Pros and Cons of Lawyer Contingent Fees in EU Countries - Research Proposal Example

Proposal for a Research Paper on the Pros and Cons of Lawyer Contingent Fees in EU Countries Introduction/Short of the Topic: In the United States adjudication system, financing litigations through contingent fee is a critical component whereas in most of the countries in the European Union the payment of such fee to the lawyers is “explicitly forbidden” (Backere & Lathauwer 2013:101). While this system has many perceived benefits, the payment of contingent fee has often remained a controversial topic due to some of its “potential flaws” (2013:101). Contingent fee can be defined as compensation paid to lawyers by plaintiffs, which amounts to a predetermined percentage of the award of compensation and it “varies” depending on the type of the case and the expected “preparation costs” (2013:102). The authors further find that though every case does not mandatorily follow the percentage system, it is common and typical in most of the occasions. A major advantage of this system of compensation from the litigants’ perspective is that they have to pay their counsels “proportionately to the success” and in cases where they lose, they will not have to pay even the expenses of the lawyers (Melnitzer 2004:31). The EU member states basically harbour a notion that the US system of contingent compensation fee payment encourages “legal blackmail” and can conflict with the interests of lawyers (Grace 2006:285). On the other hand, recent trends show that more and more EU nations have been permitting “risk arrangements” such as no win no payment system (2006: 287). Evidence suggests that the US system of contingency payment enables plaintiffs to “institute and prosecute” cases without having to pay their lawyers any fee unless they win the case and, therefore, act as strong incentives for them (McCarthy et al 2007: 38). Thus, litigation action for damages occur in large numbers in the US as the litigation culture in the nation “permeates” their legal systems (2007: 38). The authors further find that contrary to the trends in the US, “private enforcement actions” are fewer in the EU nations primarily due to the presence of various obstacles and especially because of the reason that if a plaintiff loses the case he or she will have to pay the costs to the defendant (2007:38). Thus, it transpires that while the system of contingent fee to lawyers has several advantages it is not being adopted in the EU nations as widely as in the US because of some inherent flows in the system. Central Problem Statement (Focus, Clarity, Feasibility): There is a general consensus that in many cases, especially in issues such as the litigation involving infringement of intellectual property rights, people desist from taking legal action because of the “high...costs” (Towns 2010:2). Therefore, many argue that when a cost effective system is evolved, more people will seek protection under the legal process and they advocate the payment of fee on contingency basis as a viable alternative in litigations “seeking monetary” compensations (2010:2). Similarly, many studies find that the system in the EU nations requires the loser of the litigation to bear the legal costs which acts as a significant “disincentive” that pre-empts most of the claimants from taking “civil actions” (Riley & Peysner 2006:749). The studies also identify the requirement of economic and documentary evidences to validate the claims apart from the other “procedural...barriers” as the primary constraints, which hinder prospective litigants from initiating legal action (2006:749). Evidence further suggests that carrying on with damages litigation in national courts in the EU is not an easy proposition, especially in terms of the length of time involved as well as the “cost of...legal representation,” which dissuade citizens from resorting to legal proceedings (2006:756). Thus, many contend that devising a system where courts can “allocate” contingency payment to the lawyers will go a long way in mitigating the problems of the ordinary citizens who wants to proceed legally in damage cases, as is the practice in countries like the US and Canada (2006:757). From a historical perspective, right from the initial stages of the emergence of European Union, private parties have been endowed with the right to institute litigation on competition rules and the member nations have been mandated not to “inhibit” such actions (Kuilwijk and Ewing 2007:1). However, the European Communities do not have a “EU-wide system” or a set of common rules on how injured civilians can “secure recompense” for the damages they have sustained (2007:1). On the other hand, recent evidence tends to suggest that currently the EU has recognised the “obstacles” that confront the victims seeking compensation in competition law infringements and other “damage actions” and the problems in exactly quantifying the extent of damage in a practical context (Leskinen 2011:87). Thus, they have introduced the concept of collective action that seeks to increase the possibility for victims to access the system of justice and use benefits of “economies of scale” to garner their financial resources for litigation (2011:88). Studies show that collective action can reduce the financial burden on litigants but its effectiveness will depend on the type of such actions being adopted and practiced (2011:88). Evidence further suggests that even the prospects of collective action will become meaningful only when other driving forces such as contingency fee to lawyers is incorporated into the system to facilitate “access to justice” for claimants of damages for infringement of competition law and other such cases (2011:89). Thus, it becomes significant to determine what kinds of exemptions need to be granted for the payment of contingency fee to lawyers within the EU and also to analyse whether the present exemptions are being granted under the right circumstances. Motivation to this Statement (Scientific or Societal Relevance): The determination of the propriety of granting exemptions for payment of contingency fee to lawyers across the EU becomes a matter of high significance both in a scientific as well as societal context. As can be discerned from the evidence so far examined during this study, in the US, where the system of payment of contingency fee to lawyers has been a critical aspect of their legal system, litigations for infringements and other damages are more common. On the other hand, since the lawyers of the EU are explicitly prevented from accepting such payments, the citizens of the member nations shy away from litigation due to various constraints in general and specifically because of the financial burden on them. However, in recent times EU allows the payment of contingency fee under certain circumstances and as part of collective action so as to reduce the burden of litigants. Thus, it will be of high relevance to the economic and scientific fraternities to determine whether such exemptions are being granted in the right circumstances and also whether this can be offered in other circumstances also, where any leeway is not being provided presently. Therefore, this study will be of high significance to the scientific and academic communities as it offers them a relevant framework to resolve a highly controversial issue within the EU. On the other hand, evidence evaluated during the study has further revealed that most of the citizens of the member nations within the EU avoid engaging in litigations on the grounds of high costs involved. Thus, it will be advantageous to the society also to determine whether such exemptions are being granted in the right circumstances currently. In addition, it will also be beneficial in the societal context to analyse other circumstances where the leeway of exemptions can be provided so as to benefit a majority of the citizens. Overview of the Main Literature: Introduction: Contingent fee is the payment for services rendered payable only if the case gets resolved in the “plaintiff’s favour” (Let’s Talk 20th Anniversary of Mabo n.d.). There are some pros and cons involved in the system of contingency, fees from the perspectives of the clients as well as “lawyers” (Let’s Talk 20th Anniversary of Mabo n.d.).There is more risk for the lawyers because if they lose the case, they get nothing and the remuneration for taking the risk materializes only if they use the “cases.” (Emons 2000). For the customer, the fee might seem huge. On the other hand, the customer loses nothing if the argument is not successful. This offers the plaintiffs ample leeway to hire the services of highly skilled professionals and to negate chances of failure and in the event of failure they have the protection of the absence of “liability to pay” (Accounting Standard: Provisions, Contingent Liabilities and Contingent Assets n.d.). While contingent fees are permitted for lawyers in the United States, by and large they are prohibited in the “countries” (List of Commonwealth Countries, British Overseas Territories, British Crown Dependencies and EU Member States n.d.) of EU. However, recently more and more exceptions have been permitted in the EU countries to allow payment of “contingency fee” (Underwood 2006) to lawyers. In Europe, contingency fees normally are unenforceable and several US states have controlled their use, particularly in certain types of cases for example “medical malpractice” (Helland & Tabarrok 2002). Pros and cons of contingent fees for lawyers in EU: According to Thomas j. Micelle and Kathleen Segerson in his article called ‘contingent fees for lawyers: the impact on litigation and accident prevention’ content that the arrangements of contingent fee have become a normal form of payment contract among lawyers and clients in tort cases relating “personal injuries” (The Personal Injuries (Compensation Insurance) Act, 1963). Economic analyses of contingent fees has have recognized various pros as well as cons as compared to hourly fees. The main advantages of the contingent fees are: It offers people ample leeway and resources to “hire an hourly fee lawyer” (Miceli & Segerson 1991) access to the lawful method by permitting them, effectively, to borrow the services of lawyers against their probable “award” (Formal Ethics Opinion No. 124 n.d.). Permit risk-averse persons initiate proceedings for an injury or damage suffered and facilitates diversification of the risks over their whole “caseload” (Counts 2010). Provides an incentive for legal representatives to work in the best interests of their clients and reduce the need to check the quantity of time or professionalism a lawyer devotes to a specified “case” (Leshem 2009). However evidence suggests that the system of contingency fees payment also ails from some inherent flows, such as: Some of important disadvantages are; It encourages excessive legal action. Make an incentive for lawyers to accept payment offers when it is in their customers’ interest to go to test or, on the other hand, to refuse settlements when it is in their customers’ “interest” (Schwartz et al. 2008) to clear up. Sometimes it entails in the charging of “excessive fees.” (Brickman 2011). Daniel L. Rubinfield and Suzanne Scotchmer contend that the planning of Contingent fee between attorneys and clients are broadly utilized in the US, and have been measured in other civil and common law countries also. The main policy argument for contingent fees has been that they increase access to the “judicial system” (Rubinfeld & Scotchmer 1993). Objections to against the payment of contingent fees have concentrated mainly on their potential as an inducement for allowing extreme recovery by “attorneys” (Schwartz et al. 2008). A number of states have recently placed restrictions on contingent a fee, raising concerns on these different views and bringing the debates into “sharp focus” (Emons 2000). On the basis of the economic analysis, the authors say that contingent fees establish equilibrium among the different interests for the reason that there is asymmetric data between “clients” and lawyers, and, in addition, because lawyers are subject to moral hazard of exploiting their clients for exorbitant “survive” (Moorhead & Hurst 2008) charges. Relatively small contingency percentages for clients with high-class cases are more likely to be won than low-class cases, and since a high quality lawyer is more likely to win any case than a low quality lawyer (source). Future empirically focused researchers can to sort out which of the information of economic analysis is the most significant by finding the correlation among success and the percentage of contingency. The chance of success improves with contingency percentage for the reason that the unobservability of lawyer’s qualities drives the “arrangements” (Polivka 1995) of contingency. This system is not being adopted commonly in the EU nations as widely as in the US apparently because of some inherent flows in the system. In contrast, the percentages of contingency were negatively correlated with success for the reason that their main function is to sort out the features of cases. Contingent fees can lead to a decrease in the quantity of in significant cases. The evidence from ‘Eurolegalism: The Transformation of Law and Regulation in the European Union’ by R. Daniel Keleme (2011) say that in the United States, the arrangements of contingency fee, whereby lawyers charge no payment if the litigant lose other than and take a proportion of any judgment or settlement awarded, has played a critical role in litigation economics. The author also states that about “87 percent of plaintiffs in tort cases” (Kelemen 2011: 262) maintain their lawyers on the basis of “contingent fee” (Susser 2011). Similarly, procedural devices for example class actions have played a very crucial role in facilitating litigation by consumers of “products and services.” (Consumer Guarantees: A Guide for Businesses and Legal Practitioners 2010). According to Eric Helland and Alexander Tabarrok (2002) content that the opinions against contingency fees promote extreme legal action and entail a conflict of interest among lawyers and clients particularly about “settlement decision” (Helland & Tabarrok 2002). Contingency fees have various benefits. Such as if customers are extra risk averse than their attorneys, a contingency fee can enhance total utility by permitting “risk sharing.” (Helland & Tabarrok 2002). The statement that attorney’s are fewer risk averse than customers is reasonable because attorneys can “diversify their portfolio of cases.” (Helland & Tabarrok 2002). Secondly, if the capital markets are defective, customers may be not capable of financing finance legal action even when it may fetch “positive” (Helland & Tabarrok 2002) benefits. Contingency fees, effectively, allow a plaintiff to borrow money from his lawyer who is better able to evaluate the cost of the case than an “external” (Helland & Tabarrok 2002) banker. Exemptions for the payment of contingency fee to lawyers within the EU: Normally, persons, as cash basis taxpayers, can deduct lawyer’s fees in the year they are paid, supposing the lawyer’s fees or else qualify as “deductible” (Business Expenses: For Use in Preparing 2013 Returns 2014) in the common of such cases; the lawyer’s fees are paid pursuant to an arrangement of contingent fee once injuries have been recovered. Where the final revival is excludable from income, also in complete or in part, the payments of contingent lawyer’s fees allocable to exempt income are “not deductible” (Business Expenses: For Use in Preparing 2013 Returns 2014). Quinn Emanuel Urquhart and Sullivan LLP (2012) say that contingency fees were long banned in the UK, one type of the arrangement of contingency fee, success fees, has been an aspect of the UK legal surroundings for the previous two decades. Success fees enable lawyers to an increase in fees, limited at “100%,” (Legal Services (Scotland) Bill Reference Group Paper Contingency Fees n.d.) in the outcome of a good result. “Success fees” (Success Fee Agreement n.d.) are said to support the action of commendable claims that be short of funding and provide lawyers with enticements to succeed cases without highlighting the size of the resulting award. In the evidence from Harvard Law School, it content that the arrangements of contingent fee are banned in Australia as such the lawyers “cannot agree to take a” (The Australian Legal Profession 2011) particular proportion of recovery. Conversely, “conditional or “no-win no-fee” (The Australian Legal Profession 2011). Plan of the Actual Research (Design and the Main Planning): Since the main objective of the study is to evaluate the pros and cons of the system of payment of contingent fee to lawyers in EU nations, the Study Design envisages an exploratory nature of investigation. On the other hand, where concepts are to be explained the design will also incorporate descriptive strategies so that the content will become easily accessible to all types of audience including scholarly and layperson. Thus, the researcher will attempt to connect the concepts of the research problems to empirical evidence gleaned through the investigation. The study will consider data relating to the system being adopted in EU for compensating the lawyers who handle the cases of private parties including citizens of different nations. For the purpose of comparison and to determine the feasibility for practical application, similar data in respect of other nations such as the US and Canada will also be obtained. The researcher will undertake an analysis of the issue using empirical evidence and thus the methodology used will be qualitative data collection. A research of this magnitude, which involves the issue of payment of contingent fees to lawyers in the European Union which encompasses many countries, it may not be possible for the researcher to undertake a qualitative investigation to obtain primary data. Thus, the research will be primarily based on the review of published literature on the topic in various journals in the nations across the EU. On the other hand, the literature review will also include journals and other materials published in the US as well as Canada so that an insight can be gained on various practices and policies in these countries also for a comparative study. Where feasible and if considered absolutely necessary for obtaining reliable information to the study, the researcher will also undertake a survey among professionals working in the field such as lawyers, managers of law firms, retired judges etc. The survey will also attempt to obtain the views of litigants because they also are highly significant stakeholders in the issue. For the purpose of the survey, questionnaires will be distributed among a sample population of 20 professionals and 30 litigants, whose cases are already concluded. The questionnaires will be sent through electronic mail after obtaining the willingness of the sample population to participate in the survey. They will be provided a timeframe of 30 days to respond to the questionnaire. On receipt of the responses from the participants the researcher will tabulate the data and, where necessary, will subject it to statistical analysis to draw upon appropriate findings based on which conclusions will be made. 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