That recognition has apparently led the government to take the first tentative steps towards the introduction of USA-style contingency fees. The Law Society and the Bar Association have been asked to investigate whether this practice would be desirable and how it might be implemented.
I wonder how many of the non-lawyers reading these columns are familiar with the recent changes in legal costs? A central feature of Lord Woolf's "access to justice" revolution was the introduction of the conditional fee arrangement, otherwise known as "no win, no fee".
Having geared themselves up for a deluge of demands from clients to work on this basis, lawyers were met with a deafening silence. Conditional fees are similar to contingency charges in the sense that the lawyer only gets paid if he or she is successful, but different in that, rather than getting a share of up to one-third of the damages recovered by the client (which is how contingency fees work) the lawyer's payment is limited to an increase on his or her normal charging rate of up to 100%.
Unlike the position in the USA, where each party bears its own legal costs whatever the outcome of the case, in this country, the loser is usually required to pay the costs incurred by the winner. This difference, which operates as a significant deterrent to those considering bringing a claim, and which conditional fees cannot address, explains why an equally important element of cost reform here was the introduction of legal cost insurance.
This type of cover is designed to protect the claimant against the risk of losing and thereby becoming liable to pay the other party's legal costs. Radical measures have been introduced to encourage the take-up of conditional fees in the UK. Cost assessment rules have been changed to enable a claimant to recover from the losing party not only that claimant's premium for legal costs insurance but also the success fee charged by its lawyer.
Contingency fees would sit comfortably alongside adjudication under which each party must bear its own legal costs
Nevertheless, why have so few been entered into? In my view, it is because it tends to be only in cases where it makes no commercial sense for clients to pay more than the normal fee that solicitors are prepared to undertake work on that basis. Typically, these are cases where the lawyer is confident of success: conditional fees present cash-flow problems for law firms, particularly smaller ones.
The introduction of contingency fees would represent a quantum leap for the civil justice system. First, it would mean that in this country we would have to abandon the rule that the loser pays the winner's costs. Second, one of the main ethical criticisms of contingency fees is that, since they give the lawyer a direct financial interest in the outcome of the litigation, they must operate so as to promote inflated damages claims. But lawyers strive to maximise recovery for their clients with or without contingency fees.
Another claim is that contingency fees generate serious conflicts of interest between clients and their lawyers over how the case should be conducted. But similar concerns are expressed about conditional fees. On the other hand, one US commentator describes contingency fees as "this great equaliser in our justice system".
As a construction lawyer, I would welcome any development that gives greater choice and access to justice for my clients. Contingency fees would actually sit very comfortably alongside the existing adjudication system under which each party must bear its own legal costs.
Dominic Helps is a partner of Shadbolt & Co. He can be contacted on 01737 226277 or Dominic_Helps@shadboltlaw.co.uk.