Understanding Contingent Fee Model


The legal services market is characterised by asymmetry of information that exists ex ante, before signing contract signing a contract between the customer and the lawyer. At least two types of such information asymmetry can be distinguished: the first is manifested in the fact that the client when of the contract, is aware of the possibility of obtaining compensation to a greater extent than the lawyer, the second type of information asymmetry is explained by the fact that a lawyer knows the law than the customer.

Let’s consider the first type of information asymmetry. Customer must select the type of contract to be signed with the lawyer and chooses from hourly wages or contingent compensation.

The most common way of remuneration of a lawyer is an hourly fee for its services. It is believed that the time spent by the lawyer adds value to the services provided. There is another way to pay for such services – contingent consideration (contingent fee). Contingent consideration is an agreement between a lawyer and client, enshrined in the Treaty, according to which lawyer’s compensation depends on the outcome of the case.

Contingent fee is traditionally a matter of acute disputes. In the US, such contracts are usually used by lawyers of the plaintiffs and rarely by defendants’ lawyers. However, in many other countries with common law and civil law, they are banned or severely restricted. Until recently, Germany and Spain were the only countries of continental legal family, where conditional fee lawyers were allowed. In 1995, a kind of contingent consideration was permitted in England. In England, the roots of the prohibition of contingent consideration can be found in medieval legal conflicts that were the tools of a power struggle between the feudal nobility and the crown. The purpose of the ban was to prevent the contingent consideration litigation.

Nowadays England takes advantage of contingent fee system in its modified form to the full extent with numerous firms and agencies. The latest major legal adjustment was adopted in 2013, heralding the era of occupying the web by legal agencies. Forster Dean is one of the largest UK no win no fee and motoring solicitors running a good number of offices throughout the country: Continue reading