Untitled Document Lawyers pecuniary interest in outcome of litgation by amit mandgi
Added on 2009-04-21 10:19:56
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Should lawyers be allowed to have a pecuniary interest in the outcome of litigation? If so, which system of outcome-related fees would you recommend? Should lawyers be allowed to have a pecuniary interest in the outcome of litigation? If so, which system of outcome-related fees would you recommend? Until recently the only method in which a lawyer could be funded was in three particular ways: First, by the client himself i.e. self funded litigation, second, he could receive the aid of the state in funding his litigation i.e. legal aid fund and third, by a non governmental organization such as a trade union or an insurance company. The problem in this type of litigation was that access to justice was in the hands of two kinds of people: either the rich or then the poor. The rich had enough resources to back them to enter into litigation without being worried about the outcome, on the other hand ironically the poor too were almost in a similar situation, they were funded by the state legal aid fund and they had no fear of loosing anything as it was taken care off by the government. The end result of this was that the middle income group suffered a lot of hardship. They could not have an easy access to justice as they had neither the economic resources as the rich and neither the backing of the state legal aid fund as the poor. At the same time, middle income group of people were indirectly funding the poor to fight their claims while forgoing their own by paying tax which would land up into the legal aid fund. In order to do away with this injustice and to shift the burden from the state to the claimant and in turn onto the insurers, the “Conditional Fee Agreement” [CFA] provision was introduced in the Court and Legal Services Act. Under CFA, a lawyer is given the right to have a pecuniary interest in the outcome of the litigation, a lawyer and a client can enter into an agreement that the lawyers fees can only be paid if the client is successful, this means “No Win No Fees” situation. The advantage of this system is that the fees to be paid to the successful lawyer can be recovered from the loosing/paying party i.e. the one against whom there is a cost order. In addition to this the lawyer can also charge a success fee from the client, which is calculated at percentage on the normal fees, which in turn can be recovered from the opponent party, if the client is successful. The client also has an option of “After The Event” insurance [ATE], which covers his liability in case he is unsuccessful. ATE covers the client’s liability to pay the cost of the other party and at the same time the expenses of his lawyers which cannot be claimed from the other party, all for a premium to be paid. This premium of ATE along with the normal fees and success fees is recoverable from the unsuccessful party. Until recently it was considered to be against public policy for a lawyer to have a pecuniary interest in the outcome of the litigation in United Kingdom, while it was in practice in the United States of America. Once the CLSA was passed it provided that a lawyer could enter into a CFA and it could be enforced until it was not contrary to the Solicitors Rules of Practice. The CLSA and Regulations of 2003 was to ensure that the clients were being informed with full information as to the nature of the agreement being entered into and to maintain the appropriate standard of propriety and fairness. A CFA is held to be valid and enforceable as long as it was in writing and complies with the regulations. The success fees uplift must be stipulated and should not exceed 100%. In Hollins Vs Russell , it was stated that the client must be informed as to the full implications of the CFA and must be told as to when they will be liable to meet the costs and how the client can apply for the assessment of these costs. The lawyer must ask the client if he has availed the legal cost insurance and must state the alternate methods of funding. If the lawyer states any other method of funding he should also state whether he has any interest in that funding. The agreement must also state the level of uplift fee and the reasons for it. To this extent the law society has passed the Solicitors Amendment Rule, to simplify the procedure governing the provisions of CFA and is now effectively required that the CFA must be in compliance with primary and secondary legislation and should be in writing and must state level of success fee. As was held in the Awwad Case, that very trifle breach of legislations will not render CFA agreements void. In Thai Trading Case, it was held by the court that it was possible for a lawyer to enter into an agreement with his client to forgo all or a part of his income depending upon the outcome of the case, it also held that contingency fees were allowed and the view of public policy was outdated in the CLSA. This decision was reversed by the court in the Awwad Case, in which it stated that the decision reached in the Thai trading case was in ignorance to the decision of Swain Vs Law Society and stated that contingency fee agreements were against public policy. It further went on to condemn the interest of the lawyer in the outcome of the litigation while legislations around it were furthering its scope. Another important factor to be kept in mind is that of the opponent party. A notice of the CFA must be submitted to the opposite party because it is he who is liable to be pay the fees and uplift fee if he is unsuccessful and as such must have access to the agreement to verify whether the CFA is in accordance with the provisions of the CLSA and Regulations of 2003. In Hollins Vs Russell this was one of the issues in the combinations of appeal filed before the court. The court stated that the cost judge must exercise his discretion under the CPR and require the receiving party to disclose to the paying party a copy of the CFA to establish that it is not in accordance with the Regulations and that he is not entitled to pay the success uplift. As it is seen from this discussion it is fine for a lawyer to have an interest in the outcome of the litigation as long as it is in accordance with the provisions of the legislations. Now to look at the issue of which system of outcome related fees would be recommended. There are three kinds of agreements in which the fees of the lawyer may be dependent on the outcome of the litigation: First, Contingency Fee Agreement, where the lawyer is entitled to a portion of the client’s award. Second, Conditional Success Fee Agreement, where there is an agreement to charge an uplift fee along with the success fee. Lastly, Conditional Normal Fee Agreement, where the lawyer is entitled to recover only his normal fees. Out of these 3 kinds of fees agreement it is seen that the first kind i.e. Contingency Fee Agreement is regarded as against public policy in United Kingdom and rightfully so. In this kind of agreement a lawyer enters into an agreement with his client to recover his fees dependent upon the outcome of the litigation. The agreement being that he would recover his fees as a percentage from the damages awarded to his client. The result of such an agreement being two fold: first, the client is denied a portion of his award to which he is entitled. The amount of portion that may denied to him depends upon the agreement between him and his lawyer, which usually is always in the favour of the lawyer to quote his required amount of percentage. This brings us to the second part of the problem, in order for the client to retain his amount of justified damages he will have to raise the amount of compensation claimed. In the Factortame Case, it was held by the court that a contingency fee agreement between an expert and a client will not be allowed as it will create an pecuniary interest for the expert in the outcome of the case, however in this case the agreement was upheld since the service provided by the accountant firm had nothing to do with the final arguments as the issue of liability was already decided. Conditional Success Fees is an agreement to charge a level of success fees apart from the normal fees. This kind of agreement should also be reviewed, as a fee agreement between a client and his lawyer is one to which the paying party is a stranger. He has no say in the matter and cannot influence the limit of success fees. Although there are cases in which on assessment of the success fee the courts have reduced the percentage of success fee to drastic extent, there is still always an initiative to the lawyer to play some mischief so that he can have a favourable outcome in the case. Therefore the only feasible option left is that of conditional normal fee agreement. In this type of agreement not only is there an opportunity for the poor and middle sections of the society to cost free litigation but also saves time, which is on of the three dimensions of justice and overriding objective of the CPR, and also places fewer burdens on the paying party whereby maintaining the proportionality and reasonableness of costs.
Contact Author amitmandgi@in.com
Designation advocate
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