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Contingency plan
Keeping things in proportion lies at the heart of the debate around contingency fees, writes Andrew Watson.
Maintaining a proper sense of proportion is a crucial ingredient in the development of effective and functioning legal policy.
As an example, despite overstated media commentary on the rise in Australian class actions, data suggests the number is relatively modest. As the Productivity Commission Access to Justice Arrangements report demonstrates, only around 0.2 per cent of listed ASX companies annually find themselves on the receiving end of a shareholder class action.
Monash University’s Professor Vince Morabito’s research shows that the overall number of class actions has remained low and steady – in proportion, a significantly smaller number than in either the US or Canada.
The concept of ‘proportion’ also lies at the heart of one of the key policy challenges facing the profession over the course of this year – the Productivity Commission’s recommendation in favour of introducing contingency fees.
In its Access to Justice report, the Commission recommended Australian, State and Territory Governments should remove restrictions on damages-based billing, known as contingency fees. A contingency fee is calculated as an agreed percentage of the amount recovered by the client.
Currently for practitioners in Victoria and NSW, ensuring that legal costs are kept in proportion is not just a matter of generalised good professional conduct but a matter of specific statutory injunction.
A wave of civil procedure reforms have imposed on practitioners’ overarching obligations variously expressed but substantively requiring practitioners to resolve civil disputes as efficiently and cost-effectively as possible. Now the Legal Profession Uniform Law requires legal costs to be proportionately and reasonably incurred and proportionate and reasonable in amount.
And yet in an outcome that can only be described as Kafkaesque while practitioners are required to keep charges proportionate, they cannot charge a proportion. No sensible argument sustains this anachronism.
The Productivity Commission has recognised the introduction of contingency fees would drive down costs to consumers, increasing access to justice. Recent comments by the Victorian Attorney-General suggest an interest in exploring the introduction of contingency fees with appropriate safeguards.
In class actions supported by third-party litigation funders, the equation is simple. Instead of paying up to 40 per cent of a resolution to a funder and then accounting for lawyers’ fees before accessing the remaining recovery, a legal firm such as Maurice Blackburn could run the entire case on a contingent fee of 25 per cent all inclusive.
In the last 10 years this would have seen approximately $90 million more returned to legal consumers in just nine funded class actions settled by our firm.
There is also enormous scope for contingent fee arrangements to provide real access to justice in many other areas of smaller scale commercial litigation.
The arguments against contingency fees tend to boil down to concerns regarding an outbreak of frivolous suits and suggestions that contingency fees pose insuperable ethical challenges for the profession.
Canada has had contingency fees for more than a decade. The UK has permitted them for almost three years. Both jurisdictions kept their adverse costs rule.
Neither has seen an outbreak of unmeritorious litigation. Nor has the legal profession in either of those countries found it impossible to deal with the ethics of charging contingency fees.
It’s time the statutory injunction to keep costs proportional moved from being a mere linguistic formula to a matter of substance and reality – one of the best ways to do that in civil litigation is to accept that a proportionate fee can be guaranteed by allowing the lawyer to charge a proportion.
Andrew Watson is the national head of class actions at Maurice Blackburn Lawyers.
