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ARTICLE 39A V/s. CONDITIONAL FEE AGREEMENTS

ARTICLE 39A V/s. CONDITIONAL FEE AGREEMENTS

By Altamash Kadir

 

INTRODUCTION:

The systematic preference of either the rights of the service provider or the receiver of the said services is unjust, as it breeds a world that is more susceptible to the evolution of a preference into a right.

Recently, the BCI Case[1] concluded and it created an emphasis on how the Indian legal system condones of third party funding existing in litigation.

However, although it may seem unimportant, what the obiter dicta  of the judgement reaffirmed is pivotal in understanding the Indian mechanism for the calculation of the fees that lawyers receive. Champerty i.e. funding their client’s litigation as third parties is prohibited for lawyers,[2] as they are not allowed to stipulate their fees contingent on or share the proceeds that the Client receives as damages or compensation as the outcome of a judgement.[3]

To understand the pertinence of this reaffirmation, it necessary to understand how conditional fee agreements operate.

 

CONDITIONAL FEE AGREEMENTS:

A conditional fee agreement[4] or a “no win, no fee”[5] system is the fee that is charged for a lawyer's services only if the lawsuit is successful or is favourably settled out of court:[6]

a favourable outcome for the client would be tantamount to the lawyer being paid a pre-decided percentage out of damages received from the court;

however, an unfavourable outcome for the client would be tantamount to the lawyer receiving nothing.

THE ALTERNATIVES USED BY THE INDIAN SYSTEM:

Primarily there are two methods for payment used under the Indian system:

a)     a mechanism contingent on lump sum payments to a lawyer, provided per appearance;

b)    a mechanism contingent on payments contingent on the working hours provided by a law firm.

Fundamentally, both of the mechanisms affect the perception of the legal fraternity in India.

 

LUMP SUM PAYMENTS PROVIDED FOR COURT APPEARANCES:

India having portrayed a history of jurists that are par excellence fundamentally creates a perception of lawyers that is perhaps to not comparable to that of any other nations: that is, that lawyers, especially senior counsels in cities like Mumbai are considered to be larger than what they really are.

This perception creates an industry that is susceptible to normalise an overbooked schedule for lawyers and puts the impetus to accommodate these schedules upon everybody else.[7] This can be attributed to the primary impact of the aforementioned perception, lawyers being able to charge whatever they want to per hearing in the courts.

However, as this mechanism is bred by the virtue of a lump sum being paid per hearing, it makes the entire process susceptible to exploitation by lawyers that choose to elongate the legal process simply to make money.

 

BILLABLE HOURS:

Billable Hours is a fee mechanism that charges a Client for the time a lawyer spends working on the case.[8]

The Billable Hours mechanism is detrimental to the Client in two fold: firstly, as the fee is dependent on the case continuing and not the judgement itself, the mechanism creates a lack of incentive for finishing the case and secondly, the fatigue that can be caused through overworking for the lawyers can produce negative returns.[9]

 

LEGAL PROCEEDINGS IN INDIA:

India is known to have a very slow progression of proceedings in the court of law, with some cases even taking over a couple of decades and a couple of judges to reach their conclusion.

For an example, even the Excise Case[10], which was initially declared a prima facie decision, took more than a year and half to finish.[11]

Perhaps, the payment mechanisms with the aforementioned problems are instrumental in the speed of the progression of these proceedings.

 

THE POSSIBLE IMPACTS OF A CONDITIONAL FEE AGREEMENT:

A fee structure similar to a conditional fee agreement may accrue benefits for the Client in two-fold:

firstly, as it incentivises the lawyer to do their best to finish the case proceedings as soon as possible;

and secondly, as it further incentivises the lawyer to finish those case proceedings as efficiently as possible.

 

LEGAL STANDING ON CONDITIONAL FEE AGREEMENTS:

The Ganga Ram[12] case in 1907 was among the first to clarify upon India’s stand on conditional fee agreements; the nine member bench held that conditional fee agreements were contrary to public policy and to legal ethics as a whole. The problem that arises out of this is there is no more substantiation provided and the case does not really hold up, seeing as how the legal system has evolved at a pace that is unfathomable in the past hundred and twelve years.

The B. Sunitha[13] case perhaps provides with a better reasoning for this. The Supreme Court of India in the case infers from the 131st report of the Law Commission and states

Role of the legal profession in strengthening the administration of justice must be in consonance with the mandate of Article 39A to ensure equal opportunity for access to justice. The legal profession must make its services available to the needy by developing its public sector. It was observed that like public hospitals for medical services, the public sector should have a role in providing legal services for those who cannot afford fee. Maintenance of irreducible minimum standards of the profession is a must for ensuring accountability of the legal profession

It is reasonable to assume that the metric for the determination of the constitutional validity of a conditional fee agreement is imbibed in Article 39A.

The State shall secure that the operation of the legal system promotes justice, on a basis of equal opportunity, and shall, in particular, provide free legal aid, by suitable legislation or schemes or in any other way, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities”

By the virtue of the aforementioned, it is to be ascertained whether the conditional fee mechanism is contrary to the equal opportunity for the access of justice when compared to the other two mechanisms for calculation.

This metric is further affirmed by the Rangadurai case, where the Supreme Court held that

The relation between a lawyer and his client is highly fiduciary in its nature and of a very delicate, exacting, and confidential character requiring a high degree of fidelity and good faith. It is purely a personal relationship, involving the highest personal trust and confidence which cannot be delegated without consent. A lawyer when entrusted with a brief, is expected to follow the norms of professional ethics and try to protect the interests of his clients, in relation to whom he occupies a position of trust. The appellant completely betrayed the trust reposed in him by the complainants

The reasoning provides for a lawyer’s job to be non-exploitative and is implicit about a co-relation to the provision of equal opportunities to justice.

Lastly, the KL Gauba[14] case presents the reasoning on how the model susceptible to exploitation and contrary to the provision of equal opportunities to justice by stating

An advocate who, in his professionl dealings with a client, forgets the principles which are the bedrocks of his profession and insists upon having a personal stake in the result of the litigation, becomes indifferent to the high ethical standards of his profession and can make no useful contribution to the traditions of his profession or to the administration of justice. On the other hand, he does grave disservice to the cause and course of justice. Once detachment and objectivity are lost and the advocate becomes subjectively and personally interested in winning the litigation for himself, he falls from his standards and becomes prone to adopt questionable methods to gain his object. He may take short cuts to finish the litigation or have recourse to compromises or may even fall a victim to the temptation of taking money from both sides. In such a case, pecuniary gain for himself, and not justice, becomes his objective. If such a practice is tolerated, it results in the contamination of the springs of justice, and once the springs of justice are contaminated, the rule of law is shaken to its foundation and the effects of this on the social structure will be far-reaching and appalling. It is, therefore, that such a practice has in India been universally condemned by the judicial authorities as being opposed to public policy

Therefore, it is reasonable to assume that the conditional fee model proven to be beneficial under two circumstances:

a)     where the legal mechanism is evolved to such a level that the initial reasoning or probability is nullified; or

b)    where the alternatives are more susceptible to exploitation and contrary to the provision of equal opportunities to justice.

 

 

 

CONCLUSION:

Fundamentally, what is necessary is to ascertain the scope of the provision of equal opportunities to justice. For the same, the fiduciary duty under the Rangadurai case and the susceptibility to exploitation under the KL Gauba case are to be used to scrutinised the other mechanisms.

Furthermore, this scrutiny is to be compared to the conditional fee mechanism, keeping in mind the status quo.

The indifferent attitude cautioned against in the KL Gauba case can also exist in the billable hours mechanism and the lump sum payment mechanisms, are there can exist to systemic restriction to control the behaviour of an individual. However, the restrictions can exist to punish such behaviour. It is pertinent to understand that there exist to restrictions on either of the mechanisms right now.

Hypothetically, it is reasonable to assume that a lawyer receiving a lump sum amount beforehand has no further incentive to make sure the case ends.

Additionally, both the mechanisms are contingent on the elongation of the case for there to be a maximisation in the payments lawyers receive, as billable hours are literally a method of payment based on the time put on the case and each hearing charges the lump sum.

The personal interest that can lead to shortcuts is another aspect cautioned against in the case. However, it is reasonable to assume that a case that ends by the virtue of these shortcuts is not one that is won by the lawyer taking the shortcut. In this circumstance, the lawyer receives no monetary reward and therefore, is not likely to pursue these shortcuts.

The illegal mechanisms like bribery that are cautioned against can simply be dealt with the due process of the law. India does go away with the democratic mechanism of governance simply due to there being susceptibility for corruption, simply because the due process of the law is capable to deal with corruption.

It is intuitive to argue that the judgements pertaining to the conditional fee agreements exist in a bubble; a bubble that is content with the idea of a binary between good and bad. This binary never chooses to test the mechanism in how it would either be implemented in the status quo or how the mechanism fares against the alternatives. The inherent believe that the law is a noble profession with no susceptibility for exploitation for the purposes of personal gain, unless this mechanism is used is unfounded, as all the mechanisms are equally prone to the problem, it is human nature.

However, there can be a solution to this: operating in a world where all of the mechanisms are permitted.

A problem arises out of the aforementioned too though, the very same susceptibility to exploitation. However, it can be dealt with by the creation of caps on how much lawyers can charge, if that is the primary condition for the legal fraternity to agree to the mechanism.

As having fee that is conditional on the judgement is prohibited in India, the mechanism lawyers resort to is the billable hours or the lump sum mechanism.

The mechanisms proves to be counter-intuitive, as it proves to favour the elongation of cases for firms and has a possibility of exploitation of the clients attached to it. In a nation where the progression of cases is already slow, this mechanism can be used to make those cases even longer, because now, the cases are only a money-making move for lawyers and not something that their own earnings and in turn, their own lives are contingent on the outcome of the case being favourable and fast.

It can prove to be beneficial for a nation like India to prescribe the usage of conditional fees as the mechanism for the calculation of the fee the lawyers receive, as now, they can be incentivised to perform their optimum best at a case and not just strive to elongated the proceedings.


[1] See, Bar Council of India v. A.K. Balaji and Ors, (2018) 5 SCC 379.

[2] Ibid, ¶35.

[3] See, Rule 20 of Bar Council of India Rules in Chapter VI Part II.

[4] See, Rothwell, Rachel, "Success fees: a word of warning", The Law Society Gazette, 2015 at https://www.lawgazette.co.uk/comment-and-opinion/success-fees-a-word-of-warning/5050634.article.

[5] See, Larson, Aaron, "Lawyer Fee Agreements and Retainers", ExpertLaw.com, 2017 at https://www.expertlaw.com/library/consumer-protection/lawyer-fee-agreements-and-retainers.

[6] Black's Law Dictionary (8th ed. 2004), p.338.

[7] E.g., Nick Robinson, 'Failed by the Lawyer', the Hindu, 2013 at https://www.thehindu.com/opinion/op-ed/failed-by-the-lawyer/article4885640.ece

[8] See, Eli Mattern, “Understanding Billable Hours”, Student Appeal, 2011 at https://thestudentappeal.com/understanding-billable-hours-fd14db8b23b0.

[9] Steven J. Harper, "The Tyranny of the Billable Hour", The New York Times, 2013 at https://www.nytimes.com/2013/03/29/opinion/the-case-against-the-law-firm-billable-hour.html.

[10] The Commission of Central Excise Vishakhapatnam v. M/s. Mehta & Co, (2011) 3 SCC.

[11] Alok Prasanna Kumar, “Delayed justice: When judgement day arrives too late”, Live Mint, 2016 at https://www.livemint.com/Politics/AaR91YL6KuVo3ZcN3q3JfO/Delayed-justice-When-judgement-day-arrives-too-late.html.

[12] See, Ganga Ram v. Devi Das, 61 P.R. (1907).

[13] B. Sunitha v. The State of Telengana& Anr, Criminal Appeal no. 2068 of 2017.

[14] K.L. Gauba v. State of Maharashtra, AIR 1954 Bom 478.

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