Counting the cost

What place might contingency fees have in large-scale commercial cases and what are the associated problems for such fee models? asks Richard East

If the controversial recommendations in Lord Jackson's recent report are adopted then lawyers in England and Wales will for the first time be able to take a slice of their client's damages.

My own view is that it will take some time for the market to adjust but such contingencies fees have the potential to change the shape of major commercial litigation.

A firm's own financial success becomes tied not to the volume or intensity of its cases but to their outcome and, more specifically, to the ultimate recovery. There is an attractive logic in achieving such a close alignment between the interests of the client and those of its lawyers, all the more so in the case of a commercial client focused on its bottom line. If a law firm knows that it may not get paid for the time spent on an interlocutory application or extensive document review then it will think long and hard about whether those steps are really necessary.

But the illustration also reveals the problems inherent in a pure contingency fee arrangement. Even if the firm wins then the time spent on that interlocutory application and document review will have eroded its overall profit. Better, therefore, for the firm to run the case (and all its other cases) on a shoestring. Such minimalism inevitably compromises quality. Key facts may be overlooked or legal points inadequately researched. There is a powerful incentive for the firm to settle the case as soon as possible.
My prediction, therefore, is that although contingency fees are likely to play a significant part in heavy commercial litigation, they will only be an element of the fee structure.

After all, it is unrealistic for a client to ask a firm to put its very solvency on the line for a single case. In any event, it seems to me inevitable that the introduction of contingency fees will promote an increasingly entrepreneurial market in litigation services. Creative fee structures and the balance between "base" costs and the contingency element are likely to be important differentiators between providers.
 
Richard East, Partner
Quinn Emanuel Urquhart & Sullivan UK LLP

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