Tentative steps into contingent minefield

Should the much-pilloried conditional fees give way to contingency fees? Stephen Ward reports

One of the reasons US lawyers are stereotyped as acquisitive ambulance-chasers is because they take a cut of the damages they recover from clients.

But it is no surprise that - in spite of the public perception - they see themselves as misunderstood good guys.

Catherine McCullough, a member of and spokeswoman for the Association of Trial Lawyers of America (ATLA), insists it is not the 'no win, no fee' principle that is to blame.

'It used to be that the small town lawyer was seen as somebody who took care of your problems.

He didn't charge unless he won, but that was seen as a good thing.'But then large businesses started losing a lot of money, and they started putting millions of dollars into public relations campaigns against us.'However, the main effect of the contingency fee principle is to make sure that lawyers fight tenaciously because their living is on the line, she says.Contingency fees, seen only a decade ago in England and Wales as a pipedream of a few claimant lawyers, are suddenly back on the agenda.

Law Society President David McIntosh told the Forum of Insurance Lawyers (FOIL) annual conference late last year that he sees them coming.And the issue came under serious debate at the subsequent Civil Justice Council costs forum, though there was a high degree of reluctance to go down the contingency fee road.

This was because of the impact it could have on the profession's reputation; however, there was a suggestion that contingency fees may at least have a place in high-value litigation where claimants will otherwise be unable to find a lawyer.The reason contingency fees are on the agenda is the failure of conditional fees since legal aid was removed in April 2000 for personal injury and other categories of work.

The only justice in the eyes of many is that the system is failing clients on both sides - the injured ones and those defending the claims.New FOIL president Tim Wallis, senior partner of north-east firm Crutes, puts it forcefully: 'The present funding regime is a mess.'From the other side of the courtroom, Frances McCarthy, president of the Association of Personal Injury Lawyers (APIL), agrees with that analysis, saying: 'Relations between defence and claimant lawyers have broken down on the issue of costs, and the defendants are now arguing every possible point.' She says the increasing use of cost negotiators - ironically, often themselves paid on a contingency basis by a percentage of how much they reduce costs - has made matters worse.One of the firmest advocates of contingency fees is the Hertfordshire-based specialist personal injury and employment firm Underwoods, which has already followed the US route by advertising on television.Underwoods partner Robert Males speaks not just from theory but from experience.

He explains: 'We've been going to employment tribunals on a contingency fee basis for many years.

It has been very successful, meaning the clients are very happy.' Deemed to be non-contentious, employment tribunals are the only forum where contingency fees may legally be used.

Mr Males argues further that as before April 2000, the success fee in conditional fee agreements was recoverable from the client's damages, rather than the other side, it acted as a kind of contingency fee.

That was the way most clients understood it anyway, he says.

'The Law Society put a cap of 25% on the uplift, so it was like a contingency fee.'But would clients not be losers under contingency fees? Ms McCarthy, a partner at London firm Pattinson & Brewer, says: 'My concern is for the people who receive the damages.

Would the level of damages be raised to take account of the fact that the lawyer has to take a percentage out of them?' Her opinion, based on previous experience of recommendations of higher damages, is that the probable answer is no, or that if they were initially raised, they would later be eroded again.Mr Males' answer is that they would be set up in such a way that part of damages would be ring-fenced from lawyers.

He says: 'If you have a brain-damaged child, of course there is no question of taking any of the future care costs.

But general damages are in a sense a bonus.'Damages would have to increase to take account of the lawyers' cut, he says, but the system would give defendants what they most want, which is a degree of certainty about the figure, which is lacking with costs as they are now.However, APIL fears that lawyers would tend to settle too soon.

Mr McIntosh disagrees that this process of solicitors 'selling their clients down the river when a good, but not good enough, offer is made', would happen.His counter-argument since the 1980s, when he first debated the matter with the then Lord Chancellor, Lord Mackay of Clashfern, is that conduct could be monitored by appropriate professional rules.In the US, Ms McCullough says, this is not a problem.

'Attorneys have to do what their client says.

A judge won't let you drop the case, and it's unethical.

You've signed an agreement.'Another fear expressed about contingency fees is that they leave the small damages case unrepresented, as there is not enough in the potential damages to justify the work involved.In the US, Ms McCullough says this happens but is not a bad thing.

'We see contingency fees as a way of preventing the courts being clogged up.'And as Mr Males says, this is not just a pragmatic justification of the conditional fee system.

He asks: 'Is it right that a case should attract a disproportionate amount of costs under any system? Proportionality should mean the right amount of resources are expended.'The safety net of legal aid for cases of public interest going ahead would presumably remain.

In the last financial year, the first of the new system, there were 2,193 such legal aid certificates granted for personal injury cases, of which all but a few hundred were for a single multi-party action.

This year, as the system beds in, there look set to be about twice as many.But amid the voices against what we have now, there are many who offer solutions other than contingency fees as the best way forward.One solution is an improved version of the present system.

Ms McCarthy says it is just a question of time, and the haste with which it was introduced means there is scope for improvement.She maintains that the present system needs to establish guidelines more quickly than the years it will take waiting for further test cases like Callery v Gray to get to the Court of Appeal or the House of Lords.

Ms McCarthy suggests representative actions to test points of principle on costs.However, FOIL offers a different solution.

Mr Wallis says: 'Eighty per cent of the cases are in the fast track, and the way to deal with them is fixed fees.' Following the Civil Justice Council costs forum, this route is now being explored.Such fees need to be high enough still to give claimant solicitors an incentive to take the work, Mr Wallis says.

And there need to be stages of fees if the defendant delays longer than necessary in settling.Meanwhile, the Lord Chancellor's Department is open to all suggestions including contingency fees.

In a statement to the Gazette, it said: 'The recent Civil Justice Council forum was a constructive and successful event, and the government will work closely with the council to encourage a cross-sector approach to costs issues, to identify any improvements that can be made.'Presumably that means it is open to all improvements - just as long as they cost the taxpayer no extra money.Stephen Ward is a freelance journalist