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1 February, 2010  
Contingency fees R-Us

Jackson inquiry in UK is the latest in an ageless line of reports into lawyers’ costs … Success fees out … Contingency fees in … What’s worse?

imageThe UK’s Jackson Review of Civil Litigation Costs “was set up in late 2008 by the then Master of the Rolls, Lord Clarke of Stone-cum-Ebony, because the senior judiciary were – and are – concerned about the escalating costs of civil justice”. (See final report.)

Not so. They are concerned about publicity given to escalating costs.

Rising fees are otherwise a cause for celebration in the lawyer world.

A rising tide lifts all boats: those of plaintiff and defence lawyers and of judges, whose salary levels are supported, in part, by comparisons with allegedly higher earning private sector lawyers.

The legal profession needed a countervailing public relations campaign, which is what litigation reform exercises usually are.

Everyone agrees that fees must go down and nods sagely while fees keep going up.

imageSuch PR campaigns are instituted whenever the perceived level of pain being inflicted on the clients reaches critical proportions and they start yelping (see pic).

Privy councillors and judges were appointed to “commissions on fees” in 1567, 1585, 1594, 1610, 1623 etc.

According to Chris Brooks in his book Pettyfoggers and Vipers of the Commonwealth (pp.146-9):

“The objectives of the commissions … were to investigate excessive fees, corruption and other ‘enormyties’ committed against the King’s subjects by attorneys, solicitors and other officers of the high courts of justice… In 1610 despite pious statements about the damage done to litigants by rapacious attorneys, solicitors and court officials, the only specific problems mentioned in the actual document subsequently establishing the commission were the question of the status of the attorneys in the court of Star Chamber compared to other courts, and the need to administer an oath to the attorneys of the King’s Bench.”

imageAccording to Brooks (pic), by 1610 the commissions had become a “political concession which the crown used to soothe members of parliament increasingly sensitive about grievances of the subject”.

If one really wanted to reduce lawyers fees, the last people one would ask are lawyers who have proved themselves to be experts at lining their own pockets.

Lawyers know how it could be done, but would be unlikely to tell the laity. A parliamentary committee would be the way to go.

Lawyers would not be in control if the committee members were genuinely independent of the profession. Judges aren’t independent of it. As a commentator in Ireland’s Sunday Business Post noted recently (in different but relevant context):

“It is far easier to pack-off a judge to write a report in silence for months on end than it is to deal with a weekly [parliamentary] committee meeting in the glare of publicity by television and the rest of the media.”

The Jackson review follows on from Lord Woolf’s massive civil justice reform exercise of the latter 1990s. Woolf’s recommendations resulted in new (far more complex) procedural rules which came into effect in 1999.

The avowed aim of the Woolf reforms was to change litigation procedures and thereby reduce costs, so increasing access to justice.

However, as UK law professor John Peysner (endorsed by Professor Zander) said in December 2008:

“Virtually all commentators agree that Lord Woolf’s vision of the new litigation landscape has been largely successful except in relation to costs.”

imageFor lawyers, that means “hugely successful especially in relation to costs”. Partly as a reward for his efforts, Lord Woolf (seen here) was given a supergong (made a member of the Order of the Garter) in 2005.

Woolf’s report resulted in the 1999 “Access to Justice” legislation, which allowed two big things: “after the event” insurance premiums could be dumped on the losing litigant and a premium of up to 100 percent of the fee (a success fee) could be charged and also dumped on the losing litigant – both on top of the ordinary “loser pays” costs.

“After the event” insurance is insurance taken out to protect against losing and being ordered to pay the other side’s legal fees.

Jackson recommends that ATE premiums and success fees should no longer be dumped on the losing side, and that success fees should be capped at 25 percent.

Woolf should never have created those situations, although no one dwells on that very much.

However, the biggest Jackson initiative is on the subject of contingency fees (lawyer getting a fee calculated as a percentage of the winnings).

The only good thing the UK had over the USA was: no contingency fees allowed. They are simply the WORST thing about the US litigation scene.

Now here is Jackson is saying let’s have them in the UK. (He’ll have to be given a super gong too?)

Doubtless, loyal little Oz would follow this development. For 150 years (i.e. since Swinfen v Lord Chelmsford) English judges have been saying contingency fees and success fees must never be allowed because they encourage unethical behaviour.

imageCountless judges have pushed this barrow. Now, here is Jackson (pic) saying contingency fees would be just the answer. Law firms are already licking their chops.

In the USA, the common impression is that fees are one third of the settlement. In fact, fees are “one-third if settlement, 40 percent if there is a trial, and 50 percent if there is an appeal”. (See Professor Lester Brickman, Contingency Fees without the Contingencies 37 UCLA Law Review, at 127-28. Another useful academic article is Cheating Clients With The Percentage-of-The-Gross Contingent Fee Scam.)

In practice, in the USA, litigation plaintiffs are not offered time based billing. In a “sure fire” winner case the client is best off paying a hourly rate, not a percentage of the winnings.

American Bar Association Informal Opinion 1521 (1986) states:

“When there is any doubt whether a contingent fee is consistent with the client’s best interests [and the client is able to pay a reasonable fixed fee], the lawyer must offer the client the opportunity to engage counsel on a reasonable fixed fee basis before entering into a contingent fee arrangement.”

This, however, is one of the most widely ignored rules in legal ethics. See here for more.

I suspect the UK will introduce (and ignore) such a rule too. Ditto Australia, down the track.

As part of the review, a fast track consultation on Controlling Costs in Defamation Proceedings is taking place.

At one point it gives the “let’s look after the lawyers” game away. It asks:

“Do you think our proposal to reduce success fees would have any particular impact on small firms? If so please give details of the likely costs and effects you believe they will have and what action might be taken to reduce this impact?”

Some things don’t change much. Charles Dickens wrote in Bleak House, over one and a half centuries ago:

” ‘Repeal this statute, my good sir?’ says Mr. Kenge to a smarting client. ‘Repeal it, my dear sir? Never, with my consent. Alter this law, sir, and what will be the effect of your rash proceeding on a class of practitioners very worthily represented, allow me to say to you, by the opposite attorney in the case, Mr. Vholes? Sir, that class of practitioners would be swept from the face of the earth’.”

The Jackson terms of reference (and indeed the review report itself) kept well away from the major things that would reduce fees, such as deregulation, the use of paralegals, and unbundling.

In anticipation of the implementation of the Jackson proposals, Dan Cutts, president of the Forum of Insurance Lawyers, said:

“Unless we have a joined-up approach we will repeat the mistakes made with Woolf.”

Mistakes? What mistakes?

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