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Unleashing law and order through Contingent fee agreements (CFA).By Vishal Gupta, New DelhiOctober 2012

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How can you stop a bad guy?

Only a court can put someone behind bars or punish … and no one else.

And even a court can’t put someone behind bars till a lawyer proves it in court.

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Lawyers are most critical !!

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What’s behind prosecuting?

It requires• Lots of Time• Lots of Money• Specialized Legal knowledge• Specialized investigative skills (detectives etc)• Specialized evidence gathering (Forensics etc)• Security of self (Life)• Witness protection• Willingness/ dedication of lawyer (professionalism, ethics)• Will of complainant to prosecute ..

• Courage / pain / determination• Chances of success• Bait to settle vs investment (time and money)

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What is the ground reality in India ?

• Govt is normally• short on funds • Lengthy internal approvals• Ill-equipped• Un-willingness to prosecute wealthy• Lack of legal and investigative skills

• Police does not even file FIRs

Even after charges are framed, the conviction rate is less than 4%

Compliance and law enforcement is left to a select few officers.. 4

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Current summary..

The odds of getting caught,then prosecuted

and convicted are almost ZERO….

Thus crime… will never end.. 5

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How other countries handle it?

Litigation is a profitable business.• For lawyers• For Complainants

Compliance does not have government monopoly.

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How other countries handle it?

There are three pillars …

1. Contingent Fee • success fee based lawyers

2. Fee shifting • loosing party pays for all legal fees & court fees

3. Punitive Damages• The looser pays for creating future deterrent.• The winner gets FULLY compensated for harassment and effort.

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2023Part 1:

Contingent Fee Agreements (CFA)Success based fee..for the lawyers

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Law in India – success feenot allowed• 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.”

• 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.

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Other countries….• In 1998, the American Law Institute adopted the Restatement

(Third) of the Law Governing Lawyers (the “Restatement”). • The Restatement provides that, unless the fee is unreasonable, “a

lawyer may contract with a client for a fee the size or payment of which is contingent on the outcome of a matter.”

• The courts in many countries have stepped in and legalized the contingent contracts to alleviate the large and currently overlooked access to justice problem experienced by the middle class including Canada, UK etc..

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Also reduces case load…• Economic modeling suggests that • contingent fee arrangements reduce frivolous suits when

compared to hourly fee arrangements.161 • The reasoning is simple: When an attorney’s compensation is

based solely on success, as opposed to hours billed, there is great incentive to accept and prosecute only meritorious cases.162

• At least one empirical analysis concludes that • “hourly fees encourage the filing of low-quality suits and increase

the time to settlement (i.e., contingency fees increase legal quality and decrease the time to settlement).”163

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There are four principal policy justifications for contingent fee arrangements.

Firstly, such arrangements • enable the impecunious (having no money) to obtain

representation. • Such persons cannot afford the costs of litigation unless and until

it is successful. • Even members of the middle- and upper-socioeconomic classes

may find it difficult to pay legal fees in advance of success and collection of judgment.

• This is particularly so today as litigation has become more complex, often involving suits against multiple parties or multinational entities, and concerning matters requiring expert scientific and economic evidence.

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Secondly

Contingent fee arrangements can help align the interests of lawyer and client,

as both will have a direct financial stake in the outcome of the litigation.

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Third

by predicating an attorney’s compensation on the success of a suit, the attorney is given incentive to function as gatekeeper, screening cases for both merit and sufficiency of proof, and lodging only those likely to succeed.13

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Forth

and more generally, all persons of sound mind should be permitted to contract freely,

and restrictions on contingent fee arrangements inhibit this freedom.14

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Three more reasons• First • clients, particularly unsophisticated ones, may be unable to

determine when an attorney has underperformed or acted irresponsibly;15 in these instances, an attorney’s reputation would be unaffected, and thus the risk of reputational harm would not adequately protect against malfeasance.

• Second • even when clients are aware of an attorney’s poor performance

or irresponsibility, they may lack the means, media, or credibility to effectively harm the attorney’s reputation.

• Third• the interests of attorney and client are more closely aligned,

ceteris paribus, when fee arrangements are structured so as to minimize perverse incentives.

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Two areas it does not work..

US ABA Model Rule 1.5(d), which states:• A lawyer shall not enter into an arrangement for, charge, or

collect: • (1) any fee in a domestic relations matter, the payment or

amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or

• (2) a contingent fee for representing a defendant in a criminal case.48

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Indian Constitution on CFA.• 14. Equality before law – “The State shall not deny to any person equality

before the law or the equal protection of the laws within the territory of India.”• Lawyers should have equal rights to make contingent contracts,

• 39A. Equal justice and free legal aid. – “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.”• Lawyers should be accessible to all sections of society.

• 50. Separation of judiciary from executive. – “The State shall take steps to separate the judiciary from the executive in the public services of the State.”• It will enable individuals to get private lawyers in place of government lawyers.• Compliance checking will get private participation.

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Why does it reduce case load in Courts?Lawyers simplify case and only allege charges that can be sustained.

• Use simple and concise arguments for the judges.

Faster Case Proceedings • Multiple steps get completed in single hearings.• They create urgency for clients to show up on every hearing.• Lawyers spend more time and working hard outside the courts.

Thus increasing case quality.

Case withdrawals• There are less takers if lawyer drops a case when there are

surprises by client which will adversely impact outcome.• Lawyers persuade complainants to settle when appropriate.

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Less cases better filing…• Complainants get genuine advice about chances of winning.

They do not file unless they get lawyer’s buy in.• Comprehensive evidence gathering happen’s before Lawyer

decides to file a case.• Lawyers screen cases for merit and sufficiency of proof before

filing.• Lawyers don’t pick up bad cases to manage reputation.• They do better preparation and take less adjournments.• Lawyers do not unnecessarily appeal and stay matters because

they do not get paid per hearing and want quick results.

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Can lawyers misuse it ?• It can only happen if there are punitive damages or fee shifting.• it can be done even now.

• If lawyers are assumed to have low ethics then CFA is all the more required to protect client interests.

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Part 2:Fee shiftingLooser pays legal fees for both sides.

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Laws in India – Fee Shifting ineffective

• Rule 100 of the Karnataka Civil Rules of Practice, 1967 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.

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Consider..• Is it practical to sue a corrupt business house in Rs. 15,000?

• Why should the person helping prosecute pay from his pocket?

• Should poor or middle class citizens not have Access to good lawyers?

The prospect of the losing party paying costs provides a strong incentive for litigators or third parties to settle at an early stage, and avoid the costs of litigation altogether. The removal of this incentive potentially places an additional burden on the courts. 24

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Indian Constitution on fee shifting…•

39A. Equal justice and free legal aid. – “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.”• This will give all plaintiffs and defendants freedom to choose

any legal assistance.

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Part 3:Punitive DamagesMore than just mere compensation..

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Law in India – Punitive damages very limited.Being influenced by Rookes v Barnard,[73] the India Court ruled that punitive damages can be awarded in only three categories:[74]

• Cases where the plaintiff is injured by the oppressive, arbitrary or unconstitutional action by a servant of the Government

• Cases in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff, and

• Where provided by statute.However, this stand has since shifted with an expanding tort jurisdiction. The Supreme Court accepted a Committee's suggestion to evolve a "principle of liability – punitive in nature – on account of vandalism and rioting”.[75] The reasoning given was that it "would deter people from similar behaviour in the future".[75]

• In an environmental tort case, the defendant was made to pay exemplary damages “so that it may act as deterrent for others not to cause pollution in any manner”.[76]

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Punitive Damages..

According to Posner,

“Knowing that he will have to pay compensation for harm inflicted,

the potential injurer will be deterred from inflicting that harm unless the benefits to him are greater.

If we do not want him to balance costs and benefits in this fashion, we can add a dollop of punitive damages to make the costs greater. “

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Punitive damages

A flawed and dangerous process was most famously brought to public attention in the 1981 Ford Pinto “exploding gas tank” case, Grimshaw v. Ford Motor • In that case, Ford knew its gas tank design exposed consumers

to serious risk of injury or death but decided not to make necessary design changes, instead finding it cheaper to pay liability claims.

There, the court observed that unlike “compensatory damages” which a manufacturer may find “more profitable to treat as a part of the cost of doing business rather than to remedy the defect,” punitive damages cannot be treated as such and so “remain as the most effective remedy for consumer protection against defectively designed mass-produced articles.” 29

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Punitive Damages – deterrence..• Must not be capped..• Linked to companies or individual’s wealth.• Unpredictable…so that it may not become a budget item.

Benefits..• Creates deterrence• More compliance• Higher safety standards

Laws that restrict punitive awards place the public at serious risk.

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Punitive Damages• The availability of punitive damages protects us all by holding

wrongdoers accountable for egregious misconduct and deterring its future occurrence.

• Perhaps the most significant latent function of punitive damages is to supplement criminal law. Public authorities seldom prosecute corporations or their officers for deaths and serious injuries created by defective products or practices.

• The scams like 2g and commonwealth, the complexity of bringing groups of people to justice, and the difficulty of prosecuting high net worth individuals are just a few examples of the need for a civil supplement to punish and deter organizational Misdeeds.

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Discussions….• Who will catch the fish?• Who will invest ?

• How else the system will get fixed ?

Discussions• Chakravyuh• Big people don’t have time to prosecute.

Lawyers get more money from culprit than a court would award or a victim might pay. 32

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Example:Factories polluting rivers• Who will invest money in gathering evidence ?

• Who will track the assets of promoters ?

• Who will fight the long drawn legal battle to shut down the factories and recover money from promoters?

• How much time and money will a government officer invest ? And how far will he go ?

We need India to invest and mobilize resources in prosecuting the guilty and clean up the culture.. 33

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Even a rapist in India can’t be prosecuted…• The police is not interested in filing FIR.• Normally the girl affected have poor financial background and

cant hire private lawyers.• A government lawyer has little or perverse incentives.• The expert help to record crucial evidence is not available.• If the NGO tries to help, even then the girl withdraws the case

for mere 50,000 rupees.

If India has punitive damages, contingent fee contracts or fee shifting then a lot of legal and private help could be available to the victims family till the case gets to its logical end.

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Indian Constitution on Punitive Damages.

• 14. Equality before law – “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”• Corrective penalties should have equitable impact.

• 39A. Equal justice and free legal aid. – “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.”• How can people get lower compensation because they are from poorer

background.

• 50. Separation of judiciary from executive. – “The State shall take steps to separate the judiciary from the executive in the public services of the State.”• Punitive damages encourages private participation in catching and prosecuting

offenders.• There is an element of judgment involved (by executive) while choosing to prosecute

which can at least be privatized.

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Advantages of “full justice”Old System New System

Poor people do not have access to justice

Lawyers invest in prosecuting big fish by contracting with poor people.

Low quality work by lawyers High quality fast work from lawyers

Low quality evidence collection High quality evidence collection

Complicated case Better framing of charges

Slow cases – pay per appearance Fast cases

Perverse incentives for lawyers Lawyer interest alignment with case.

Compliance done largely by government

Private participation in legal compliance.

Lawyers discourage settlements Lawyers facilitate settlement

Lawyers do not drops cases Lawyers drop cases as soon as they loose hope.

Slow and clogged court system Fast and efficient courts. 36

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Economic benefits• Higher quality of litigation work.• Attract better talent to the profession due to higher

profitability.• Create more jobs in the economy.• Offer higher pool of qualified people for judiciary.• Better investment climate due to more reliability in business

transactions.• Better quality of products and services (reduction in wastage

of natural resources)• Lowers wealth distribution inequality.

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Conclusion

The proposal if accepted could:• Provide equal access to justice for poor.• Create deterrence for crime and civil offences.• Increase conviction rates.• Make Indian justice system more efficient.

People instead of ridiculing the government, themselves would love to clean up the pond..

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2023Only active and keen

participation of lawyers can eradicate corruption.Let’s encourage the lawyers do their job fully..

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2023Society’s moral

values depend on its real access to justice.Which requires contingent fee agreements, punitive damages and fee shifting.

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If the end goal of an economy is to produce more happiness..It must begin with access to justice.-Vishal Gupta

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Lets compare….

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Delhi police – Sada aapki seva mein!

Political parties – Vote for congress!!

Lawyers – sorry we cant advertise!

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Eradicating corruption…

Deterrents

Justice

Lawyers

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Who want to invest in a country like Nigeria?

Jobs

Opportunities

Investments

Law & Order

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India is ranked at the bottom for enforceability of business contracts.