Allowing Lawyers to Charge Contingency Fees: Impact on The Legal Services Market

– Shubhangi Maheshwari

A contingency fee is a contractual arrangement between a client and an advocate in which the advocate’s fee depends on the outcome of the case. The lawyer agrees to make his fee contingent upon the success of his representation and recovery of a sum of money and the fee charged is a percentage of the recovery. While this system is prevalent in countries like the USA, Canada, South Korea etc., India does not allow charging contingent fees. The Bar Council of India strictly prohibits the lawyers from charging contingent fees to their clients.

“Rule 20: An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.”

Such agreements are believed to adversely affect advocate’s ability to act objectively and in a detached manner as an officer of the court and are considered to hinder the administration of justice. Having a financial interest in the outcome of the case may create perverse incentives for lawyers to resort to unscrupulous practices in order to win the case, which would be detrimental to the interests of justice. It is primarily for such ethical considerations that contingency fees arrangements are not allowed in India.

This essay attempts to study the impact on various stakeholders of the market for legal services, if contingency fees arrangements are allowed in India. The analysis has been done from the perspective of economic efficiency only. The ethical concerns arising from such systems remain out of the scope of this essay. Section one traces the effect of contingency fees system on the litigants; section two deals with the possible advantages
which lawyers can derive from such arrangements; section three studies how the government and the court machinery will benefit from this arrangement and the last section focuses on the problems that can arise out of such agreements.

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