Contingency fees have long been a staple of American law firms and have helped fuel mass tort litigation and class action in the United States. In terms of payment, it has proven to be an excellent marketing tool for attracting new customers. Accepting payments only if you win your client’s case allows people more affordable options when looking to file a lawsuit. However, in Europe, the rules for contingency fees vary greatly from US law.
In the UK, for example, “conditional rates” are accepted, however they are governed by a different set of rules. A CFA (Conditional Fee Agreement) allows the attorney to collect only when he wins the case, however, if he wins the case, the attorney will receive his general hourly wage plus a raise, also called a success fee. This fee can be as high as 100% of the regular hourly rate, which will depend on the complexity of the case and the risk involved.
On March 29 of this year, Attorney General Kenneth Clarke announced that he planned to add reforms to the conditional fee agreements on the basis that the costs of civil litigation had increased significantly (140 times more in defamation defense cases). ) and so had the number of announcements of persecution of ambulances and claim farmers. In addition, there was a fear that the percentage that the attorneys charged as success fees would be charged without regard to the amount of money the claimant had actually won, which could drastically reduce the amount the claimant would actually receive in the event of a victory.
Other European countries do not allow these types of rate arrangements … at least in principle. According to the 2004 book “Risks, Reputation, 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. In fact, German and Spanish courts have ruled that banning contingency fees is unconstitutional. This could mean that there may be a significant increase in class action and mass litigation in Europe.
Until now, the commercialization of litigation finance remains a new concept in Europe. The idea of law firms paying all legal costs and accepting the risks involved if the case loses is not likely to sit well with European regulators. This method can be particularly costly for companies involved in mass torts and class actions. While it has been argued that although litigants have the ability to opt out of a class action lawsuit, finding new ways to finance these litigation is likely to drastically change the overall European liability landscape.
Despite the fact that many countries have fully adopted the United States’ contingency fee agreements, with their own appendices added, regulators can argue that the use of contingency fees has significantly increased the number of liability lawsuits, leading to many court systems become congested with legal filings. . Either way, it should be interesting to see how European regulators will prevent various law firms from offering legal services to potential clients with contingency fee agreements through secret channels.
As I said before, although contingent fees may in principle be prohibited in many European countries, preventing litigants from commercially advertising such practices, there is great potential to make money by allowing potential clients more affordable ways to finance their lawsuits. This fact alone is likely to put litigants further pressure on regulators to allow litigants to embed contingent fee arrangements into a commercially viable payment option.