PrepTest 60, Section 4, Question 25

In October 1999, the Law Reform Commission of Western Australia (LRCWA) issued its report, "Review of the Civil and Criminal Justice System." Buried within its 400 pages are several important recommendations for introducing contingency fees for lawyers' services into the state of Western Australia. Contingency-fee agreements call for payment only if the lawyer is successful in the case. Because of the lawyer's risk of financial loss, such charges generally exceed regular fees.

Although there are various types of contingency-fee arrangements, the LRCWA has recommended that only one type be introduced: "uplift" fee arrangements, which in the case of a successful outcome require the client to pay the lawyer's normal fee plus an agreed-upon additional percentage of that fee. This restriction is intended to prevent lawyers from gaining disproportionately from awards of damages and thus to ensure that just compensation to plaintiffs is not eroded. A further measure toward this end is found in the recommendation that contingency-fee agreements should be permitted only in cases where two conditions are satisfied: first, the contingency-fee arrangement must be used only as a last resort when all means of avoiding such an arrangement have been exhausted; and second, the lawyer must be satisfied that the client is financially unable to pay the fee in the event that sufficient damages are not awarded.

Unfortunately, under this recommendation, lawyers wishing to enter into an uplift fee arrangement would be forced to investigate not only the legal issues affecting any proposed litigation, but also the financial circumstances of the potential client and the probable cost of the litigation. This process would likely be onerous for a number of reasons, not least of which is the fact that the final cost of litigation depends in large part on factors that may change as the case unfolds, such as strategies adopted by the opposing side.

In addition to being burdensome for lawyers, the proposal to make contingency-fee agreements available only to the least well-off clients would be unfair to other clients. This restriction would unjustly limit freedom of contract and would, in effect, make certain types of litigation inaccessible to middle-income people or even wealthy people who might not be able to liquidate assets to pay the costs of a trial. More importantly, the primary reasons for entering into contingency-fee agreements hold for all clients. First, they provide financing for the costs of pursuing a legal action. Second, they shift the risk of not recovering those costs, and of not obtaining a damages award that will pay their lawyer's fees, from the client to the lawyer. Finally, given the convergence of the lawyer's interest and the client's interest under a contingency-fee arrangement, it is reasonable to assume that such arrangements increase lawyers' diligence and commitment to their cases.

In October 1999, the Law Reform Commission of Western Australia (LRCWA) issued its report, "Review of the Civil and Criminal Justice System." Buried within its 400 pages are several important recommendations for introducing contingency fees for lawyers' services into the state of Western Australia. Contingency-fee agreements call for payment only if the lawyer is successful in the case. Because of the lawyer's risk of financial loss, such charges generally exceed regular fees.

Although there are various types of contingency-fee arrangements, the LRCWA has recommended that only one type be introduced: "uplift" fee arrangements, which in the case of a successful outcome require the client to pay the lawyer's normal fee plus an agreed-upon additional percentage of that fee. This restriction is intended to prevent lawyers from gaining disproportionately from awards of damages and thus to ensure that just compensation to plaintiffs is not eroded. A further measure toward this end is found in the recommendation that contingency-fee agreements should be permitted only in cases where two conditions are satisfied: first, the contingency-fee arrangement must be used only as a last resort when all means of avoiding such an arrangement have been exhausted; and second, the lawyer must be satisfied that the client is financially unable to pay the fee in the event that sufficient damages are not awarded.

Unfortunately, under this recommendation, lawyers wishing to enter into an uplift fee arrangement would be forced to investigate not only the legal issues affecting any proposed litigation, but also the financial circumstances of the potential client and the probable cost of the litigation. This process would likely be onerous for a number of reasons, not least of which is the fact that the final cost of litigation depends in large part on factors that may change as the case unfolds, such as strategies adopted by the opposing side.

In addition to being burdensome for lawyers, the proposal to make contingency-fee agreements available only to the least well-off clients would be unfair to other clients. This restriction would unjustly limit freedom of contract and would, in effect, make certain types of litigation inaccessible to middle-income people or even wealthy people who might not be able to liquidate assets to pay the costs of a trial. More importantly, the primary reasons for entering into contingency-fee agreements hold for all clients. First, they provide financing for the costs of pursuing a legal action. Second, they shift the risk of not recovering those costs, and of not obtaining a damages award that will pay their lawyer's fees, from the client to the lawyer. Finally, given the convergence of the lawyer's interest and the client's interest under a contingency-fee arrangement, it is reasonable to assume that such arrangements increase lawyers' diligence and commitment to their cases.