Law Society of Singapore v. Lau See Jin Jeffrey (2017), there was a contract between the advocate and client under which the advocate was to be paid 20% of the damages awarded to the client, which could further increase to 25% in the event the client obtained more than $5m in damages. The Singaporean Court held that the lawyer had violated Section 107 (1)(b) and Section 107 (3) of the Legal Profession Act. As a punishment, he was suspended from his practice for a period of 12 months. Thus, contingency fee agreements are not allowed in Singapore but some liberal approach is adopted when it comes to maintenance and champerty. Recently Singapore launched a public consultation for its Civil (Amendment) Bill, 2019 on contingency or conditional fees agreements.
The Jackson Reforms in the year 2013, gave some reforms for the field of commercial funding. Following are the four major reforms introduced by the Jackson Reforms-
- The reforms encouraged the third party funding
- Damage Based Agreements were introduced
- No win, no fees agreements with large success fees payable after the suit’s success were abolished
- Recoverability of After the Event Insurance premiums from the losing party were ended
In the year 2013, the concept of ‘Damage Based Agreement’ or (DBA) was introduced in the United Kingdom. DBA is a type of contingent fee agreement in which the fee of the lawyer is calculated as per the damages obtained by his client in the suit. In England, there is also the concept of the Conditional Fee Agreement (CFA) with After The Event insurance policy (ATE). Under a full CFA agreement, if the contracting party loses, then the lawyer is not paid his fees and other legal costs are also not paid while the successful party’s claims are fulfilled by the ATE policy. But now after the Jackson reforms both CFA and ATE can no longer be obtained from the losing party.
In Australia, contingency fee agreements are prohibited. Section 285 of the Legal Profession Act, 2006 lays down that, “ A law practice must not enter into a costs agreement under which the amount payable to the practice, or any part of that amount, is worked out by reference to the amount of any award or settlement or the value of any property that may be recovered in any proceeding to which the agreement relates.” The official site of the Australian Bar Association provides that contingency fees must remain unlawful in all states and territories. They are against ethics and thus should be disallowed. Recently, Victoria became the first state in Australia to permit contingency fee agreements in class action suits.
Advantages of contingent fee agreements
- They enable the poor to access justice. The best advantage that is associated with them is that a poor litigant can easily approach the court without thinking about the loss of his money. If the claim fails, he need not pay a penny to the lawyer and he suffers no loss.
- They help the plaintiff to file cases against giant companies against whom one would have never filed a case due to lack of resources and power. The defendants, in this case, are already insured and the real interested party in the suit is the ‘insurer’ while the plaintiff has no such backing and uses his own resources to fight the case.
- Linking the payment of a case to its result enhances the trust factor between the client and the advocate. It makes the client believe that the advocate would sincerely fight for his case as his payment is dependent on the outcome.
- In several jurisdictions, the lawyers are paid on an hourly basis and thus sometimes it becomes a bone of contention between the client and lawyer as they do not reach a consensus on the number of hours. In contingent fee agreements there is no need to calculate the hours.
The lawyers opting for a CFA would never take a case that they know will not yield results, therefore such cases will rarely reach the court, saving both the time and money of the court.
Disadvantages of contingent fees agreements
Such agreements often receive widespread criticism. People are quite apprehensive when about contingent fee agreements.
Following are some of the disadvantages of CFA’s-
- It can lead to the court being piled up with spurious cases as anyone can easily approach the court as he has to pay a fee only upon winning. This would lead to the wastage of time and resources of the court.
- It can affect the income of the advocates as they will get their fees only upon winning the case. As a result, only well-off lawyers would be able to enter into such agreements.
- It may lead to advocates resorting to unlawful means to win the case as they will get the money only upon winning it.
- It is often said to advocates that in contingency fee agreements if the client fails, he gets nothing and if the client wins, the client gets nothing. This implies that sometimes the fee share for the advocate is very high leading to almost no benefit to the client.
- They can lead to a conflict between the lawyer and the client.
Contingency fees agreements have always been a debated issue. While most question the ethics behind it, others feel that they help the litigants. Several countries have abolished such agreements while others have a well-flourished market of contingency agreements. Those who have made them void are now thinking of legalizing them with certain modifications. This topic is always developing and it would be interesting to see what new developments see the light of the day.
- https://www.mondaq.com/uk/insolvencybankruptcy/881884/recent-developments-in-litigation-funding?type=mondaq score=52
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