US lawyer castigated for accepting less than 1/3 contingency fee

Thanks to Overlawyered I bring you the story of the US plaintiffs’ lawyer who has advertised for personal injury work arising out of car accidents on a 15% contingency fee basis instead of the normal 33%. The mischievous quirk of behaviour has not been particularly warmly accepted by his peers. This post looks at that story and at the  euqivalent laws in Victoria where  lawyers working no-win no-fee are not allowed to charge a percentage of the client’s winnings, but are allowed to jack up their normal rates by up to 25% in no-win no-fee cases which are “successful”.

Writing in the Connecticut Law Tribunal, Joshua Winnick says:

“First, it takes a step toward freeing the tort system from the yoke of the 33 percent contingency fee — the ‘one size fits all’ fee that plaintiffs lawyers pretty much charge all accident victims. No one can explain where the 33 percent fee came from, why it is fair or why it makes economic sense to charge 33 percent, as opposed to a lesser amount, in every case.

That 33 percent fee is the starting point for many critics of the tort system, and it is widely seen by those critics as a windfall fee. Making a lower contingency fee the centerpiece of an ad campaign, albeit just for car accident victims, educates consumers about the standard fee and how a lower contingency fee can benefit them, by putting more of the net recovery in their pocket. My ad could lead to a new practice of negotiating fees on a case-by-case basis, taking into account whether liability is an issue or not, whether the claim is likely to settle without filing a lawsuit and whether substantial legal work will be required.”

Contingency fees are not allowed in Australia. They are percentages of the client’s recovery which are payable to the lawyer. We allow no-win no-fee costs agreements, but the reward to the lawyer taking the risk of financing an uncertain case is a chance to charge higher fees than usual. If a Victorian lawyer usually charges $300 per hour, for example, he gets nothing if there is no “successful outcome” but $375 per hour if there is. One is not necessarily more client friendly than the other. A solicitor charging $375 an hour may render fees of $12,000 in a case where the client only wins $6,000, whereas the same solicitor on a 33% contingency fee would recover only $2,000.

Here, similar issues arise in relation to uplift fees allowable as arise in relation to contingency fees in America. A lawyer working no-win no-fee can charge a premium of “up to” 25% on his or her normal fees if they win. Most cases settle of course, and so “win” cannot mean “get judgment for the plaintiff”. Many conditional fee agreements (statutory language for “no win no fee”) define “win” as a settlement offer which is reasonable in the lawyer’s opinion. Disputes often arise when lawyers tell their clients that they should accept what they regard as a reasonable settlement offer, and then when instructed to reject it, demand payment of their fees to date and/or the future costs of the trial as a condition of acting further. The lawyer might say that a very low settlement offer, perhaps about the amount of the costs with no element of compensation, is a reasonable one because the lawyer has discovered during the pre-trial processes that the case was not as good as originally thought.

Furthermore, I have never seen a conditional costs agreement specify anything less than the maximum 25% uplift (well, with one exception). But the Legal Profession Act, 2004 suggests that the extent of the uplift must be justifiable. Section 3.4.14 says “If a costs agreement involves an uplift fee, the law practice must disclose to the client in writing, before entering the agreement, the law practice’s usual fees, the uplift fee (expressed as a percentage of those fees) and reasons why the uplift fee is warranted.”

Presumably the uplift must be warranted by a degree of risk of not recovering legal costs taken on by the firm. “No win no fee” does not mean “No win no outlay” because losers in litigation often have to pay the other side’s costs. The greater the risk the firm suggests is present, the less likely it may be to get the work, since the risk of the client having to pay out costs to the other side is also increased. I will be interested to see some examples of what plaintiffs’ firms are saying in their disclosures, and how much diversity there is in the uplift fees being charged under the new Act.

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