Preparing for any contingency

There are many preconceptions about contingency fees (CFs), but only one reality: practitioners regulated by the Solicitors Code of Conduct rule 2.04 are prohibited from entering into CFs in contentious business except as permitted by statute or common law.

Given the definition of 'contentious business' as it currently appears in s.87(1) of the Solicitors Act 1974, this leads to the bizarre corollary that we can use CFs to fund all sorts of so-called 'non-contentious' business that is directly comparable with what is officially 'contentious' work, and indeed do extensively (for the distinction, see rule 24 of the Solicitors Code). So we can use CFs in all-or-nothing, bitterly disputed, supposedly non-contentious cases in the employment tribunal '“ where a win may be the claimant lawyer's only realistic chance of being paid '“ but we cannot use them in the routine but relatively amicable contract disputes in the county courts where the 'loser pays' result is certain.

However the renewed interest in CFs raises the debate away from semantics and to the higher plateau of access to justice, and stems not only from that core ideal but one of its offspring '“ the holy grail of proportionality.

Misconceived anxieties

The original focus of pro-CF campaigners followed from the growth in multi-party tort claims in the mid 1980s, and the major funding headaches those gave the claimants. But more recently the Civil Justice Council (CJC), both in 2005 and in 2007, has called for their role to be reviewed as an obvious mechanism to fill the funding gap that continues to blight us in the post civil legal aid world. Its focus included concern about the funding of consumer disputes, with particular regard to the growing likelihood of the new form of collective redress action emerging. Research commissioned by the CJC, including an analysis of the much-pilloried US system by Professor Richard Moorhead and senior costs judge Peter Hurst, showed that many of our anxieties about CFs might be misconceived and the Master of the Rolls has acknowledged that the time may be coming when some form of CF may be desirable (see https://ssrn.com/abstract=1302843).

More recently, however, Jackson LJ's fundamental review of civil costs has identified the potential for CFs to deliver costs directly proportionate to the amount in dispute. At a recent discussion with him, attending members of a wide cross-section of London litigators showed significant support for CFs to be made available to fund medium-level commercial disputes. Not least, the Law Society has issued a consultation paper seeking the views of the profession as to whether it should review its policy on CFs with a view to increasing access to justice and developing new business opportunities. Quite rightly, the paper therefore also addresses the linked issue of third-party funding (or 'off-case contingency fees' as they might be called). The Law Society consultation document setting out the pros and cons and an online response form is to be found at www.lawsociety.org.uk. Consultation closes at the end of March.

Only in the event of success

So what form might our own CFs take? Our only current definition is set out in the Solicitors Code of Conduct, which states that they are 'a sum payable only in the event of success'(rule 9.01(6)). That gives us a considerable degree of scope to create something specific that is flexible to our needs, and which deals with our residual anxieties and avoids the early disasters of conditional fees which led Professor John Peysner to describe them as 'resplendent in Byzantine complexity'.

So we should look for three things: simplicity, flexibility, and light but effective regulation. There is no reason why CFs need involve any change to the cost shifting rule. They could simply be a capped fee CFA, supported by funding to meet adverse cost risks. Inter-party cost could be assessed on the normal basis, and payable either up to the CF percentage or at the percentage with any excess falling on an informed and agreeing client. Certain types of damages could be excluded, for example certain (or all) personal injury damages. The mathematics are such that they would not work as a straight percentage regime in lower value cases. In some areas they might only be utilised if no other funding tool is available. The permutations are many. Linked to removing the restriction that prevents solicitors acting as third-party funders they would allow talented solicitors to deliver access to justice in the diverse areas where, currently, they cannot.

CFAs have shown us that ethical anxieties about contingent fees have been misplaced. We need to start working out how they could work in the knowledge that they will be permitted.