Restrictions on contingency-fee agreements

A law-reform commission wants to introduce contingency fees in Western Australia. Before judging its proposal, get the basic arrangement straight: the lawyer gets paid only if the case succeeds. The lawyer risks doing the work without receiving a fee, so a successful case generally pays more than an ordinary fee arrangement would.

That can help someone with a strong claim but little money. The client need not bear the same risk of paying for an unsuccessful case, and the lawyer accepts that risk in exchange for a possible higher payment. But contingency fees are a broad category. The commission recommends allowing only one particular version: an uplift fee.

Under an uplift arrangement, the additional payment is a percentage of the lawyer's normal fee, not a percentage of the client's damages. Suppose the normal fee is $10,000 and the agreed uplift is 50 percent. A successful case would produce a $15,000 fee. The size of the damages award is not the figure used to calculate that uplift. Keep that distinction in mind; familiar ideas about taking a share of a settlement could lead us away from the definition here.

Why allow only this version? The commission wants to prevent lawyers from taking a disproportionate share of damages and reducing the client's compensation. It also proposes two conditions: contingency fees must be a last resort, and the lawyer must be satisfied that the client could not pay the fee without a sufficient damages award. So the proposal is not simply to make another payment option available to anyone who wants it.

So far, those are the commission's recommendations. The author's position becomes clear with “Unfortunately.” Now we hear the objection: the lawyer would have to investigate the client's finances and estimate the eventual cost of the case, as well as handle the legal issues. That is a substantial extra assessment to put on the lawyer.

And knowing what a client owns still would not settle whether the client can afford the litigation. Imagine someone with $50,000 available. A $5,000 case and a $100,000 case present very different affordability questions. Yet the lawyer cannot reliably know the final bill at the start, because the other side's strategy and other factors may change as the case develops. The assessment depends on a moving figure.

The author then shifts from the burden on lawyers to the unfairness to clients. Why reserve this option for only the least well-off? A middle-income client might reasonably want to avoid risking a large legal bill. Even a wealthy person may have wealth tied up in assets that cannot readily be converted into cash. A valuable house is not the same thing as money available to fund a trial. Restricting the arrangement can therefore block access to litigation and limit people's freedom to agree on payment terms.

The final paragraph also explains why the benefits extend beyond poverty. Contingency fees finance a case and transfer the financial risk of failure from the client to the lawyer. They also align the two parties' interests: success matters financially to both. The author thinks that shared incentive can increase the lawyer's diligence. This does not require believing that every ordinarily paid lawyer is careless. It is an argument about the additional incentive created by the arrangement.

Our main-point prediction should capture the explanation and the criticism together. The commission proposes a tightly restricted form of contingency fee, but the author argues that the restrictions would burden lawyers and unfairly deny other clients a useful financing and risk-sharing option.