Citation(2004) 16 SAcLJ 76
Published date01 December 2004
Date01 December 2004

This article examines the nature of contingency fees and global trends towards its adoption. It also analyses the ongoing debate about the advantages and ill-effects that allegedly accompany the use of such a fee structure. Finally, the article focuses on the inadequacies of legal aid and other mechanisms designed to ensure that all Singaporeans have access to justice and concludes that it is time for us to consider introducing various forms of contingency fees to ensure that no one is locked out of the legal system.

I. Introduction

1 Over the last three decades, there has been growing dissatisfaction with the contingency fee system in the United States of America. While its benefits are apparent, contingency fee agreements, often known as “no win, no pay” agreements, have been roundly criticised and blamed for causing the “litigation explosion” and a host of other social ills. Its critics are numerous, ranging from the popular press to politicians to industries particularly affected by the rise in personal injury claims, such as the insurance industry. More recently, several legal scholars and social observers have provided some credibility to these views by putting forward theories and empirical data which they suggest, support the conclusion that contingency fees encourage litigation and unethical practices, overcompensate lawyers, inflate damages as well as raise insurance premiums.1 The alarm brought about

by this tide of opinion was so strong that the US Senate Committee on the Judiciary held hearings on alleged contingency fee abuses in 1995.2 It is therefore surprising that concurrent with this period of increasing hostility, a type of contingency fees was recommended and sanctioned in England, thereby reversing a rule that has been in place for centuries and kicking up a storm of controversy in the English bench and bar.3

2 England is not the only Commonwealth jurisdiction to have turned to contingency fees as a means of providing access to justice to its populace. Currently, many jurisdictions give cognisance to various forms of contingency fees and others, such as Australia, are in the process of evaluating it at a national level.4 This trend has arisen with the growing awareness that because of rising legal costs and limited governmental resources, the traditional mechanism for providing access to justice to the poor — government-sponsored legal aid — is presently ill-equipped to provide meaningful assistance to the average person on the street, who often finds the gates to the courthouse firmly locked because of the costs and risks that litigation entails. Perhaps another reason for this trend is the fact that these states are experiencing a shift in ideology away from social welfarism, well aware of the moral hazards5 associated with state-sponsored services that can also be provided by the private sector.

3 Despite the dramatic improvements in efficiency brought about by reforms to the Singapore legal system in the 1990s, there is nothing to suggest that legal costs in Singapore have bucked the upward trends experienced in other jurisdictions. Indeed, recently compiled data suggest that costs are increasing,6 and Singaporean politicians have raised this concern in Parliament.7 It is true that legal costs in Singapore are still extremely competitive relative to other countries.8 However, that does not mean that they are affordable. State-sponsored legal aid remains in the domain of the very poorest and the majority of the population, who fall into the lower-middle income group, find it prohibitively expensive to engage in litigation, even if they have good causes of action. For this group of people, embarking on a suit is extremely risky and they are effectively denied access to the justice system. Considering Singapore’s limited resources and the government’s abhorrence of social welfarism, the best solution for this problem is if litigation can be funded by the private sector via lawyers.

4 The problem with suggesting a reform such as the adoption of contingency fees is that it is usually quickly dismissed because of the association of the fee structure with social ills sensationalised by the American media. As one commentator observes:

In my reading of current non-American debates over the contingency fee, one of the persistent objections raised against it is the argumentum ad Americanum— the argument that to introduce the contingency fee is to set oneself on the path to litigious ruination which America currently represents.9

Contingency fees have, without question, failings and I will not attempt to suggest otherwise. However, to simply dismiss a potentially useful mechanism because of its association with symptoms of an allegedly diseased legal system is flawed for two reasons. First, there may have been a misdiagnosis by its would-be physicians; and second, there is nothing which compels us to believe that other legal systems, with their own unique characteristics, will suffer the same fate as the United States. Apart from this, I believe that our quick dismissal of contingency fees also arises from an ignorance of the historical reasons why such a fee structure was outlawed in England, as well as how it functions in the United States.10

5 As we consider ways in which to attain such important ideals as equal access to justice, it is imperative that we set aside our preconceptions and the anecdotal evidence that have been heaped onto us by the American media and its sympathisers. Instead, we have to understand the historical roots of the rules against contingency fees, tackle the complex policy issues at the heart of the contingency fee debate and rely on hard facts and theory. As such, I propose to examine the roots and nature of the contingency fee system, as well as the arguments raised by its critics. Armed with this knowledge, an objective analysis can be undertaken to determine if the fee structure, or a version of it, would be beneficial for Singapore.

6 Section I of this paper defines “contingency fees” and discusses how the rule against contingency fees evolved in England and was abandoned in the United States. It will also describe how jurisdictions, in particular England and Wales, have turned to contingency fees in search of a realistic way of providing access to justice. Section II analyses the contingency fee debate in the context of its main advantage — providing equal access to justice — and the ethical dilemmas confronting the use of contingency fees. Finally, Section III will discuss the need for contingency fees in Singapore, whether this will put our legal system in

peril and the best possible regulatory framework for the implementation of a fee structure that will promise greater access to justice.

Section I — understanding contingency fees
A. Unravelling the terms

7 One of the reasons why the argumentum ad Americanum is so often resorted to is the fact that the term “contingency fee” has been used rather loosely. This has led to some confusion in the ongoing debate about its merits and faults since many people have a specific preconception about what contingency fees are. It would therefore be valuable to begin our examination by defining the term.

8 Literally, “contingency fee” simply means, as the word “contingent” suggests, a fee that is payable on the occurrence of an event. The event referred to is commonly understood to mean either a settlement or the successful litigation by a plaintiff’s lawyer. If this were the definition of “contingency fee”, then costs awarded under the English rule requiring the losing litigant to pay the victor’s legal fees,11 known as the “fee-shifting rule” in the United States, would be a type of contingency fee. However, the term “contingency fee” is only used in the context of solicitor-and-client costs as opposed to party-and-party costs. As such, the proper definition of the contingency fee is a fee charged by a lawyer for his services only if the lawsuit is successful or favourably settled out of court.12

9 It is important to note that because of its common association with the standard contingency fee charged by American lawyers, which generally takes the form of a percentage of the monetary damages recovered, contingency fees have been mistakenly taken to necessarily include this characteristic. This is the position in England13 and may well be the position that Singapore takes,14 although not every jurisdiction

subscribes to such a view.15 As such, one must be careful, when considering criticisms against contingency fees, to identify the specific characteristic of contingency fees that is being criticised and refrain from condemning all the various forms of contingency fees since some may not share this characteristic.

10 As the above discussion indicates, there are several types of contingency fees. The one characteristic that they all share is the “no win, no pay” feature, which shifts the risk of the plaintiff’s legal costs of litigation, in the event that he is unsuccessful, to his lawyer.16 Apart from this feature, the nature of the compensation varies, as the following description of the various types of contingency fees shows:

(a) Speculative fee. Under a speculative fee arrangement, a lawyer agrees with the client that he will charge the client his normal hourly fee only if a settlement is arrived at or if the case is successfully litigated.17 As such, the lawyer’s fees are tied to the number of hours he works.

(b) Conditional fee. Also known as “uplift fees”, the conditional fee is almost identical to the speculative fee, except that the lawyer and client agree upon a percentage premium, called an “uplift”, which is added to the lawyer’s normal fee in the event of success.18 So for example, if a lawyer and his client agree to a conditional fee with a 20% uplift, the former would get his normal hourly fees plus 20% of this figure if, and only if, his client succeeds in...

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