Contingency Lawyering “It Depends on Results”

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Contingency Lawyering

Aim: This article concerns itself with the practice of contingency lawyering, where the lawyers charge fees based on the results of the case. In India, the lawyers are not allowed to charge contingent fees, while, this has been an active practice in USA. This article goes on to explain the need of contingency lawyering in India and suggests a middle path approach for the same.

“Well, the lawyer roared in the Court that day, in a manner that had never been seen before. The client attributed it to the fact that his fees were contingent upon the result of the case.”

The lines above give a fair idea around the concept of contingent lawyering and its impact upon the conduct and the efficiency of the lawyers representing the clients. From the lawyer’s perspective, a contingency fee arrangement fosters an incentive to provide quality services to the client, as her fee is reliant on either winning the case or obtaining a favourable settlement out of court. 

And to state in brief the economic aspect of such an arrangement, it helps the litigant to pay out the money awarded by the court at the conclusion of her case or the amount procured through settlement talks, as opposed to expending her personal assets upfront to the lawyer, as fees. Hence, such a system shall be greatly beneficial for litigants of limited means, which constitute a huge chunk in India.

A contingency fee contract, in most simple of its definition, would be a contract where in the fees payable to the lawyer is dependent on the outcome of the case: a victory for the client would amount to the lawyer being paid a hefty fee out of the damages received from the court, while in case of a decision not in favour of the client, the lawyer would not be paid any fees. Hence, it is a high-risk venture for the lawyer who invests time and resources into a case and provides an added impetus to win the case for the client.

There is no dearth of literature which provides for the justification for such an arrangement of payment.[1] It has been acclaimed to be an arrangement enabling access to courts and the fact that it comes as a great relief to the clients who, otherwise, cannot afford any legal counsel.[2] It is argued that such an agreement provides appropriate rewards to the lawyers for their willingness to take the risk of non-payment and to absorb the expenses of litigation and pending payments.[3] Scholars have considered and written about whether such a return on risk is optimal or not, whether such an arrangement negatively affects the loyalty of the lawyers to their clients, and whether contingency fee lawyers function well enough as the officers of the courts,[4] and have written in favour of contingency fee arrangement between a lawyer and her client.

However, there is also an alternative narration on the same issue. It has been stated that when a lawyer bringing a law suit shall be paid, only upon a favourable outcome for his client, she might avoid cases which are unlikely to succeed[5] and thereby, landing us into the similar conundrum as we faced in square one, that is, limited access to justice.

Also, it is pertinent to distinguish between the contingency fees and conditional fees at the outset. Either of the two pay for the performance of the lawyer by paying a higher fee if a case is won but, the fundamental distinction between the two lies in the fact that the contingent fees is paid out of the amount that has been received by the client from the court, while the conditional fees is an upscale premium which is not related to the amount that has been awarded  by the court, whatsoever.[6]

Contingency Fees in India

To put it simply, contingency fees contracts between lawyers and clients are not allowed in India. India is amongst few of the countries which do not allow for contingency fee contracts citing ethical and legal reasons for the same. While, the same has been successfully implemented and opens doors to justice for a majority of the people in the other Western countries [7], India has remained orthodox in its approach, even till the recent times.

Legal Impediments:

The Bar Council of India Rules state, in Part VI, Chapter II, Section II, Rule 20, that:

“An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.”[8]

Hence, the stance of the Bar Council, which regulates the profession of lawyers in the country, has been clearly defined by means of the Rules stated above. Such a rule is a major reason why there has been no significant impetus for the cause of legalising contingency fees in India.

Further, in the landmark case of Ganga Ram v. Devi Das[9] ,such contingency fees agreements were held to be void for the reason that they fell against public policy and also against the professional ethics of the lawyers.

In the recent case of B. Sunitha v. The State of Telengana& Anr.[10] , the Supreme Court of India has levied a scathing attack of the exceptionally high fees charged by the legal professionals and has specifically held that the Advocates’ fee that is charged on the basis of percentage of result of litigation shall be illegal. The Supreme Court cited the case of  Mr. G., a Senior Advocate of the Supreme Court [11] ,apart from the Bar Council Rules, for the purpose of holding that such an agreement is a part of professional misconduct, which should amount adverse consequences for the lawyers indulging in it.

In the KL Gauba case [12] , it was held by the Court that a situation where the fees of the lawyer is dependent on the success of a case, and where the lawyer tends to have a vested interest in the subject matter of the case, the status of the profession tends to be compromised and undermined. Such a circumstance has been condemned to be unworthy of legal profession, for the very reason that if a lawyer has a vested interest in the result of the case, then he might tend to depart from the ethical practices and would not be fulfilling his role as an officer of the court.

In the case of C. Rangadurai v. D. Gopalan[13] it was held that the relation between a lawyer and the client is highly fiduciary in nature. Hence, the lawyer would be misusing his position of trust if he indulges in a contingency fees contract.

What is peculiar to note is that despite such strong jurisprudential stance against such agreements in India, the lawyers in the lower courts, more often than not, do charge clients on the percentage of the claim amount that they are able to recover from the court.[14] However, such arrangements hardly lead to disputes for the mere reason of their inability of being proved in the court of law. Such contingency agreements are mostly orally made and are highly informal, without any documented proof of it having existed.

Ethical Impediments:

Having explained the legal limitations to the contingency fee contracts in India, I would delve into explaining the ethical limitations of such agreements which form the basis of rejection of such an arrangement in India.

Contingency fee arrangements had come up for ensuring that the people who have valid claims but are financially incapable of bearing the costs associated with filing and litigating those claims, are not denied of an access to counsel and thereby to justice.[15]

However, the realities of the situation are different from what it was envisioned to be, as per some of the scholars. They are of the opinion that when a lawyer appearing for a client shall be paid only in case of a successful outcome for his client then, he shall avoid taking up the cases which are unlikely to succeed[16] for the simple reason that it is not prudent for the lawyer to put in his efforts and resources into a case from which he might not draw any monetary benefit.

Further, it is also contended that if the weaker case that lawyer argues is awarded with a larger fee for the lawyer then, the lawyers might indulge into extracting larger sums of money from their clients by stressing upon the inadequacies and the weaknesses of their client’s case [17] , which would grossly in violation of professional conduct of lawyers.

It is frequently argued that in contingency fees agreements, the interests of the lawyers and their clients may differ widely. There could be cases where the lawyers would want to settle the case too quickly and for lesser amount than preferred by the clients, or the lawyers may choose to take a higher risk by taking the case to trial, while the client would have been satisfied with a settlement and compensation.[18]

In the B. Sunitha’s case,[19] the Supreme Court had referred to the 131st report of the Law Commission, 1988[20] , wherein, it was stated that the legal profession must take up roles for strengthening the administration of justice by the courts and such roles must be in consonance with the Article 39A[21] of the Constitution, which provides for equal opportunities for access to justice.

Hence, if the lawyers, who constitute the legal professionals of the country, end up taking cases selectively to ensure their fees from the clients, or charge astronomical fees which incapacitates the client to pay and thereby, access the courts for justice, it is ethically wrong for the lawyers to indulge in such agreements.

Another issue that is brought up with the promotion of contingency fee agreements is that it will lead to excessive legislation in the country, for the reason that the clients would not have any disincentivising factor to not go to court with their claims.[22] The pendency of cases in Indian courts is not something that is unknown even to the minds of the common public and hence, such an arrangement does not seem to be a lucrative option at the outset.

Cross-Jurisdictional Analysis of Contingency Fees

United State of America:

Contingent legal fees are extensively used in the United States of America. In an empirical study done in the 1990s, it was observed that the individual litigants tend to use contingent fees in a majority of tortious and contractual cases, amounting to 87% in cases of torts and 53% in cases of breach of contractual obligations.[23]

The scholars are of the opinion that since the lawyers have more precise understanding of the nuances of the case than the client, and the client relies upon the analysis of her lawyer for calculating the economic viability of the case, not having a contingent fee arrangement would lead to the lawyers having little economic incentive to reveal to their client if a case had a low expected return.[24] Rather, the lawyers would tend to lead the client into litigation without considering the merits of the case.

Due to such an arrangement being very much common in USA, it has led to the belief that it is peculiarly American. But such a notion is set upon fallacious grounds for the mere reason that there are a number of countries, apart from USA, that have a provision for contingent fee agreement.

Most of the provinces in Canada permit such contingent fees contracts.[25] In New Zealand, the solicitors and barristers are allowed to charge upon a ‘speculative basis’.[26] Most of the law firms in Paris are increasingly moving towards contingency fees.[27] There are also incidents from Japan which show the acceptance of such agreements.[28] Greece allows contingency fees like that of America but has a limit of 20% of the total amount recovered from the court.[29]

This shows the widespread acceptance of such an agreement in the different jurisdictions of the world and it not being limited only to USA.

Further, the media in USA has furthered the proposition that under contingency fee arrangement, the lawyers do take up potential clients and represent them in court because the lawyers get a portion of what their client gets from Court[30] and without there being any case, there would be no fees whatsoever. Hence, such an arrangement incentivises lawyers to take up cases for more clients rather than dissuading them from the same.

One of the common misconceptions around such a practice in USA is that in case of a contingency fee agreement, the standard fee charged by the lawyers is one-third of the amount recovered by the client, unless there is some sort of statutory restrictions imposed upon them.[31]But, such a standardization in fees is not universal in nature and also the ones who did stick to the standard fees, do deviate from it in some circumstances.[32]

With regard to the diverging interests of the lawyers and their clients, it has been argued by the scholars that the despite the lawyers being mindful of their own interests as they negotiate in such cases, they are also concerned about their client’s interests, for the reason being that it is not the outcome of one of such cases which concerns the lawyers alone, but that of a number of cases that he represents, as far as his reputation is concerned.[33]

Hence, we see that the contingency fee system is thriving in USA and has helped the people having limited financial resources at their disposition to access the courts for the wrongs caused to them.

Australia:

There has been a ban placed on the charging of contingency fees by lawyers in Australia. But in the year 2018, there has been a significant shift in the national momentum demanding the lifting the ban on lawyers from charging contingency fees.[34] Two important law reform commission in Australia have supported the case of contingency fees in order to address the perceived access to justice system in Australia.[35]

If the ban is lifted in Australia in near future, then, it would be a significant change from the traditional time-based billing practices for lawyers in Australia. It has been proposed that such an arrangement would further the cause of access to justice, by allowing uneconomical claims in the courts as well, which are presently ignored by the third-party funders.[36]

United Kingdom:

Contingency fees were banned in England and Wales for a long time, until major law reforms took place in the year 2013, which allowed the lawyers to charge contingency fees in England and Wales.[37]

With the restrictions being lifted, it has enabled the lawyers to provide their clients with a variety of funding arrangements as per their needs. Such arrangements are known as ‘Damages Based Agreements’ in England and has caught pace to be used in significant portion of the commercial cases in England and Wales.[38]

South Africa:

South Africa has a very well-structured contingency fees arrangement for the lawyers with their being a specific statute to regulate such arrangements, that is, the Contingency Fees Act, 66 of 1997.[39] The Act provides for certain formalities for the conclusion of lawful contingency fee agreements, including the formation of a written contract in a prescribed format and the signing of the written contract by both, the lawyer and the client.[40]

The Middle Path Approach

Presently, India has a total ban on “no win-no fee” arrangement between the lawyers and their clients. It has been seen that most of the countries in the west have successfully implemented such an arrangement and the others are rallying to do so. In wake of the global movement towards embracing the contingent fee contracts, it is high time for India to reconsider its approach as well.

Contingent fees need not be unregulated as such and a ceiling can be placed over them for the purpose of preventing the lawyers from exploiting their clients. Contingent fee need not always be against the public policy for the reason that despite the lawyer having an interest in the result of the case, he has reputation to fend for as well. Hence, he does not necessarily tend to indulge in unethical practices for a favourable judgment in a particular case.

There is strong jurisprudential proof from USA validating the case of contingent fee contracts in India. Such an arrangement is typically necessary in a country like India, where the majority of the litigants do not have the economic resources to pay the fees of the lawyer upfront and hence, avoid going to courts with their claims. Contingent fees contracts would open the doors of justice for them and would go a long way in achieving equal access to justice for all.

Edited by Vedanta Yadav
Approved & Published  by Sakshi Raje

Reference

[1] Dennis E. Curtis & Judith Resnik, Contingency Fees in Mass Torts: Access, Risk, and the Provision of Legal Services when Layers of Lawyers Work for Individuals and Collectives of Clients, 47(2) DePaul L.Rev. 425(1998).

[2]Herbert M. Kritzer, Contingency Fee Lawyers as Gatekeepers in the Civil Justice System, 81 Judicature22 (1997).

[3]Supra note 1.

[4] Bruce L. Hay, Optimal Contingent Fees in a World of Settlement, 26 J. LEGAL STUD. 259 (1997); Bruce L. Hay, Contingent Fees and Agency Costs, 25 J. Legal Educ. 503 (1996); Richard W. Painter, Litigation on a Contingency: A Monopoly of Champions or a Market for Champerty?, 71 CHI.-KENT L. REV. 625 (1995); Kevin Clermont & John D. Currivan, Improving on the Contingent Fee, 63 CORNELL L. REV. 529 (1978).

[5] John Leubsdorf, Contingency Factor in Attorney Fee Awards, 90(3) The Yale L. J. 473 (1981).

[6]WinandEmons, Playing it Safe with the Low Conditional Fees versus Being Insured by High Contingent Fees, 8(1) Amer. L. & Eco. Rev. 20, 21 (2006).

[7] Philip H. Corboy, Contingency Fees: The Individual’s Key to the Courthouse Door, 2(4) The Eco. of Litigation 27 (1976).

[8]The Advocates Act, No. 25 of 1961, § 49(1)(c),India Code (1961) available at: http://indiacode.nic.in .

[9] 61 P.R. (1907).

[10] Criminal Appeal no. 2068 of 2017

[11] (1955) 1 SCR 490.

[12] AIR 1954 Bom 478.

[13] (1979) 1 SCC 308.

[14]Should Indian Lawyers be Allowed to Work on Contingency Basis- Sample Draft Contingency Fee Arrangement Format, Mowing the Law (Nov. 28, 2018), http://mowingthelaw.blogspot.com/2012/12/should-indian-lawyers-be-allowed-to.html

[15]Lester Brickian et al., Rethinking Contingency Fees 13 (1994).

[16]Supra note 5.

[17]Supra note 5; Lester Brickman, Contingent Fees Without Contingencies: Hamlet Without the Prince of Denmark?, 37 UCLA L.REV. 29 (1989).

[18] F.B. Mackinnon, Contingent Fees for Legal Services: A Study of Professional Economics and Responsibilities (1964); Geoffrey P. Miller, Some Agency Problems in Settlement,XVI J. Leg. Stud. 189 (1987); Neil Rickman, The Economics of Contingency Fees in Personal Injury Litigation, 10 Oxford Rev. Econ. Pol’ 34 (1994); Douglas E. Rosenthal, Lawyer and Client: Who’s In Charge (1974).

[19]Supra note 10.

[20]Law Commission of India, One Hundred Thirty-First Report on Role of the Legal Profession in Administration of Justice (1988), http://lawcommissionofindia.nic.in/101-169/Report131.pdf

[21]India Const. art. 39A.

[22]Walter Olson, The Litigation Explosion, (book)

[23]Kritzer, Herbert. 1990. The Justice Broker: Lawyers and Ordinary Litigation. New York: Oxford University Press.

[24] James D. Dana Jr. & Kathryn E. Spier, Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation, discussion Paper no. 110, Harvard Law School.

[25]Eleni Skordaki& Danielle Walker, Regulating and Charging for Legal Services: An International Comparison (1994).

[26]Id at 33.

[27]Id at 61.

[28]Takao Tanase, The Management of Automobile Accident Compensation in Japan, 24 LAW & SOC’Y REV. 651 (1990).

[29]Supra note 24, at 57.

[30]Marc Galanter,Bhopals, Past and Present: The Changing Legal Response to Mass Disaster, 10 WindsorYearbook of Access to Justice 151 (1990).

[31]M. Wade Baughman, Note, Reasonable Attorney’s Fees under the Social Security Act: The Case for Contingency Agreements, 1997 U. ILL. L. REV. 253 (1997); Marcia Coyle, High Court to Hear Social Security Cases, NAT’L L.J. A15.

[32] Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency Fees, 80(3) Washington University L. Rev. (2002).

[33]Id.

[34]Jason Betts, Why giving lawyers a profit motive won’t help the system’s neediest, ABC News (Nov. 28, 2018), https://www.abc.net.au/news/2018-06-29/no-fee-lawyers-group-action-shine-slater-gordon/9913858

[35]Id.

[36]Id.

[37]England embraces contingency fees, Fieldfisher(Nov. 28, 2018),

https://www.fieldfisher.com/publications/2013/10/england-embraces-contingency-fees

[38]Id.

[39]Carl Meyer, Contingency Fee Arrangements: Clarifying the common law position, Golegal (Nov. 28, 2018) https://www.golegal.co.za/contingency-fee-common-law/

[40]Id.

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Nitesh Mishra
I am Nitesh Mishra, from National Law University, Delhi. Law, the implications and the interactions that it has with the society is something that has interested me from a long time. Constitutional Law has been of keen interest to me ever since. Amongst the relatively more recent fields of law, Intellectual Property Law and Competition Law have appeared to be quite fascinating to me. I have a flair for legal writing and research. Other than these, mooting has also been an interest to me. I take an active stance in the political debates and discussions. Apart from my interests in law and legal studies, I am fond of music and appreciate the various forms of art, irrespective of them being a book, a painting, or a visual media.

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