An American Future? Contingency Fees, Claims Explosions and Evidence from Employment Tribunals

Date01 September 2010
AuthorRichard Moorhead
Published date01 September 2010
DOIhttp://doi.org/10.1111/j.1468-2230.2010.00817.x
An American Future? Contingency Fees, Claims
Explosions and Evidence from Employment Tribunals
Richard Moorhead
n
This article looks empirically at the notion of American-style’ problems with contingency fees:
in particular,the purported link between contingency fees a nd claims explosions. Itdoes so in the
light of renewed interest in contingency fees as a vehicle foraccess to justice and the resolution of
costs problems in the civil justice system prompted by Jackson LJ and others. The article sheds
light on the considerable debate about the (de)merits of contingency fees in one of the main ^
and most controversial^ contexts where they are permitted: employmenttribunals. The evidence
casts doubt on the claim thatcontingency fees, coupled with US-style costs rules, lead inexorably
to an explosion in litigation. The article also examines the signi¢cant inequalities in access to
justice experienced by claimants and considers how far contingency fees address those concerns,
suggesting limits to Kritzer’s portfolio theory in relation to employment cases in England and
Wales.
‘[M]any of us recognise [the introduction of contingency fees] as be ing evil . . . I
wholeheartedly joinwith my noble and learned friend Lord Hailsham in condemn-
ing it as being inherently immoral.’Lord Ackner
1
‘This is an o¡ence against public justice, as it keeps alive strife and contention, and
perverts the remedial process of law into an engine of oppression.’
2
Blackstone’s
Commentaries on the Law of England (1897).
INTRODUCTION
Concern within the legal establishment about contingency fees is longstanding
and prevalent. Champerty and maintenance have traditionally provided barriers
to the use of such fees with judicial concerns beingexpressed about the risk that
maintenancewould lead to‘suits fomented and sustained byunscrupulous men of
power,
3
and that champerty would tempt those with an interest in the outcome
of litigation,‘to in£ame the damages, to suppress evidence, or even to suborn wit-
nesses.
4
As the opening quotations demonstrate, such fees can provoke almost
visceral reactions. Aparticular refrain is the invocation of ‘US-style’ litigation, a
spectre encouraging‘litigants to proceed with cases withvery little merit leading
to an explosion of l itigation.
5
Morerecently,however,theCourtofAppealjudge
Lord Justice Jackson, in his unprecedented review of the costs rules of England
and Wales, has recommended that the longstanding ban on contingency fees in
n
Cardi¡ Law School,Cardi¡ University.
1HL Deb vol516 col172615 March1990.
2Section 12, in Lord Chancellor’s Department, Contingency FeesCm 571 (London: HMSO,1989) 3.
3GilesvThompson [1994] 1 AC142,153,per Lord Mustill.
4ReTrepca MinesLtd [1963]Ch 199 at219-20, [1962] 3 All ER 351, 355 per Lord Denning.
5LCD, n 2 above, 1.
r2010The Author. Journal Compilationr2010 The Modern Law ReviewLimited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2010)73(5) 752^784
litigation be lifted.
6
He apparently rejects the idea that contingency fees would
lead to‘American-style’ problems.
7
This article looks empirically at the American-style problems associated with
contingency fees: in particular, the purported link between contingency fees and
claims explosio ns. It does so in the light of re newed interest in co ntingency fees as
a vehicle for access to justice prompted by Jackson LJ andothers.The article sheds
light onthe considerabledebate aboutthe (de)merits of contingency fees in one of
the main ^ and most controversial ^ contexts where they are permitted: employ-
ment tribunals. The evidence casts doubt on the claim that damages based agree-
ments, or DBAs, as the Ministry of Justice now calls contingency fees,
8
coupled
with US-style costs rules (each party bears their own costs) lead inexorably to an
explosion in litigation. It argues that the evidence is not consistent with contin-
gency fees causing an ‘explosion i n employment claims. It does so in two ways.
First, by showing that the impact of DBAs generally on claim numbers appears
to be modest. Secondly, by emphasising that where increases in claims numbers
have occurred, and even where this increase appears to belarge, the evidencedoes
not point towards this increase being the negative phenomenon implied by an
explosion’.
It follows that, in policy terms, the traditional hostility towards contingency
fees appears misplaced.Two notes of caution must be sounded, however. First,
in terms of providing access to justice the positive impactof DBAs appears to have
been generally modest. In the context of apparent inequalityof arms in favour of
employers proceeding with Employment Tribunal applications, this remains a
concern.Damage-based contingency fees mitigate but do not resolve these access
problems. Secondly, in spite of t heir apparent simpl icity, c ontingency fee s do give
rise to consumer protection and professional ethics problems. These problems
remain largely outside the scope of this paper.
9
CONTEXTAND BACKGROUND
In Englandand Wales, contingency fees arean i ncreasinglyimportant, andpersis-
tentlycontroversial, elementof the funding landscape for legal services. There are
two maintypes of contingency fee agreement:
a. Conditional Fee Agreements (CFAs) are permitted in most areas of litigation
other than family and criminal law. The distinguishing characteristic of this
species of contingency fee is that costs are calculated on the basis of the work
done bylawyers (in termsof hours spent on a case).The basic model is thatthe
lawyer does not get paid if they lose the case but gets their normal costs (the
6R. Jackson LJ, Review of Civil Litigation Costs: Final Report (London: Judiciary of England and
Wales,2010)para, 12.4.1.
7See Jackson, ibid para12.4.2 and R. Jackson LJ, Civil Litigation CostsReview ^ Preliminary Report by
LordJusticeJackson(London: Judiciary of England a ndWales,20 09) para 20.3.2. See also the di scus-
sion of interviews conducted under the review atpages 515^516of the Prelimi nary report.
8Ministry of Justice, Regulating Damages Base Agreements ^ A Consultation Paper CP10/09 (London:
MOJ, 2009).
9R. Moorhead,‘The Ethics of LawyerFee Arrangements’unpublished manuscript, forthcoming.
Richard Moorhead
753
r2010The Author. Journal Compilationr2010 The Modern Law ReviewLimited.
(2010)73(5) 752^784
base fee) andtheir success fee (or uplift)payableas a percentageof the base fee if
they win. Costs rules currently ensure that claimant damages are usually pro-
tected under such arrangements bypermitti ng successfulpartie sto recover vir-
tually all of the costs of a CFA. Theyhave in turn been associated with a series
of complaints from defendants that claimants bear no risk in bringing such
claims.
10
b. Damage-based Agreements (DBAs) are US-style contingency fees. They are
not currently permitted in litigation in England andWales but are permitted
in ‘non-contentious’ business (which appears to include tribunals, see below).
Here the distinguishing characteristic is that thefee is calculated on the basisof
a percentage of compensation awarded or paid. Under a US-style approach,
costs rules ensurethat the claimantsdo not usually bear the riskof paying their
opponent’s costs and so are also open to the claim that they are riskless for clai-
mants interms of their liability fortheir opponents costs.
11
However, claimants
do pay their lawyer’s costs out of their damages if they win.
Colloquially, both these agreements are known as ‘no win, no fee’ agreements
(NWNFs). DBAs are currently prohibited in court-based litigation.
12
Outside of
litigation, and in particular in the tribunal system, they entered into mainstream
use in England andWales at about the same time as CFAs were formally intro-
duced by legislation. Theirentry into the tribunal system occurred without ser-
ious regulatory scrutiny, based on an untested interpretation of what constituted
non-contentious business under the Solicitors’Act. European professional code
obligations,which bind (for example) theLaw Society andforbid a pactumde quota
litis (a case where the lawyer takes a shareof the result)
13
were similarly avoided on
the basis that tribunal proceedings do not constitute litigation within the Eur-
opean framework (a proposition which remains untested to the best of this
authors knowledge). Conversely, Barristers appear to be prohibited from accept-
ing workon the basis that tribunal work is litigation.
14
Surprisingly, there is a general lack of research on contingency fees i n England
and Wal es, even though they became part of domestic f unding arrangements by a
10 Base costs, success fee and after the event insurance premiums (the insurance having providedthe
successful claimant withcover against the risk of paying their opponent’s legal costs i nthe eventof
them losing the case) are ordinarily recoverable from an unsuccessful opponent. LordJustice Jack-
son’s cost review (n 6 above) recommends signi¢cant changes to this, seeking to remove(or sig-
ni¢cantly limit) recoverability of success fees and insurance premiums. His interim report
discusses the problems associatedwith recoverability (n 7 above,esp at 477^482).There arecertai n
costs which are not recoverable (for instance if a claimant or their lawyertakes out a loan to cover
the costs of disbursements on a case, interest paid on those loans is not recoverable).
11 That is, if they lose, theydo not risk paying anything. It might be said theyare nevertheless not
riskless. Claimants havestil l investedtime i nthe claim and sometimes they have investedi n some
of the costs (eg disbursements) as well.There may also be emotional and othercosts to i nvesting
the time and losing.
12 They are permitted for third party funding arrangements. See, R. Mulheron and P. Cashman,
‘Third party funding:a changing landscape’(2008) 27 CivilJustice Quarterly 312.The impact o n
the client may be similar but incentives on the funded lawyers may be quite di¡erent.
13 CCBE, Codeof Conduct forEuropean Lawyers(Brussels: Cons eil des barreaux europe
Łens ^ Council
of Bars and Law Societies of Europe,2006).
14 http://www.barcouncil.org.uk/about/instructingabarrister/fees/ (last visited 20 June 2010) and
privatecommunication with Bar Standards Board on ¢le with author.
An American Future?
754 r2010The Author. Journal Compilation r2010The Modern Law Review Limited.
(2010)73(5) 752^784

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