Bermuda: Best Value For Money Contingency Fees?

Last Updated: 14 August 2001
Article by Dianna Kempe QC JP

Wherever one goes in the world, one is sure to hear a conversation about lawyers’ fees be it that hourly rates are too high, that timesheets are works of fiction or that the lawyers’ share of any award is unpalatable. Lawyers must find a way to structure their fees in such a way as to be acceptable to their clients whilst maintaining the ability of even the most impecunious client to have access to justice.

I am going to talk about lawyers’ fees from a plaintiff’s perspective and the advent of contingency and conditional fees into a jurisdiction that has traditionally outlawed any kind of champerty. Whilst contingency or conditional fees may be operated on behalf of a defendant, experience tends to find that a defendant will be a corporation or commercial entity who are (un)happy to pay on an hourly rate basis. However, be aware that the corporate defendant will be wanting to see value for money and there has been much discussion in the legal marketplace over this past several years of the introduction of value billing and fixed fee billing arrangements. This may all amount to revisiting the old way in which lawyers delivered their invoices for fees marked "for professional services rendered" and giving no indication of what work had, in fact, been undertaken. Forty years ago, corporate defendants, or any corporate entity involved in litigation, wanted to know precisely what its lawyers had done, how much time had been spent and who had worked on their particular case. The introduction of the timesheets and the detailed invoice passed into modern usage. Nowadays, computerised time recording is a way of life.

More and more corporate entities are looking to "partner" with their lawyers in the assignment. Corporations attempt to create incentives to reward lawyers for achieving the client’s goal in the manner that the client wishes. If speed to resolve the case is an important factor, the lawyer may be able to earn a higher fee if he should gain an earlier resolution. Fixed fee budgets are the most attractive to the corporate litigant but may not be as attractive to the lawyer. Much work must be done by the lawyer to establish whether or not the work and, more importantly, the unexpected twists and turns of any litigation can be accommodated for a fixed fee.

Lawyers and their clients should not be rigid with regard to the fixing of an alternative fee arrangement and should be creative, keeping in mind that the important goal of any fee arrangement is to meet the interests of the client and the lawyer. The clients’ interests are obviously paramount but the lawyer has to live!

So how does all this compare with the contingency fee arrangement? For an overview of the contingency fee system, one need look no further than the United States. Personal injury and product liability work have generated an enormous pool of fees for lawyers. Typically, a plaintiff litigant will instruct his lawyer to recover damages for whatever injury has been suffered. The lawyer will pay for everything with the case going forward. All expenses or disbursements will be discharged by the lawyer and his agreement with the client will normally provide the lawyer with one-third of the eventual settlement or award. From these sums, the lawyer will have to reimburse himself for the disbursements and expenses that he has laid out and so his net fee recovery is considerably less.

There have been benefits to society and the legal system by virtue of the contingency fee arrangement in the United States. There has also been the ever looming question mark as to whether the conflicts of interest have the dice heavily loaded in the lawyer’s favour.

The Pros:

  • Contingency fees provide access to justice for everyone. An injured person need not be intimidated by the might and wealth of a large corporate defendant.
  • By allowing the plaintiff’s lawyer, rather than the plaintiff, to assume the risk of financing of litigation, the contingency fee system levels the playing field, placing plaintiffs on a more equal footing with corporate defendants.
  • Businesses have been forced to pay greater attention to safety and quality1;
  • Consumers perceive that they are receiving products which are safer and of a higher quality;
  • Objective measures indicate that injuries and death as a result of accidents in both the workplace and home have declined, saving thousands of lives and millions of injuries;
  • The contingency fee system may actually deter unprofessional behaviour and frivolous filings in certain situations. Lawyers charging on an hourly basis may, with a claim lacking merit, have no incentive to avoid stretching out the claim because – regardless of the outcome – this will provide his fees. Lawyers would have no motivation to bring or pursue a case that has little chance of success. An unsuccessful claim will not bring the lawyer any income.
  • Contingency fee provides an incentive for the lawyers to analyse thoroughly and evaluate the merits of any claim before pursuing it.
  • The contingency fee arrangement can, however, be viewed negatively:
  • It may conflict with the lawyer’s duty to the court;
  • A temptation for unprofessional conduct;
  • Would lead to unmeritorious "blackmailing" actions;
  • Lawyers would lack independence from their clients;
  • Affords clients no protection against inter parties costs, expert fees and other disbursements;
  • Would lead to conflict of interest between the lawyer and the client.2

Perhaps one of the drawbacks of the contingency fee arrangement in the United States is the failure of the United States courts to award costs against the losing party. In the majority of other common law jurisdictions, the courts will award costs against the losing party.

Writing in the Law Times, James D. Zirin3 gave examples of what would appear on the face of it to be excessive recoveries to the lawyer under contingency fee arrangements. He cited the Houston trial lawyer who sought $108.9 million in fees and disbursement out of an award of $170 million in respect of a leaky pipe case brought by 37,000 home owners against Shell Oil and others. "The Texas Judge could not find enough words to express his displeasure". Perhaps this contingency agreement pales into insignificance to that of Joseph Jamail, best remembered for collecting $10.7 billion for Pennzoil in its 1987 battle with Texaco.

In some jurisdictions, particularly my own, Bermuda, there is a prohibition against charging contingency fees except in respect of undefended debt collections "or to an extent expressly permitted by the Bar Council". Specifically, the Barristers’ Code of Professional Conduct 1981 (Rule 96) prevents a barrister entering into a contingent fee arrangement under which his fees depend upon the results of a case or consist of a pre-arranged share of money recovered on behalf of the client.

This professional conduct rule was not too different from the position in England and Wales until 1990 when a limited form of contingency fee – conditional fee arrangements – were provided for. Now of course, England and Wales have almost entirely embraced the contingency fee arrangement for all actions save criminal and family work. However, the English Court of Appeal in November 19994 ruled that contingent fees agreements were only allowable where permitted by statute or common law. Otherwise an agreement would be unlawful and against public policy.

The contingency fee as we know it exists from the US model but in England and Wales the contingency fee exists in a more restricted form as a conditional fee arrangement.

Typically, the agreement reached with a client will provide for the payment of a "success fee" in the event of achieving pre-determined results of the outcome of litigation. The lawyer will charge his normal fee throughout the litigation and, if successful, will receive his "success fee" representing a percentage of his fee by way of uplift to a maximum of 100%.

In the event that the predetermined results are not met, then the agreement can provide for no fee or the reimbursement of expenses and disbursements.

I am led to believe by figures published in various law journals that the number of conditional fee agreements that have been entered into are equal to or are just about to exceed the number of legal aid certificates which had been issued in a year. England and Wales are withdrawing legal aid for all but criminal proceedings, and the trend to conditional fee arrangements is inevitably towards maintaining the access to justice that would have been available to those who had become eligible for legal aid.

Contingency fee and conditional fee agreements are potentially more lucrative in the area of multi-party actions.

One of the high profile conditional fee, multi-party action cases to be held in England during the last year was the infamous tobacco litigation in which law firm, Leigh Day Leigh, committed to a conditional fee agreement on a no win/no fee basis. Having spent two and a half million pounds of the law firm’s money, the lawyers were justifiably glum when a judge hearing a preliminary issue on causation dismissed the litigation. The law firm recovered no fees. As a condition of not pursuing the individual plaintiffs for costs, the defendants also extracted an undertaking from the law firm that they (the law firm) would not pursue the defendants for a period of 10 years in any other litigation.

Therefore, contingency fee and conditional fee arrangements do have their drawbacks and need to be entered into with the lawyers’ eyes open. Much greater attention must be paid to the case at an earlier stage to weed out unmeritorious claims and a proper risk analysis prepared which, in turn, will lead to a detailed management and cost analysis of the litigation. Not too many firms could afford to suffer a loss of two and a half million pounds!

An immediate plunge into the contingency fee world is not recommended. As in the model used in England and Wales, a gradual introduction of conditional fee may be appropriate to test the water – even – allowing a contingency fee on undefended debt collection work is a start.

The law firms should have consideration for access to justice and either be prepared to undertake pro bono work in a far greater proportion than they do at present, or look to a conditional fee arrangement and then, if successful, expand the cases in which contingency fees can be adopted.

There will be casualties along the way. There may be a tendency for some lawyers to reduce the amount of the contingency fee or success fee so as to gain work. If in large actions the expenses and disbursements are so high, the lawyer may face bankruptcy. One only has to look to the case of Jan Schlichtmann, the US lawyer fighting for compensation on behalf of Wobon Massachusetts residents against two of the United States biggest corporations – WR Grace and Beatrice Foods - and who was the subject of the book "A Civil Action" by Jonathan Harr which itself was the subject of the film "A Civil Action". Despite winning $8 million by way of a settlement from one of the companies, he lost his home, law firm and family. The contingency fee that he received was barely enough to pay the enormous expenses that the scientific evidence consumed and left only a few hundred thousand for the eight families of plaintiffs that he represented.

Footnotes

1 Consumer Federation of America Report 1987

2 UK White Paper "Legal Services: A Framework for the Future", 1989

3 Senior Partner in Brown & Wood, New York law firm, writing in the Law Times, 18 February 1997

4 Geraghty & Co -v- Awad Awwad [1999] – The Independent, 1st December 1999

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Dianna Kempe QC JP
 
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