1

CONTINGENT FEE AND ETHICS

TABLE OF CASES
AMERICAN CASES
1.
2.
3.
4.
5.
6.
7.

Bernier v. Burris, 497 N.E. 2d 763 (1986).

Fienberg v. Harney & Moore, 493 US 852 (1989).
Hall v. Cole, 412 U.S. 1 (1973).
McInerney v. Massasoit Greyhound Ass'n, Inc., 269 N.E.2d 211, 217 (1971).
McMicken v. Perin, 15 Law. Edn. 504 & 505.
Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980).
Walters v. National Associations of Radiation Survivors, 473 US 715 (1990).

ENGLISH CASES
1.
2.
3.
4.

Aratra Potato Co. Ltd v Taylor Joynson Garrett, 1995] 4 All E.R. 695 (QBD).
Callery v. Gray, [2001] 4 All ER 1.
Wallersteiner v. Moir, [1975] Q.B. 373.
Wylde v Simpson, 1919] 2 KB 544.

INDIAN CASES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Achamparambath Cheria Kunhammu v. William Sydenham Ganty, I.L.R. 3 Mad. 138.

Attorney General v. Rustamji B. Sunawala, 14 Bom LR 691.
Ganga Ram v. Devi Das, 61 P.R. (1907).
In re an Advocate of the Madras High Court, I.L.R. 1940 Mad. 17.
In re K.L. Gauba, AIR 1954 Bom 478.
In re N. F. Bhandara, 3 Bom. L.R. 102.
In the matter of a Pleader of the Chief Court of Punjab, 69 PR 1904.
In the matter of an Advocate of the Calcutta High Court, 4 Cal L.J. 259).
In the matter of Moung Htoon Oung 21 W.R. 297.
Kathu v. Vishwannath, AIR 1925 Bom. 470.
P. Venkatadri Sastri v. Sardar Kesri, 1975 (2) APLJ 180.
Rajendra Pai v. Alex Fernandes and Ors.(2002) 4 SCC 212.
Ram Coomar v. Coondoo, (4 IA 23).

DECISIONS OF THE DISCIPLINARY COMMITTEE OF THE BAR COUNCIL OF INDIA

1. H.G. Kulkarni v. & Ors. v. B.B. Subedar, D.C. Appeal no. 40/1996.
2. Rajendra Pai v. Alex Fernandes and Ors., D.C. Appeal No. 11/2000.

I.INTRODUCTION
Contingency fee arrangement is one of the hallmarks of litigation in the United States. The
system developed from a once illegal practice to an essential element of the American legal
system that allows people who could not otherwise afford an attorney to gain access to the
courts. For example, a woman referred to as Judy White (not her real name) had a twenty one
year old, who died of lung cancer caused due to cigarette smoking. Mrs. White could not
have brought suit against the multinational tobacco company if she could not find an attorney
to take the case on a contingency fee basis because of her husbands disability and poor
economic status.

This is a fundamental example of how the discontinuance of the

contingency fee system may place the average American citizen especially the one who has
been catastrophically injured by an unsafe product or a doctors carelessness, and who does
not have the means to be able to afford the high costs of litigation to seek justice. In the
absence of the contingency fee system, many attorneys representing plaintiffs like Mrs. White
would accept work only from the clients who can afford their hourly rates. 1
The example can be modified and contextualized in the case of India. Consider the case of a
poor farmer owning four acres of agricultural land near Karwar. His lands are acquired as a
part of the construction plans for a naval base and he is offered a pittance as compensation.
He wants to agitate the matter and claim a higher compensation. In such a situation as the
legal profession is organized today he has to engage an advocate, pay his fees, court fee, costs
of drafting and other ministerial expenses before he cane proceed with the case. In case he
does not obtain a favourable order he has to approach the High Court at Bangalore for further
relief. Now in such a situation it becomes difficult for such a person to sustain the litigation,
as the loss of land has in fact taken away his means of livelihood and in such a circumstance
he would be unable to pursue his case even at the district level. It is such situations that one
considers that if India also like the American system could allow contingency fee
arrangement, this poor farmer would be able to get the much needed legal counsel and would
not go unrepresented merely because he did not have the means to pay for agitating his just
claims.

Kristin A. Porcu, Protecting The Poor: The Dangers Of Altering The Contingency Fee System, Suffolk Journal
of Trial and Appellate Advocacy, 149, 151 (2000) [Hereinafter Porcu].

However, this is not to say that the contingency fee system is perfect. It is possible for
advocates to abuse the system, often resulting in exceedingly large fees as in the case of
Rajendra Pai v. Alex, which has been dealt with in greater detail in the subsequent parts of
this paper. Sometimes the contingent fee cases are settled relatively easily and in such cases
a fee based on a percentage of the settlement, may not accurately represent the effort put forth
by the lawyer.
This paper seeks to make a comparative study of the American, English and the Indian legal
systems in so far as the payment of the legal practitioners fees is concerned. It studies the
manner in which contingency fees is implemented in the American legal system and the
operation of the conditional fee agreements in the English legal system. It also analyses the
ethical issues involved in the contingency fee arrangements. Finally, it goes on to study the
Indian legal system and whether the contingency fees would be relevant in the Indian
context.

II. RESEARCH METHODOLOGY

1.AIMS AND OBJECTIVES: This project is an attempt to study the contingency fee system as it
exists in the USA and to examine whether the same could be extended to the system of
payment of professional fees of the advocates in the Indian legal system also.
2. RESEARCH QUESTIONS: In pursuance of the above the researcher felt that the
following questions needed to be answered:
2.1. What are salient feature of a contingency fee arrangement?
2.2. how has it worked over the year in the American legal system?
2.3. What is the obtaining practice in the United Kingdom? Does any similar
arrangement exit?
2.4. What is prevalent practice with regard to the payment of the advocates fee in India?
2.5. Is the system of contingency fee relevant in the Indian context?
3. METHOD OF ANALYSIS: The project is descriptive to the extent that it describes and
elaborates on the obtaining practices in the different jurisdictions and the facts of the
cases. It is analytical in so far it tries to study, compare and evaluate the manner in which
the traditional views with regard to the legal profession have changed even in England
which is treated as the precursor to the modern day organised legal systems. It also
analyses as to how the legal profession of a soon to be globalised India continues hold on
to the ethos of the past even as the legal profession is about to be opened for foreign
competition.
4. SCOPE AND LIMITATIONS: one of the major limitation that the researcher faced in the
course of the study was the lack of Indian writings about the topic. Apart from this no
particular limitations were faced while doing the project.
5. STYLE OF FOOTNOTING: All ideas that are not the researchers own have been duly
cited and in pursuance of this, a uniform style of footnoting has been adopted.
6. SOURCES OF DATA: The sources of data are largely secondary in nature. The electronic
resources available at Westlaw.com have been used extensively.

III. CONTINGENT FEE AGREEMENTS: THE PRACTICE IN UNITED STATES OF

AMERICA
CONTINGENCY FEE AGREEMENTS: THE CONCEPT EXPLAINED
Fee agreements between attorneys and their clients can be based on any number of factors,
but two approaches are common in civil litigation, i.e., certain fees based on fixed or
hourly charges, or contingent fees based on a percentage of the recovery obtained. 2 Under
the certain fee arrangement, the clients are expected to pay legal fees regardless of the result
obtained, thus forcing the client to bear the primary financial risk of the litigation. Contingent
fee agreements on the other hand allows the clients who are unwilling or unable to finance
their own litigation to pursue their claims by promising a portion of any future recovery to
the attorney in exchange for the attorneys assumption of financial risk associated with
attorneys fees and, in some cases, even the other associated costs of pursuing the litigation. 3
These agreements may create a lien in favour of the attorney on any recovery. 4
Contingent fee arrangements are exceptions to ancient prohibitions against the practices of
maintenance and champerty5. Such prohibitions were rooted in concerns that financing
anothers legal claims and transferring rights affecting such claims to someone besides the
claimant may encourage frivolous and harassing litigation. Modern rules of professional
ethics governing the profession in countries like the USA, New Zealand, Australia, France
and Japan have relaxed these constraints considerably, but they still affect many aspects of
modern litigation practices, including the terms of the lawyer-client relationship and the
conduct of non-lawyers in financing litigation. 6 For instance, despite accommodating

The percentage received by the lawyers is normally, thirty-three percent to forty percent of gross recoveries.
See, Edward A. Morse, Taxing Plaintiffs: A Look At Tax Accounting For Attorney's Fees And
Litigation Costs, Dickinson Law Review 405, 411 (Winter 2003) [Hereinafter Morse].
3
Id
4
In the USA the nature of this lien may differ from State to State.
5
Champerty is a bargain between a stranger and a party to a lawsuit by which the stranger pursues the partys
claim in consideration of receiving part of any judgment proceeds; it is one type of maintenance, the more
general term which refers to maintaining, supporting, or promoting another persons litigation.
McInerney v. Massasoit Greyhound Ass'n, Inc., 269 N.E.2d 211, 217 (1971). The Court overruled the doctrine of
champerty and found contingency fees as socially useful.
See Porcu, at 151, Supra note 1.
6
Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency Fees Washington University Law
Quarterly, 739, 745 (Fall 2002) [Hereinafter Kritzer].

contingent fees, the American Bar Association (ABA) Model Rules of Professional Conduct 7
continue prohibit a lawyer from acquiring an interest in the litigation beyond that related to a
reasonable contingent fee8. The Model Rules limit the scope of financial assistance that a
lawyer may provide.9 Advances beyond the scope of this rule, such as the payment of a
clients living expenses, may subject a lawyer to professional discipline. 10
REGULATION OF CONTINGENT FEES ARRANGEMENTS
These contingent fee arrangements are commonly justified as a means of expanding access to
the courts by those who would otherwise lack the resources to finance their own litigation. 11
As Lester Brickman observes:
The champerty doctrine, which prohibits the purchase of litigation rights, is based on
longstanding fears that champertors will encourage frivolous litigation, harass defendants,
increase damages, and resist settlement. In spite of these fears, however, exceptions to the
prohibition on champerty have been commonplace because of the recognition that without
third party support some meritorious plaintiffs who lack the financial wherewithal would not
be able to litigate their claims.12
This justification has also been repeated by others who describe unaffordability as one of the
major failings of the contemporary United States legal system. 13 Consequently, out of
necessity, the applicable rules of ethics have long permitted an attorney to pay litigation
expenses on behalf of his client, despite the fact that such a practice where an attorney
accepts a case in return for a percentage of any award or settlement is clearly champertous.
7

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer
is conducting for a client, except that the lawyer may: (1) acquire a lien granted by law to secure the lawyers
fees or expenses; and (2) contract with a client for a reasonable contingent fee in a civil case.
8
See Fienberg v. Harney & Moore, 493 US 852 (1989). The Court held that a client shall not be allowed to
waive the right to a statutory ceiling on the contingent fee arrangements in order to retain a highly skilled lawyer.
Walters v. National Associations of Radiation Survivors, 473 US 715 (1990), the lawyers were kept out of the
claims procedure by prescribing a very low amount ($10) as the maximum limit of contingency fee chargeable.
9
A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation,
except that: (1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be
contingent on the outcome of the matter; and (2) a lawyer representing an indigent client may pay court costs and
expenses of litigation on behalf of the client.
10
Bernier v. Burris, 497 N.E. 2d 763 (1986). The court had upheld the limitations put on the contingent fee
claims.
11
Porcu at 154-155 Supra note 1.
12
Lester Brickman, ABA Regulation of Contingency Fees: Money Talks, Ethics Walks, Fordham Law Review
247 (October, 1996).
13
Porcu at 154-155 Supra note 1.

The contingency fee has been accepted because it remains the only viable way for claimants
with limited means to get through the court doors and sidestep the American Rule that, in
the absence of a specific common law or statutory exception providing for fee-shifting
requires each party in litigation to pay its own attorneys fees. Contingency fees have been
accepted and approved by the ABA, which noted that such arrangements do not violate
ethical standards as long as they are appropriate and reasonable and clients are fully
informed of appropriate alternative billing arrangements.
Type of cases in which used

Contingent fees are barred in the case of criminal litigation but are frequently used to finance
civil litigation, particularly tort claims. 14 In some cases, contingent fee arrangements have
become the standard approach, regardless of whether the client can afford another fee
structure. Even if an alternative fee structure is available, evaluating the comparative returns
of a contingent fee versus a certain fee can be quite difficult for a layperson. Perceived
economic incentives associated with linking the lawyers reward to results obtained may also
favour a contingent fee approach, although this is difficult to evaluate given the many
different circumstances presented. These arrangements are also used class action lawsuits
involving

many

clients

with

relatively

small

individual

claims.

as it is the only practical means to compensate attorneys in connection with such suits.

14

Kritzer at 749 Supra note 6.

IV.PAYMENT OF ADVOCATES FEES: THE PRACTICE IN ENGLAND

The English legal profession in profession comprises of different categories of legal
practitioners. This includes the solicitors, barristers and Queens Counsels. Of these it is
only the solicitors who directly deal with clients on a day-to-day basis. They in turn engage
counsels and brief them about the issues involved in the matter at hand. 15 Consequently, for
the purposes of this study the professional Rules pertaining to the conduct of the solicitors
has been analysed. The solicitors in England are governed by the Solicitors Rules of Practice,
1990 (amended in 1999).
Rule 8 of these Rules of Practice prescribes that:
A solicitor who is retained or employed to prosecute or defend any action, suit or any
other contentious proceeding shall not enter into any agreement to receive a
contingency fee in respect of that proceeding, save one permitted by statute or by
common law.
Conditional Fee Agreements different from Contingency fee

The only type of conditional fee that seems to have been permitted by Statute in England is
what has been termed as Conditional Fee Agreements. 16 In the case of these agreements the
lawyer and the client have agreed that if the client loses the case then he will not pay any
costs to the solicitor and in complex cases they even define what a win or lose would
mean in the context of the case. 17 However, this is different from the contingency fee system
followed in America, wherein the lawyer gets a percentage of the claim amount irrespective
of the amount of the work put in by him. In case of the English conditional fee arrangements
the amount of the fee is dependant on the work put in by the lawyer and is not a percentage of
the claim, the only condition is that the English solicitor can expect to get this amount only
when he wins the case for the client as per their definition of the term win in the context of
the case.18

15

Regulation of Lawyers (Stephen Gillers, ed., 1989) at 43.

Modern English Legal System (S.H. Bailey et al, eds., 2002) at 648 [Hereinafter Bailey].
17
Clive Boxer, Conditional or Contingency Fees: A Good or Bad Earner, International Insurance Law Review,
407 (1995).
18
Peysner, Whats wrong with Contingency fees? 10 (1) Nott. L.J. 22 (2001).
16

Those arguing in favour19 of this are of the opinion this arrangement of conditional fees
allows that litigation which would not have otherwise taken place, due to the litigants fear of
losing money without obtaining any positive relief. It ensures that the lawyers involved in the
matter act in the most conscientious manner and finally that it is a simpler method of
payment. However, those arguing against it are of the opinion that in such a case the lawyers
would be wary of taking on cases which are weaker, thus clearly negating the claim that it
ensures that that the litigation which would otherwise have not taken place would be brought
about.20 Further, in such arrangements the lawyers would be under a greater pressure to win
and therefore might be more inclined to accept an early settlement, i.e., when the costs are
substantially low rather than run the risk of going to trial which would certainly increase the
costs involved for the lawyer.21
These conditional fee agreements are also known as no win no fee agreements. However, it
is submitted that this is more of a misnomer,22 because depending upon the terms of the
conditional fee agreement, even in the event of losing the case the client would be required to
pay the various disbursements like the court fees, experts fees, the counsels fees and other
such professionals fees whom the solicitor had engaged in the matter. In addition to this as a
losing party the client is expected to pay the opponents costs and thus once again indicating
that no win no fee is in fact a misnomer.
When compared to the American contingency fee system this is yet another feature that
distinguishes these agreements from them, whereas in the latter arrangement on losing the
case the client is not required to pay anything to his attorney but has to pay the damages
awarded to the opposing party.

19

R. White, Contingent Fee: A Supplement to Legal Aid, 41 MIR 286 (1978). In Wallersteiner v. Moir, [1975]
Q.B. 373, Lord Denning M.R. had put in a strong plea for contingency fee in a particular type of company law
action brought about by a shareholder.
20
Bailey, at 650 Supra note 16.
21
Id.
22
Bailey, at 648 Supra note 16.

10

V.ETHICAL ISSUES IN CONTINGENCY FEE ARRANGEMENTS

Human nature being what it is and, contrary to popular opinion, lawyers being humans, when
opportunity rears its head in the form of large financial gains, many lawyers will abandon
their principles of professionalism and seek out those gains, often at the expense of their
clients interests. Although lawyers claim to believe that the law is a profession unlike any
other, with an imbedded sense of ethics and values and that lawyers must always promote
justice over our individual clients needs. 23 However, the structure of the legal profession is
far removed from this ideal. This is most fundamentally seen in the contingency fee system
as followed in the American legal system. The arrangement gives the attorney a personal
stake in the outcome of the case, the attorney is faced with some very difficult decisions he
may either hold true to his ideals of law as a profession which promotes justice or act as if it
is simply a job like any other from which to derive income. Unfortunately, the contingency
fee system tends to foster the latter view.
Attorneys or firms cannot afford to take on cases to promote justice because a truly just
outcome may be adverse not only to their client, but also to themselves. Moreover, because
the costs of litigation to be borne by the attorney himself until he recovers the contingent fee
are so high, such an adverse outcome is intolerable and possibly ruinous. 24 Because of such
large personal financial stake, the attorney is no longer able to look upon his practice of law
as one devoted primarily to justice. Thus this arrangement calls into question the very basis
of the professional rules. The attorney is now more likely to ignore the standards of
professional ethics applicable to him and consequently the negative aspects of the
contingency system work their way into the sacred attorney-client relationship. 25
Hence making the attorneys fees dependent on winning the case, the system gives the lawyer
a strong financial interest in the claim and, as such, he becomes almost a separate party in the
23

Earl Wood, Fee Contracts for Lawyers (1936) at 12 c.f. Philip J. Havers, Take the Money and Run: Inherent
Ethical Problems of the Contingency Fee and Loser Pays Systems, Notre Dame Journal of Law, Ethics and
Public Policy, 621 (2000) [Hereinafter Havers].
24
Jonathan Harr, A Civil Action (1995). The book describes in detail the financial risks that a lawyers runs in case
of such contingency fee arrangements. The book has now been made into a feature film by the same title by
Paramount Pictures. See also Bailey at 650, Supra note 16.
25
Frederick Benjamin MacKinnon, Contingent Fees for Legal Services (1964) at 196.

11

litigation with his own interests and motivations.26 As the lawyer invests more and more time
and money, his personal stake in the outcome of the case goes on increasing and the
motivation also undergoes a change, i.e. now rather than seeking a just settlement for the
client which adequately compensates the client for his injuries, the advocate must also
account for the increasing costs and effort expended as the matter proceeds further.
Consequently, even if the defendant is willing to settle early in the process, the plaintiffs
lawyer may be more willing to settle for a lower amount as he has not expended as much
time, energy and expertise as he would subsequently. However, should the defendant only
attempt settlement later in the process, the plaintiffs lawyer is less likely to accept the
amount offered even if it may have been adequate earlier. While it is the client who is
supposed to make the decisions whether to settle and for how much, the reality is that it is
usually it is the advocate who decides such issues. The supporters of this system argue that
such a control is in fact beneficial to the client as the advocate is more likely to push for
higher settlement offers, which, in turn, increases the net amount recovered by the client. 27
However, this can also have an adverse impact, leading to situations where the defendant may
refuse negotiations and insist on the case going to trial where the plaintiff runs the substantial
risk of losing or of getting a lower amount than that offered.
Further, the contingency fee system often negatively affects the advocate-client relationship
as the client often ends up receiving a smaller percentage than he originally anticipated,
because the contingency fee agreements are often complicated, involving fee structures based
on the various stages of the proceedings and separating costs from fees, the client is often not
fully aware of the effects of the contingency fee agreement on his judgment. 28 In many cases,
the attorney receives not only the pre-determined percentage of the damages, but also a
substantial amount for legal costs.29 The net effect of this combined amount for the lawyer is
that the plaintiff ultimately gets a very small percentage of the total damages recovered 30; an
amount not properly understood by most clients when entering into the agreement with the
advocate. Although technically the attorneys are supposed to disclose this information and
ensure that their clients understand the ramifications of these agreements, historically such a
26

Thomas L. Shaffer, American Legal Ethics (1985) at 228 [Hereinafter Schaffer].

Havers, at 626, Supra note 23.
28
Havers, at 621, Supra note 23.
29
Id.
30
For a contrary view on this point see Kritzer, at 757 & 761, Supra note 12.
27

12

rule has been difficult to enforce. 31 This consequently destroys the advocate-client
relationship between individual advocates and clients, and leads to a level of general distrust
for the profession as a whole. Such a result is disastrous for the legal profession since it is a
well established fact that solid reputation and the need for complete candour between
advocate and client is the cornerstone of every advocates practice. 32 If the client feels they
cannot trust the advocate, either from bad experiences with other advocates or because they
understand the personal stake that the advocate has in the fee system and consequently is
wary of the advocates motives when he proposes a certain cause of action or settlement, the
entire system would collapse.
Another issue of concern with regard to this kind of a fee arrangement is that it has led to
particular type of advocate and a particular type of client who now view the contingency
system as a mechanism for high and relatively easy returns. 33 Plaintiffs, who would not think
of entering on a lawsuit, if they knew they must compensate their lawyer whether they win or
lose, are now ready upon a contingency agreement to try their chances with any kind of
claims. It makes the law more of a lottery than it is. 34 Encouraged by this advocates also file
frivolous lawsuits in the hopes of obtaining an early settlement.
In order to overcome this in the USA, the courts and the ABA 35 have attempted to curb these
lawsuits by forcing the losing side in these frivolous cases to pay the innocent partys court
costs.36 However, despite this many defendants find it more cost effective for them to settle
the case rather than seek dismissal or litigate the merits. Just as this system has led to growth
of mistrust between lawyer and the client, this is also encouraging a growing mistrust
amongst the lawyers themselves. While ideally the lawyers in a suit should be viewed with
professional respect as opponents seeking a just end to the case, the system leads to a
situation where the lawyers in many contingency cases often end up personally disliking the
other side. This leads to a sort of animosity in the profession. This is seen typically in the case
31

Havers, at 626, Supra note 23.

This was reiterated by the researchers interaction with several advocates engaged in active practice in the
court as well as those who restricted themselves to chamber work.
33
See Bailey at 650. These types of lawyers have also been described as ambulance chasing lawyers as the
practice led to very high amounts being awarded as fees in medical negligence cases.
34
Supra note 26.
35
See Model Rules of Professional Conduct Rule 3.1 (1995).
36
Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980); Hall v. Cole, 412 U.S. 1 (1973). In both these cases it
was held that if a party engages in bad faith litigation, the bad faith exception entitles the opposing party to an
award of attorneys fees from the abusing party.
32

13

of corporate defence advocates who have very little respect for the contingency plaintiffs
lawyers as they view them unethical money-grabbing sharks, and the plaintiffs lawyers view
corporate defence advocates as mere extensions of the defendant corporate machine.
Consequently, the entire process becomes increasingly hostile and complex with both sides
never completely trusting the other to divulge of the required information and documents.
PERSONAL INJURY CLAIMS AND CONTINGENCY FEES
In addition to these interactive problems, another problem that has been noticed in the
America legal system regarding the practice of the entering into these kind of agreements is
that increasingly high contingency rates have been agreed upon by the advocates for cases
where the outcome is not really in any doubt or where the amount paid to the advocate is
obscenely high for the amount of work actually done. This is partly due to the increase of
class actions in recent years. Although fees in class actions are fixed by the courts, the
success and high profiles of class actions in recent years have encouraged other types of
complex cases with multiple plaintiffs, but which are not technically class actions and thus
not subject to the rates set by the courts. 37 For example, the courts have recently been
swamped with asbestos, tobacco litigation, and even those regarding the use of beef tallow in
vegetarian burgers by a well know fast food chain 38, each case involving multiple plaintiffs
and defendants.
While it is true that these types of suits involve a level of expertise not required in many noncomplex suits and could justify a higher payout than the average tort suits, however the
incredibly high payouts to the lawyers are hard to justify. Part of this problem stems from the
fact that contingency fees are based on a percentage scale rather than an absolute dollar
amounts.39 Consequently, when the typical contingency fee agreement states that the attorney
is entitled to of thirty percent of what they win, this does not seem excessive. However, once

37

Vonde M. Smith Hitch, Ethics and the Reasonableness of Contingency Fees: A Survey of State And Federal
Law Addressing the Reasonableness of Costs as they Relate to Contingency Fee Arrangements, Land and Water
Law Review, 215 (1994) [Hereinafter Hitch].
38

Divya Bhambani, Holy Cow: McDonalds Sued for hurting Hindu sentiments The Hindustan Times October
15, 2002 at p.9.
39
Jay Tidmarsh & Roger H. Transgrud, Complex Litigation and the Adversary System (1998) at 530-701.

Personal
Injury Claims

14

the actual dollar figures are examined in the multimillion, or now, multibillion, dollar
judgments in complex cases, such a fee appears obscene relative to the amount of work done.
The Contingency Fee arrangement has been defended by the some as on the basis of the law
as a market argument.40 This argument treats the legal system as a market just like any other
and, consequently, these multi-million dollar payouts to advocates are explained away as
merely reflections of the legal market. If the defendants honestly did not want to pay such
high claims, they should not settle the cases for such high amounts, nor should the plaintiffs
agree to give the advocates such a high percent of the potential award. Moreover, as
increasingly complex cases come to the fore, the lawyers are able to demand such high
returns because of the uncertainty of litigating such issues as tobacco or asbestos, which for
years, were dismissed as cases lacking any merit. In exchange for promising the advocate
such a large cut of the final award, the client receives the lawyers expertise, time, and energy
to litigate a risky and complex case.
However, it is submitted that the problem with this law as a market argument is that it
completely destroys the long held belief of the ethical nature of the legal profession, it places
the legal profession in the same category as traders, food producers and cigarette industry all of which are governed solely by market and governmental pressures and which have no
identifiable inherent ethical standards of their own.
In response to these growing concerns, the ABA and the court have revised their policies in
order to regulate the rates. 41 Using the changed rule and policies, the courts have attempted to
regulate excessive contingency fees. However, such judicial discretion is limited almost
entirely to cases which actually reach the trial stage. The courts have very little power to
reduce the fees paid to the advocates in a vast majority of cases which settle outside the
courts, unless the defendant raises the issue, which is very rare. This is due primarily because

40

Schaffer at 167-239, Supra note 26.

Section 2-106(A) of the Model Code of Professional Responsibility which barred clearly excessive fees, was
replaced by Rule 1.59(a) of the Model Rules of Professional Conduct. Rule 1.59(a) bars unreasonable fees and
was expressly designed by the drafters of the Model Rules to eliminate the term clearly excessive and thereby
prohibit . . .unreasonable as well as patently unconscionable fees. Moreover, the Model Rules, Ethical
Consideration 5-7 notes that: Because the lawyer is in a better position to evaluate a cause of action, [the
lawyer] should enter the contingent fee arrangement only in those instances where the arrangement will be
beneficial to the client.
41

15

settlement is considered a two party contract, with which the courts should not interfere. 42
Consequently, when the courts have attempted to regulate the fees in settlements, the
regulated party simply pulls out of the negotiations until such time as the opposing party
gives in and withdraws its request for judicial interference. Again, this brings up problems of
the advocates fiduciary duties to his client as in such situations the advocate ends up using
his own interests as bargaining tools to an otherwise acceptable offer. 43
Another flaw with this system of fees is that the advocates begin calculating their fees by
what they will recover relative to the amount of work they put into a given case. In addition
to protracting the settlement process to force high settlements which, in turn, allow for high
contingency fees, advocates also have the option of seeking a quick settlement in order to
avoid expending the effort that a protracted trial or heavily negotiated settlement requires. 44
Consequently, the advocate may receive what equates to an extremely high hourly wage at
the expense of his clients right to a higher recovery.

42

Avtar Singh, Law of Contract (1998) at 105.

Hitch at 224 Supra note 37.
44
Hitch at 228-229, Supra note 37.
43

16

VI. PAYMENT OF ADVOCATES FEES: THE PRACTICE IN INDIA

RULES GOVERNING THE PROFESSIONAL CONDUCT OF ADVOCATES
The advocates in India are governed by the Advocates Act of India, 1961. Their professional
conduct must also be in compliance with the rules prescribed by the Bar Council of India.
Every advocates has a right to charge a professional fee for the services rendered by him.
This right is not absolute and is subject to reasonable restrictions. One such restriction has
been placed by Rule 20 of Part VI, Chapter II, Section II (Rules Governing Advocates) BCI
Rules, which read thus:
An Advocate shall not stipulate for a fee contingent on the results of the litigations or agree
to share the proceeds thereof.
Further, the fee permissible to be charged is also determined by the Rules of Practice
prescribed by the Supreme Court and the High Courts as the case maybe. Hence the lawyer
is not free to enter into contingent fee agreement with his client, because such an agreement
adversely affects his ability to act objectively and in a detached manner as an officer of the
court and hence obstructs the administration of justice. Consequently, it is invalid under S.23
of the Indian Contract Act45
Rule 100 of the Karnataka Civil Rules of Practice, 1967 46 provides that while awarding costs
the fees of the advocates may also be included. It provides for a schedule which prescribes
the manner in which the court is required to calculate the same.
The minimum fee payable in the case of an original suit is Rs. 250, in a regular appeal it is
Rs. 350 in case of a small cause suit it 7% of the value of the amount of the claim set forth in
the plaint subject to a minimum of Rs. 100. Similarly, the maximum fee prescribed in case of
original suits as well as an appeal is Rs. 15,000. An analysis of the provisions of the rule
indicates it is immaterial as to what is the extent of the claim and the amount of work that has
been put in by the advocate concerned, as the fee will be subject to these maximum limits.
45

Under S. 23 of the Indian Contract Act, any agreement that affects the administration of justice would be
treated as invalid. See also Sanjiva Rows The Advocates Act of India, 1961 (Prafulla Pant, ed., 1997) at 220.
46
See Annexure I.

17

Thus, for instance even if the matter involves a claim of several crores, which involves
several hours of laborious reading, drafting and analysis the maximum amount that the
advocate would be able to recover in the form of professional fees is Rs. 15,000. These rules
were last revised in 1999. Considering the maximum and the minimum amounts mentioned
therein, it is no surprise that these rules are observed more in breach. Most advocates charge
with complete disregard for these rules. 47 Several of them have also expressed the opinion
that if these rules were strictly adhered to then in most cases they would not be able to
maintain even their offices and would end spending on a case from their own funds. They
also maintain that if the State and the Bar Council of India expected them to observe these
rules strictly then in that case the amounts prescribed must be revised on a regular basis and
the amounts prescribed must be in accordance with the day to day realities like inflation, the
cost of living etc. and must also take into account the status of the members of the legal
profession in the society, and thus ensure that they are able charge fees which would enable
them to

maintain a standard of living which is appropriate for the members of this

honourable profession.
CONTINGENT FEE IN INDIA
The law regarding the practice of charging a fee contingent on the outcome of the case is
amply clear, it is strictly illegal in so far as the practice of the legal profession in India is
concerned. One of the prominent reasons for this position is that the manner in which the
legal profession is organised in India, the advocate is deemed to be an officer of the court
entrusted with the sacred task of assisting the court in arriving at a just decision. In such a
situation if he is interested in the outcome of the case to the extent that his own professional
fees is dependant on it then it would lead to the advocate becoming unduly interested in the
outcome of the case. This might lead to a situation wherein he would be interested in getting
the best settlement for his client without really considering about whether justice was being
done in the process or not. This is more so in the case of criminal matters where such
agreements may lead to a situation where the defence counsel operating under a contingency
fee agreement may be forced to resort to measures which are unbecoming of his position as a
responsible officer of the court.
47

This was revealed to the researcher in his interactions with several advocates practicing at different levels in
Bangalore Courts. This was the experience of the lawyers in Delhi also.

18

However, studies by citizens groups like the Common Cause have indicated that in several
cases there have been instances where the advocates especially in the mofussil areas charge
fees as a percentage of the claim recovered by the client. This is particularly true in the case
of compensation claims related to land acquisition. This practice in turn is justified by these
lawyers on the grounds that in most of these cases the client is so poor that he is not even in a
position to bear his travel expenses to the advocates office or the court. In such cases they
cannot be asked to pay the court fees and other costs associated with the agitating of a claim
fro an enhanced compensation. It is in such situation that the lawyers have to present their
case and then claim their fee and costs from the amount recovered. In case this is not done
then in that case these claims would go unrepresented and consequently unheard and hence
cause grave injustice to a person whose who has a meritorious claim.
In the urban areas this practice is largely seen in the case of motor accident claims, wherein
the advocate enters into an informal agreement with the client that he would bear all the costs
of agitating the matter before the Motor Accidents Claims Tribunal, in return for a percentage
of the amount that the client recovers in the form of a claim. However, both these
arrangements are largely informal and are made orally. Hence in case of a breach of the same
neither of the parties can seek to enforce the same by having recourse to the courts. Further, if
such agreements are brought to the notice of the Bar Council or the Courts then not only
would it be struck down but the advocate concerned would be subjected to severe
disciplinary proceedings as is indicated in the cases analysed below. The number of cases
with regard to this form of misconduct are rather less and this itself indicates that even
though this is a practice which is being followed it has seldom been complained of and
proved.
A CONSPECTUS OF THE CASE LAW ON CONTINGENCY FEE
Ganga Ram v. Devi Das48
This was the very first case in which the legality of contingent fee or back fee was called into
question. Full bench of nine judges 49 heard the matter and held that agreements between legal
practitioners and their clients making the remuneration dependent on the outcome of the case,
48

1907 PR 61.

19

were illegal as they were contrary to public policy and therefore legal practitioners entering
into such agreements were guilty of professional misconduct and are hence liable to the
disciplinary action of the court. The case has been followed in the subsequent cases. 50
In re G., a senior advocate of the Supreme Court of India 51
Mr. G was called to the Bar in England. Later he enrolled as an advocate of the Bombay High
Court and also practiced in the Supreme Court of India. He entered into an agreement with a
client whereby the client undertook to pay him 50 per cent of any recoveries he might make
in the legal proceedings in respect of which Mr. G had been engaged.
Mr. Gs client had entered into an agreement with the Baroda Theatres Ltd., for work on a
motion picture that they intended to produce. While some part of the remuneration paid at
once and the balance was to be paid on the completion of the picture. However, on the date of
the dispute the Baroda Theatres admitted that Rs. 9,400 was due, but they did not pay up. The
client consulted Mr. G about the best way to recover his money and the related expenses and
fees. Mr. G advised him that two courses were open to him. First, was to file a civil suit, he
said this would cost about Rs. 800 for Court fees and expenses and about Rs. 1,250 as fees.
The other alternative suggested was winding up proceedings. The client was told that in these
the Court fees would be lower but Mr. G's fees would have to be higher as winding up
proceedings are usually protracted. The client preferred the latter course but said that he
could not pay more than Rs. 200 towards the expenses and that since he was poor he made a
proposal in writing, wherein he stated that Mr. G could take 50% of the amount recovered in
lieu of his fees. Mr. G did not dispute these facts but maintained that though he was unwilling
to work on these terms, he was pressed to do so when he realised that unless he agreed the
client would probably lose a just claim.
This was reported to the High Court the matter was referred to the Bombay Bar Council and
was investigated by three of its members under Section 11(1) of the Bar Councils Act, 1926.
49

All the nine judges gave their separate opinions, while there were two dissenting opinions; these also broadly
recognized that this was not a desirable practice. Judge, Chatterji J., (dissenting) It must not be supposed,
however, that I am in favour of the practice (of contingent fees). I should on the whole prefer its abolition... at
299.
50
See P. Venkatadri Sastri v. Sardar Kesri, 1975 (2) APLJ 180.
51
AIR 1954 SC 557.

20

They held that this amounted to professional misconduct. The High Court agreed and
suspended Mr. G from practice as an advocate of the Bombay High Court for six months. The
judgment was submitted to the Supreme Court for appropriate action. Acting on this report
and under Order IV, rule 30, of the Supreme Court Rules of Practice a show cause notice was
issued to Mr. G to as to why disciplinary action should not be taken instituted against him.
Mr. G filed petition for a writ under Article 32 of the Constitution. However, the Supreme
Court relied on the earlier judgements 52 and held that even though the rigid English rules of
champerty and maintenance do not apply in India 53, this kind of conduct amounted to
professional misconduct and it upheld the suspension of Mr. G. The court considered the
American position54 where such practice is allowed and came to the conclusion that it was not
ready to apply the same in this country where ignorance and illiteracy are the rule, are even
more important than they are in England.
The court also held that while there is nothing per se morally wrong, unconscionable, or
against public policy and public morals in such a transaction, it cannot be upheld when a
legal practitioner is concerned, because that is a part of the price an advocate pays for the
privilege of belonging to a kind of close and exclusive club and enjoying in it privileges
and immunities denied to less fortunate persons who are outside its fold.
H.G. Kulkarni v. & Ors. v. B.B. Subedar55
The respondent had allegedly entered into agreement with the complaints whereby they had
agreed that the advocate would be entitled to 25% of the decretal amount towards the
professional fees. The disciplinary Committee of the Bar Council of Maharashtra and Goa
after going through the facts of the case came to the conclusion that by charging a fee based
52

In the matter of Moung Htoon Oung 21 W.R. 297; In the matter of a Pleader of The Chief Court of Punjab, 69
PR 1904; Ganga Ram v. Devi Das, 61 P.R. (1907); Achamparambath Cheria Kunhammu v. William Sydenham
Ganty, I.L.R. 3 Mad. 138; In re N. F. Bhandara, 3 Bom. L.R. 102 at 113; In the matter of an Advocate of the
Calcutta High Court, 4 Cal L.J. 259); Kathu v. Vishwannath, AIR 1925 Bom. 470; In re an Advocate of the
Madras High Court, I.L.R. 1940 Mad. 17; Attorney General v. Rustamji B. Sunawala, 14 Bom LR 691.
53
As early as 1876, the Privy Council had in Ram Coomar v. Coondoo, (4 IA 23) considered and settled that the
English rules of maintenance and champerty are not applicable in the Indian context. However the Privy Council
stated categorically that even though English laws of maintenance and champerty were inapplicable as specific
laws in India, such agreements must be carefully watched, and when extortionate, unconscionable or made for
improper objects ought to be made invalid. This ruling has been followed by the Indian courts. See, In re K.L.
Gauba, AIR 1954 Bom 478.
54
McMicken v. Perin, 15 Law. Edn. 504 & 505.
55
D.C. Appeal no. 40/1996.

21

on the percentage basis the advocate had in fact violated Rule 20. On appeal the Bar Council
of India confirmed these finding for suspended the respondent advocates right to practice for
a period of seven years.
Rajendra Pai v. Alex Fernandes and Ors.
There was a large scale land acquisition proceedings in appellant, Mr. Rajendra Pais village.
There were about 150 villagers whose lands were involved. Some of the land owned by the
family members of the appellant also suffered acquisition. The appellant was an advocate and
was also personally interested in defending against the proposed acquisition of land
belonging to his family members. Some of the villagers either on their own or on persuasion
confided in the appellant, who played a leading role initially in contesting the land
acquisition proceedings and later in securing the best feasible quantum of compensation.
There were around 150 claimants, of whom only three complained against the appellant that
he solicited professional work from the villagers and that he settled a fee contingent
depending on the quantum of the compensation awarded to each claimant. The Disciplinary
Committee of the State Bar Council of Maharashtra and Goa came to the conclusion that by
charging a contingent fee the appellant had violated Rule 20 of the Bar Council of India
Rules, which specifically prohibits the charging fee contingent on the result of the litigation.
It ordered the removal of the appellants name from the roll of the Bar Council of
Maharashtra and Goa. The order was confirmed by the Disciplinary Committee of the BCI. 56
The matter came in appeal before the Supreme Court. 57 The Supreme Court did not interfere
with the findings of the SBC and the BCI. However, it reduced the punishment from a life
time bar to suspension of the right to practise for a period of seven years.
ANALYSIS OF THE DECISIONS
A study of the above decisions indicates that the views of the Indian courts, the Bar Council
of India and the Bar Councils of the various states on the issue of contingency fee being
charged by the advocates are similar have been rather consistent and has not undergone any
change despite the fact that the English Legal system which is said to the precursor of the
56
57

D.C. Appeal No. 11/2000.

(2002) 4 SCC 212.

22

modern day Indian legal system has moved over from the rigid rules of maintenance and
champerty. The Solicitors Rules of Practice, 1990 applicable to the solicitors in England has
undergone a change and now even they can enter into conditional fee arrangements though
not into contingency fee agreements.58
The above decisions indicate that in India even today the governing bodies of the profession
still regard legal profession as an honourable profession whose members are required to
conduct themselves in a manner in which they maintain the dignity of their profession and do
not turn it into a mere trade in which they engage in order to make their living. Their
experience is valued and they are required to use it to the advantage of the society in general
and to ensure that justice is done and not merely ensure that their client gets the best possible
outcome, i.e., to say that the advocate is the officer of the court and therefore his first and
foremost duty is to the court.

58

Solicitors Practice Rules, 1990: Rule 8- A solicitor who is retained or employed to prosecute or defend any
action, suit or any other contentious proceeding shall not enter into any agreement to receive a contingency fee in
respect of that proceeding, save one permitted by statute or by common law.

23

VII.CONCLUSION
THE RELEVANCE OF THE SYSTEM IN INDIA: A FEW CONCLUSIONS AND
SUGGESTIONS
The practice of law is not merely a trade or means of earning a livelihood for the members of
this honourable profession. The members of this profession are privileged because they alone
have been given the right to appear before the courts of law. The advocates are bound to
conduct themselves in a manner befitting the high and honourable profession to whose
privileges they been admitted; and if they depart from the high standards which that
profession has set for itself and demands of them in professional matters, they are liable to
disciplinary action.
No one is required to join this privileged and honourable profession. However, if one decides
to join then special and rigid rules of professional conduct are expected and applied to this
specially privileged class of persons who, because of their privileged status, are subject to
certain disabilities which do not attach to other men and which do not attach even to them in
a non-professional character. One such disability in the context of the legal profession in
India is the legal bar on the entering into contingency fee agreements with the clients. This
bar has its origins the English doctrine of champerty. This has been the position in the Indian
legal system right from 1907 when the first case on the point of the legality of contingency
fee agreements was decided upto the 2002 in which the Supreme Court conclusively held that
contingency fee agreement entered into by advocates in India amounted to professional
misconduct which called for severe disciplinary action against the concerned advocate.
While these decisions and view taken of the Indian Courts and the governing bodies of the
profession like the Bar Council of India are aimed at ensuring that the honourable profession
of advocacy continues to remain so, by excluding advocates from becoming personally
interested in the outcome of the cases, it fails to see that the times have changed and now
most of the developed and industrial societies the world over have allowed for the system of
contingency fee with adequate safeguards. The United States has allowed contingency fee for
a long time and this also explains why several negligence related issues have been brought
before the American courts and the victims have been able to get handsome amounts as

24

compensation. Similarly, England the birthplace of the rules of champerty today allows
conditional fees to be charged by the lawyers. This practice is also followed in other common
law jurisdictions like Australia and New Zealand. A socio-economic analysis of these
societies indicates that one of the most important aspects of these societies is high levels of
literacy, awareness and purchasing power. The high levels of literacy and awareness ensures
that the people are aware of their rights and want to agitate and claim them. In such a
scenario despite the generally high levels of purchasing power they may at times be unable to
engage a lawyer to represent their claims as the costs and the risks involved are extremely
high. It is in such circumstance that the contingency fee system gains importance. It ensures
that all those who have a claim will get adequate legal counsel and will be represented
irrespective of whether they can afford the cost of these services, as they would be required to
pay for the services only from the claim recovered by them. Since the advocates fee is
dependant on the claim amount he also ensures that he put in his best in handling the clients
case.
While the above may be the benefits of the system, it is far from perfect. The system has an
inherent risk of the advocate getting so interested in the outcome of the case that he abdicates
his responsibility to the court. He may even be willing to compromise on the ethical
practices. In the Indian context another apprehension that arises is that this may even lead to
the exploitation of the client as unlike in the industrial societies here the levels of literacy,
awareness and purchasing power all are low.
However, when one compares the manner in which the American and the Indian legal system
have worked over the years one with contingency fee arrangements and the other without it
it is but evident that the former has been more beneficial to the clients. They have been able
to agitate claims against big tobacco companies, the State and other powerful defendants and
obtain favourable decisions and settlements. Further, the studies by the consumer groups have
indicated that even though this system is formally banned in India; it is being practised at
informal levels both in the mofussil as well as urban areas.
Despite this since the enactment of the Advocates Act in 1961 and the framing of the Bar
Council of India Rules in 1975 only two cases involving the charging of contingent fees have

25

been brought to the notice of the governing body and the court. This can be interpreted to
mean that the banning of the practice has been successful, but this would be like the
proverbial ostrich which buries its head in the sand and refuses to see that impending peril.
The fact that studies of the consumer groups like Common Cause clearly indicate that this
arrangement is being entered into by advocates at all levels in very informal ways, and the
abysmally low rate of complaints about such behaviour indicates that either the practice has
come to be accepted by the clients or else they are not even aware of the fact of it being
illegal. The second possibility is more dangerous, especially in the context of India as this
might result in situations where the clients being unaware of their rights may be exploited by
the advocates indulging in sharp practices. In addition to this it must also be considered that
the advocates themselves would prefer to enter into such agreements as at present going by
the prescribed fees which may be awarded in the form of costs to an advocate the maximum
that any advocate can recover in suit is Rs. 15,000/- thus, even if the matter involves a big
corporate entity involving several crores of rupees then irrespective of the amount of the
work put in by the advocate he can claim a maximum of Rs. 15,000/In light of the above, it is submitted that the entire system of contingency fee system should
be legalised. Once legalised it can be regulated by the State and adequate safeguards can be
built into the system which will ensure that the system is not exploited rather is operated in a
manner so as to serve the best interests of both the advocates and the clients. A maximum
percentage must be fixed depending on the nature of the case and the complexity involved
within the clients and the advocates would be free to agree upon a percentage. This should be
enforced strictly and any violations must be dealt with in the strictest possible manner. This
will ensure that there is some level of standardisation in the fee charged and also ensure that
the clients are aware of their rights and would not be exploited by the advocates.

26

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