Let court trial outcome determine lawyers' fees

The way the legal services sector is regulated will be tweaked in the Legal Profession (Amendment) Bill to be tabled later this year. The Law Ministry, which will be inviting feedback on the Bill, should seriously consider legalising the contingency fee system.

In such a system, a lawyer's fees depend on him winning the case. Should he lose in court, then both he and his client walk out of the courthouse with nothing.

This arrangement is not yet permitted in Singapore. But it is already allowed in the United States, Britain and Canada.

The long-standing Singapore ban derives historically from English law that traditionally barred contingency fees.

It was feared that with a financial stake in his client's claim, the lawyer may be driven, "for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses", as Lord Denning, the most celebrated English judge of the 20th century, said in Re Trepca Mines Ltd (1963), an appeal he presided over. Such a system, it was argued, may promote frivolous suits and those without merit.

Britain decriminalised contingency fees in the Criminal Law Act of 1967, 119 years after the US state of New York did so in 1848. Today, 28 states in the US allow it. Canada followed suit in 2002.

In the US, the impetus for change came from rising rates of workplace accidents as the economy industrialised in the 19th century. Such victims, who were too poor to hire lawyers, clamoured for access to justice, as Lawrence Friedman notes in A History Of American Law (1973).

In Singapore, some valid claims are not being litigated but not just because the victims are indigent. Some victims are middle-class folks who cannot afford lawyer fees as well.

Writing on the Singapore Law Watch website run by the Singapore Academy of Law, Mr Seow Tzi Yang and Ms Debra Lam noted recently that, based on the 2010 census, only 12 per cent to 17 per cent of two-income households here qualify for legal aid.

This means that much of the middle class does not qualify for legal aid. They are thus also unlikely to be able to afford litigation, given that each trial day in a District Court costs $12,000 to $16,000 while a day in High Court can "nearly wipe out an entire year's household income". As Mr Seow and Ms Lam note, the median family income in 2010 was $48,000.

The two writers observe that such economic reasoning "cuts directly against the usual complaints that the contingency fee encourages frivolous litigation".

Instead, it is about making meritorious litigation possible not only for the impecunious but also for the middle class. Thus, the contingency fee system increases access to justice, which is "a fundamental human right" as the duo note.

In the US, the industry standard for contingency fees is one-third of winnings. But because these fees have, on occasion, amounted to astronomical sums, they make lawyers look avaricious. So a main gripe about contingency fees is that they can turn out to be exorbitant.

Many cite as example the class action suits brought against US Big Tobacco in the 1990s by several states. In the multi-state class action lawsuit against Big Tobacco, which eventually agreed in 1998 to pay US$206 billion to the states over 25 years, the winning lawyers made so much that their fees worked out to the equivalent of US$200,000 (S$255,300) per hour - had they been retained on billable hours instead.

Detractors say that, as one of the two classic professions, lawyers have an ethical obligation not to charge such unreasonable fees.

However, such fees are not unreasonable if one does not use hourly rates to evaluate them.

The essence of a contingency fee arrangement is that it is a deal between the client and the lawyer that turns on the latter's risk-taking. The lawyer risks not earning anything for all his work if he loses the case, while the victim stands to lose merely some portion of any potential compensation that would go to his lawyer.

Such a deal aligns the economic goals of lawyer and client.

The fee acts as an incentive to encourage more diligent work from lawyers, while clients neither have to contend with billable hours nor worry whether their lawyers are efficient or not, since the fee does not pivot on such considerations.

Such a system would allow the lawyer to "invest" his time and resources in a litigation "market" as he deems fit, taking into account his tolerance for the risk of losing and ending up with nothing for all his work.

The idea of big rewards for the risk-taker who ends up with nothing if he loses, is consistent with a capitalist market system.

Consider the chief executive in a market economy. Like a lawyer, a chief executive is a fiduciary, holding a legal and ethical relationship of trust between himself and his beneficiaries. So a chief executive has a fiduciary duty to shareholders and acts as a trustee for their best (financial) interests. In carrying out his duties, he has the same obligations of full disclosure and fairness to them as a lawyer has towards his clients.

Now a chief executive does not justify his salary on an hourly basis. Instead, he is judged on the basis of the financial impact of his activities in, and risk-taking for, his corporation. How he spends his time (not illegally, of course,) does not matter as long as he delivers the goods.

In the same vein for a contingency fee lawyer, it is not how many hours he chalks up on a case that matter - so hourly rates do not matter. What he is being rewarded for is his acceptance of the high business risks as well as his efficiency and expertise in working on a case and winning it.

In the multi-state litigation against Big Tobacco in the 1990s, the state of Maryland alone, for example, asked 150 law firms to take up the litigation on a contingency fee basis but only six firms submitted bids. This shows how few law firms have the capacity and risk propensity to take on such a risky endeavour.

Right now, it is impossible to quantify the number of meritorious cases that never went to court because the victims did not have the resources for legal action. Allowing lawyers to be risk-taking market participants in a contingency fee system will afford access to the courts for such victims who are not just the indigent but also the middle class. This is clearly a good thing that Singapore should legalise.

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