Conditional fees bonanza

An over abundance of lawyers does not reduce fat cats' fees ... Anti-competitive rules disguised as ethical principles ... Why are conditional fees banned in criminal cases? ... They're not entirely ... Lionel Murphy and Freehills ... Tulkinghorn explores

A hungry dog: in plentiful supplyThe legal profession is stratified, with fat cats at the top earning lots, and hungry dogs at the bottom (see Tulkinghorn - The Establishment v The Upstarts  26 June 2007).

While other leading professions have controlled their numbers ruthlessly, (by shutting down medical schools, for example) there's a plentiful supply of lawyer "hungry dogs".

"Today there are 32 law schools in Australia, more than ten times as many as in 1885. Given Australia's population of around 22 million people, on a per capita basis this is more than twice as many law schools as in the United States (200 accredited law schools for around 310 million people)."

The plentiful supply should promote competition and thus reduce the fat cats' fees, but it doesn't.

Major restrictions on competition were created by the legal profession, and the key period in England was between 1859 and 1863.

Prior to that, laissez faire had largely prevailed in the economics of the lawyer client relationship, but from then on such behaviour was condemned as being too "commercial". 

Ever since, learned articles have used up much ink contrasting "professionalism" (whatever that is) with commercialism (somewhat bad).  For an example see here.

Wesley Pue: Moral Panic at the English BarThe policies against "commercialism" actually operated as bans on the sorts of fee contracts that clients wanted, which would have enabled the hungry dogs to take on the fat cats.

Canadian law professor Wesley Pue in Moral Panic at the English Bar: Paternal vs. Commercial Ideologies of Legal Practice in the 1860s says: 

"The only viable means of attaining eminence at the bar for individuals who were not well connected lay in precisely those sorts of  'commercial'  practices - direct client contact, fee cutting, conditional fee arrangements, special commercial arrangements with clients or attorneys - which were condemned in the dominant model of barristering."

The case of Kennedy v Broun in 1862 contains much comment on these issues, and reveals that "ethical" rules were particularly aimed at preventing the offering of credit and no win no fee deals (conditional fee deals). A judge is quoted, who said :

"It is understood that [barristers'] emoluments are not to depend on the event of the cause, but that their compensation is to be equally the same whether the event be successful or unsuccessful. They are to be paid beforehand, because they are not to be left to the chance whether they shall ultimately get their fees or not... It is their duty to take care, if they have fees, that they have them beforehand; and therefore the law will not allow them any remedy, if they disregard their duty in that respect."

Disguising anti competition rules  as "ethical" rules  requires a lot of sophistry and frequent amendment as market conditions change.

Much of what was said in Kennedy v Broun has been replaced by more sophisticated "ethics". Some conditional fee deals are now allowed. In practice, in civil cases,  lawyers cherry pick the "winners" and misrepresent the level of risk, and use that misrepresentation to justify (to the clients) fee markups of up to 100 percent.

In 2001 the UK Court of Appeal said that in conditional fee personal injury traffic cases, "There was some statistical support for a success rate in respect of such claims of up to 98 per cent".

There is another change too, in the UK.

Plaintiff clients are allowed to take out insurance against losing and having to pay "loser pays" costs to the defendant. Better still, the cost of buying such an insurance policy can be dumped onto the defendant in those 98 percent of cases.

A fat cat, with feesIt is easy to see why conditional fee contracts are now "ethically" acceptable. Obscene amounts of legal fees can now be raked in by fat cats and hungry dogs alike, at almost no downside risk, and defendant insurers  are forking out more to plaintiff lawyers than they are to plaintiffs themselves.

In England, the government is being forced to rein plaintiff lawyers in, because:

"Statistics provided by insurers show that in 1999 claimant solicitors' costs were equivalent to just over half the damages agreed, or awarded at 56 per cent. By 2004, average claimant costs were 103 per cent of the damages. By 2010 average claimant costs represented 142 per cent of the sums received by the injured victims."

But the "ethical" green light for "no win no fee" doesn't extend to criminal cases.

A no win no fee agreement is a "conditional costs agreement" (see NSW legislation, which is mirrored in Victoria and Queensland). These enactments say:

"A conditional costs agreement may relate to any matter, except a matter that involves  criminal  proceedings."

So why are conditional fees OK in civil matters, but banned in criminal matters? 

I suspect that if left to their own competitive devices, newly minted barristers wishing to get established and to specialise in criminal law, would offer no win no fee deals to "guilty as sin" criminal clients.

They would probably also offer credit: the client could pay after the event. By the time these new barristers had wised up (virtually no client would ever pay - win or lose - and most would lose) there would be a new crop of naïve barristers ready to be milked by the crims.

The effects of such a permissive policy would soon be felt by the fat cat leaders of the criminal defence bar.

Despite the bans, conditional fees in criminal matters do exist because successful defendants can demand that their lawyers be paid by the state, if they win.

The NSW Local Court Bench Book is the official comprehensive guide for magistrates for the conduct of civil and criminal practice and procedure in the Local Court of New South Wales. It says:

"Costs may be awarded to successful parties in criminal proceedings in the local court pursuant to four statutes: Criminal Procedure Act 1986, Costs in Criminal Cases Act 1967, Crimes Act 1900 and the Suitors' Fund Act 1951."

There is also an interesting provision in the NSW legal aid payment criteria:

"Solicitors and counsel in criminal matters will be paid at a rate of 175 percent of the legal aid fee rates when;

 An order for costs is made in favour of the legally aided accused person ... " etc. 

In practice, if, but only if, a criminal defence lawyer gets the client off, then the lawyer gets extra money from the state.

One can be sure that the fee arrangements that have been made will be flexible enough to allow that money to inflate the overall bill that was otherwise going to be charged.   

Lionel Murphy: government paid FreehillsThe new book about Freehills throws some light on conditional fees in criminal cases, with reference to the Lionel Murphy trials.

"In April 1985, soon after [High Court Justice Lionel] Murphy had been committed to stand trial on two charges of attempting to pervert the course of justice, [he said he] ... wanted Freehills to defend him ... [Freehills agreed] ...That the firm should take on the case without charge 'except what could be recovered from the Crown'."

Murphy was not on legal aid, and was paying the lawyers' disbursements.

The "fees" deal, as I see it, meant that if Murphy got off his lawyers might get some extra money, but if not then apart from being repaid "out of pocket" expenses, they would get nothing.

Murphy was tried, and found guilty, but he was given a retrial, and got off. After that, the government paid $420,000 to help meet his legal costs, which presumably found its way to his lawyers.

The only clients who can "safely" be offered conditional fees are genuinely innocent ones. 

We could have a legal system where criminal defence lawyers were seeking out the genuinely innocent and offering them conditional fee deals.

Pity that it's "unethical".