Contingency fees

In the contingency fee system, the lawyer usually agrees to provide legal representation, and his or her payment is only required in the event of a favourable result through a settlement or recovery. This system exists in the US, which allows various success fees that—depending on the state in question—can be limited to a certain percentage.[1]

In the EU, contingency fees are still generally regarded with suspicion. The reasons for this are often of political and moral origin. Nonetheless, the European Commission’s emphasis on promoting consumer access to justice has pushed Member States to review their laws relating to the funding of litigation, with the result that contingency fee systems are increasingly available. For instance, France, Italy, Luxembourg, and Portugal authorize law firms to charge fees which are based, to some extent, upon results. Greece permits a US-style contingency fee by limiting the fee to 20 per cent of the amount recovered.

Although a contingency system is expensive, it facilitates access to justice if consumers cannot afford to pay the lawyer’s fees or do not qualify for public legal aid funding. Moreover, under a contingency scheme, the lawyers often assume the financial risk of the litigation, which might move the burden away from the plaintiff and partially reduce unmeritorious cases. Lawyers may also have an additional incentive to win the case, dedicating time and funding in order to succeed, whilst becoming more specialized in consumer claims.[2] All this suggests that contingency fees could overcome the financial and legal knowledge barriers to accessing justice. Having said this, in order to prevent lawyers from taking advantage of over-payment, it might be important to legally limit contingency fees to a certain percentage rate of the awarded damages.[3]

However, this and the financial risk of the ‘loser pays’ principle may make it less attractive for law firms to engage in contingency fees and collective redress cases in the EU.

In conclusion, contingency fees can facilitate consumer access to justice and should be included in the discussion on collective redress.[4] However, this method of litigation funding often only functions well for particularly profitable cases. Thus, it should be considered as a complementary solution to legal aid and alternative funding methods described below, which are especially needed in complex or low financial value cases.

  • [1] H. Kritzer, Risks, Reputations and Rewards: Contingency Fee Legal Practice in the United States(Stanford: Stanford University Press, 2004), pp. 258-9.
  • [2] In contrast, legally aided clients might be treated with less importance because of the lowercompensation and might be represented by more inexperienced lawyers.
  • [3] For a discussion concerning contingency funding in competition cases, see Riley & Peysner,‘Damages in EC Antitrust Actions’ (n 150), pp. 748-61.
  • [4] See also Civil Justice Council, The Future Funding of Litigation—Alternative FundingStructures, Access to Justice through the Development of Improved Funding Structures, 2007, pp. 68 et seq.
 
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