September 15, 2005

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Hong Kong Contingency Fees

Hong Kong's Law Reform Commission is trying the old faithful, contingency fees or no win, no fee for certain civil cases. I like to think they are following my humble suggestions from February after the lawyers again complained they weren't paid enough by legal aid.

Contingency fees help that mythical but favourite beast, "the squeezed middle class", who don't qualify for legal aid but can't afford lawyer's fees. Contingency fees are a wonderful idea. Those with a case but without enough money can still have their day in court, knowing that if they lose they do not face financial ruin. The lawyers can compete on a commercial basis, claiming cases on their ability to win them. The lawyers also act as a brake on frivilous cases, as no lawyer will take on cases they see no prospects of winning.

The relevant closed shops welcome the deal with their traditional "it's great in theory..." line:

Bar Association vice chairman Andrew Bruce said the commission is highly respected and that the Bar looked forward to being consulted on the issue.

However, he added, this was "something we should be very cautious about." Bruce feared that commercial considerations might undermine the primary consideration of independent legal advice. "To us, access to justice means access to quality justice: legal advice which is truly independent," he said.

You see a lawyer would never consider the money an important part of their advice. It's all about the law and being an officer of the court. If having an artificial distinction between barristers and solicitors leads to higher fees, that's the cost of "quality justice". If having a self-regulating body that deliberately limits competition amongst its members results in higher fees, that's the cost of "quality justice". If these same bodies deliberately restrict the number of new entrants to their ranks and thereby ensure demand always exceeds supply, that's the cost of "quality justice". (Note you can easily substitute the words doctor for lawyer and justice for medicine here.) The SCMP has more of the lawyer's cautions on this "double-edged sword":
Law Society president Peter Lo Chi-lik said that according to the traditional argument against conditional fees, giving lawyers a bigger stake in a case's outcome creates temptation to "bend the rules".

He also said while such an arrangement may enhance access to justice for those who wish to sue, it may also inadvertently encourage nuisance lawsuits.

The threats of disbarment, fines and even jail for "bending the rules" should be enough to counter those temptations. We've dealt with the idea of nuisance lawsuits already - if a lawyer isn't getting paid unless they win the case, they'll prove a very effective filter against such cases. Wait until the Law Society imply we're moving towards "American style litigation". America has long had contingency fees, but that's not the problem with their legal system. If anything, that's one of its strengths. The problems are in torts and other areas. But it's always a nice bogeyman to throw out their to scare the punters.

It boils down to this: lawyers will hide behind high minded notions of "balancing principles and value judgments". Unfortunately for them, a competitive market has proved extremely adept at doing just that. The biggest hint that contingency fees are a good idea is the obvious one: that lawyers don't like it. If they are fighting the idea, it's because they know full well they are giving something up. It will be their clients who will take the gains, but clients are a diverse, diffuse and poorly represented group. It's the age-old problem of micro-economic reform. A small special interest group will bleat loudly about their potential losses, while the gains are spread widely amongst the wider public. If only their were representatives of that public interest.

But the last word must lie with retiring District Court judge Fergal Sweeney, from the SCMP:

The Justice Department yesterday defended private lawyers hired to prosecute complex commercial crime cases after a retiring judge was quoted as saying many were lap sap, or rubbish.

District Court judge Fergal Sweeney, who will retire tomorrow, told Ming Pao that taxpayers' money was wasted as many defendants who should have been convicted were acquitted because of these lawyers.

The judge was reported to have said 20 per cent of them were lap sap but yesterday he told the South China Morning Post there had been a misunderstanding.

Underestimation or misunderstanding? These are the comments of a judge that has dealt with lawyers full time for years.

Other Reading

Fumier comments on contingency fees and notes it's nothing new.

posted by Simon on 09.15.05 at 07:04 PM in the Hong Kong category.


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As far as I remember, after the introduction of the no-win-no-fee reform in England and Wales in the late 90s, litigants do not pay less – solicitors tend to charge high uplift. Is it the result of high information costs in the legal services market? Perfect price competition seems to be quite impossible: since litigants may not have the abilities to judge the ability and performance of the solicitors, they are willing to pay for a premium?

posted by: Letters from China on 09.15.05 at 07:25 PM [permalink]

Information asymmetry is a massive problem. That is a danger in contingency fees - that lawyers end up charing higher fees as a sort of "insurance premium" because they have less certainty in their fee income.

In such cases there is a legitimate need for regulation...and not by the profession itself. It is a market failure. Either the Government caps the contingency fees chargeable or in some other patrols for "excessive" fees. Or even better, make lawyers open to charges of incompetence and normal professional indemnity issues. Or introduce any number of measures to force the lawyers to actually compete rather than collude. That helps reduce the market imbalance and reduces information costs.

posted by: Simon on 09.15.05 at 07:32 PM [permalink]


Regulating the legal profession? You may be interested in this article on The Economoist explaining why it is so difficult to regulate lawyers and doctors:
(I guess you may have read it.)

posted by: Letters from China on 09.16.05 at 11:40 AM [permalink]

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