How lawyers could boost earnings by taking share of any damages payout

Joshua Rozenberg
9 Dec 2008

Both consumers and businesses could be worse off under plans to reform the civil claims system, according to a City solicitor.

John Meltzer, head of product liability at Lovells, has represented pharmaceutical, tobacco and other manufacturers in collective actions brought in Britain and the US, including the MMR vaccine group action by patients. But he says that defendants will not be the only ones to suffer from what could be a "toxic concoction" if reforms under consideration here and in the EU are introduced without adequate checks and balances.

Last month, a fundamental review of the cost of civil litigation was commissioned by Sir Anthony Clarke, who heads the civil courts as Master of the Rolls. At his request, Lord Justice Jackson will examine the US system of litigation - under which lawyers can work on a contingency fee system. Instead of the winner's lawyers getting their costs paid by the losing side, they may take a share of the damages - generally around one-third.

English lawyers have regarded it improper to have a commercial interest in their cases for centuries and contingency fees have been banned since 1275. But the law has recently permitted conditional fee agreements, under which lawyers are paid nothing if they lose but as much as double their normal fee if they win. Now, though, contingency fees are firmly back on the agenda.

The Civil Justice Council, chaired by Sir Anthony, has recently published research suggesting they could be used effectively in England and Wales, at least in higher-value claims. In the US, British researchers found a "surprising absence of evidence of consumer disquiet about contingency fees".

But Meltzer says that lawyers who receive a percentage of their clients' winnings will have a strong incentive to put their own interests before those of their clients. "US lawyers will settle when it suits them to do so," he says. "They may need a return on their investment or want to move on to the next case. Clients do not receive independent advice."

Meltzer also questions the report's conclusion that "contingency fees do not appear to promote high rates of litigation, frivolous claims, or a litigation culture". He points out that this was based on a single study of accidental injuries published in 1991.

Meanwhile, the EU Consumer Commissioner, Meglena Kuneva, has just published a consultation paper on collective redress. This considers ways of making it easier for consumers across Europe to bring joint claims for compensation. The commission rules out what it calls a "toxic cocktail" of elements supporting class actions in the US: contingency fees, punitively high damages, advance disclosure of the defendant's commercial position and an opt-out rule that brings all victims of the same malpractice into a claim unless they have asked to be removed.

But a similar rule features in one of its suggested options for a Europe-wide judicial collective redress procedure. "Opt-out solutions might mitigate some of the difficulties of the opt-in systems," the commission says.

European Union chiefs admit "they are often viewed negatively in Europe due to the perceived risk of encouraging the excessive litigation experienced in some non-European jurisdictions". But the Commission believes that a system could be designed "to avoid such a risk". Meltzer doubts whether the EU has power to impose a uniform collective redress system across Europe. "It would need to show that the present system is a barrier to trade or distorts competition," he explains.

In any event, he is wary of the idea. "Collective redress mechanisms actions, particularly the opt-out variety, have a tendency to promote excessive and unmeritorious claims.

"Unless proper safeguards are put in place, the combination of contingency fees and collective redress mechanisms in the UK could easily lead to the sort of abuses that are legendary in the US."