Contingency fees have long been a staple of American laws firms and have helped drive mass tort and class action litigation forward in the United States. In payment terms, it has proven itself to be an excellent marketing tool to use in drawing in new clients. Accepting payments only if you win your client’s case allows people more affordable options when seeking to file a lawsuit. However, in Europe the rules for contingency fees vary greatly from American laws.
In the UK for example, “Conditional Fees” are accepted, however they are governed by a different set of rules. A CFA (Conditional Fee Agreement) allows the lawyer to get paid only when he/she wins the case, however if the case is won the lawyer will receive their general hourly wage plus an uplift-also called a success fee. This fee can be as high as 100% of the regular hourly fee, which will depend on the complexity of the case and the risk involved.
On 29 March of this year, Justice Secretary Kenneth Clarke announced that he was planning on adding reforms to conditional fee arrangements on the basis that the costs of civil litigation had increased significantly (140 times higher in libel defense cases) and so had the number of ambulance-chasing advertisements and claim farmers. Also, there was a fear that the percentage that the lawyers charged as a success fee was charged without any regard to how much money the claimant had actually won, which may drastically reduce the amount the claimant would actually receive in the event of a win.
Other European countries do not allow these kinds of fee arrangements to be made…at least in principle. According to the 2004 book “Risks, Reputations, and Rewards: Contingency Fee Legal Practice in the United States,” written by Herbet Kritzer, that is about to change for many European countries. Right now; Australia, Brazil, Canada, the Dominican Republic, France, Greece, Ireland, Japan, New Zealand, Lithuania and Belgium are using contingency fees as a payment option for their clients. Actually, the German and Spanish courts have ruled that prohibiting contingency fees is unconstitutional. This could mean that there may be a significant increase of mass tor and class action litigation in Europe.
So far, commercializing litigation funding is still a new concept in Europe. It is likely the idea of law firms paying all legal costs and accepting the risks involved if the case loses, doesn’t sit well with European regulators. This method can be particularly costly for the firms that are involved in Mass torts and Class actions. While it has been argued that, although litigators have the ability to opt out of a class action suit, finding new ways for financing these litigations is likely going to change the overall European liability landscape drastically.
Even though many countries have fully embraced America’s contingency fee agreements, with their own addendums added-it can be argued by the regulators that the use of contingency fees has increased the number of liability lawsuits significantly, causing many court systems to become congested with legal filings. Either way, it should prove to be interesting to see how the European regulators will prevent various law firms from offering potential clients legal services with contingency fee agreements through back door channels.
As I said before, even though contingent fees may be prohibited in many European countries in principle– preventing litigators from commercially advertising such practices-there is a large potential for money to be made in allowing potential clients more affordable ways of financing their lawsuits. This fact alone is likely to make litigators push regulators harder to allow litigators to incorporate contingent fee agreements into a commercially viable payment option.