The Financing Litigation Series: Alternative Fee Arrangements

The Financing Litigation Series: Alternative Fee Arrangements

November 15, 2017

BY Valerie Le Blanc

This blog post is the third in a six-part series showcasing each of the six financing models explored in the Study Paper on Financing Litigation (PDF), published on October 4, 2017, and recent developments in British Columbia. To read other posts in the series click here.

There is no universal definition for an alternative fee arrangement (AFA). They are generally described as an alternative method for clients to pay for legal services, which may or may not include a modified hourly billing model. Common forms of AFAs include:

• Blended rates—average rate of two or more lawyers (and paralegals)
• Capped fees—payments up to a defined maximum amount
• Contingency fee agreements—generally a percentage of fees from settlement or award
• Fixed or flat fees—set price for discrete task that does not depend on hours spent
• Retainers—single or multiple, lump-sum payments to cover fees and disbursements
• Success fees—fee based on outcome of the case
• Task-based agreements—fee categories based on type of work performed

Highlights from the Study Paper on Alternative Fee Arrangements

Optimal Uses

• Advocacy organizations (e.g. advocacy services for low-income and vulnerable clients offered as flat and sliding-scale fee arrangements);
• Small firms with low overhead (e.g. fixed fees can be an effective way to build a practice for new lawyers or small firms);
• Hybrid representation (e.g. practice models that mix flat or sliding-scale fees with traditional up-front retainer payments. This can help mitigate issues around scope creep on a file);
• Mediation and alternative dispute resolution services; and
• Criminal defence litigation (e.g. a lawyer can offer a set list of prices for various legal services—such as preliminary hearings or trial appearances).

Advantages

• Mitigate unpredictable costs
• Meet client expectations
• Pipeline to unbundled legal services
• Long-term client relationships

Disadvantages

• Limited application to large or complex cases
• Administrative costs to develop a new model
• Burden on the client
• Limitation of contingency fee agreements

Ethics and professional responsibility considerations

• Negative client expectations
• Flat fee reviews by courts

Opportunities for systemic, structural, or legal change

The consultation participants and research highlighted three ideas where changes could be considered to promote AFAs in British Columbia: sliding scale fees for civil litigation mediation; litigation budgets; and client value adjustments.

Some Recent Developments on Alternative Fee Arrangements (since June 2017)

• Canadian Lawyer Magazine posted a video, “Alternative fee arrangements” (Canadian Lawyer Magazine, 24 July 2017). The video was developed as part of the Canadian Lawyer Magazine, In House Counsel, 12^th Annual General Counsel Roundtable Series. The focus of the discussion is how alternative fee arrangements are being used to establish long-standing relationships, and the importance of follow-up evaluations on how well alternative fee arrangements meet both the client and law firm needs. To view the video, visit this link.
• The Canadian Bar Association published an online article, “Analytics can make your firm more profitable and more competitive” (Canadian Bar Association, 21 September 2017). The article discusses how Canadian firms are using analytics to gather information about how a firm conducts business, and to “find ways to change practices to operate more efficiently – and more profitably.” The article suggests one approach is to use analytics to examine whether the traditional billable hour model is the right pricing structure for a firm, or if alternative fees could be used for specific client services. The full article can be viewed on the website here.

About the Financing Litigation Legal Research Project

The Study Paper on Financing Litigation (PDF) examines the traditional and alternative methods litigants use to pay for litigation. The cost of litigation is a significant barrier to accessing the justice system. While some disputes can be resolved outside the courtroom, litigation is often the only means to achieve an equitable result. However, a litigant’s ability to pay for the legal fees and expenses that come with litigation may become a concern before, or during, the process. Taking a legal dispute to trial is expensive. Many litigants lack the financial resources to take on the risk of an unsuccessful case.

The study paper reviews six financing models that have emerged both in Canada and internationally:

• Unbundled legal services;
• Third-party litigation funding;
• Alternative fee arrangements;
• Crowdfunding;
• Legal expense insurance; and
• Publicly funded litigation funds.

The study paper also identifies 18 opportunities and ideas to consider for structural, systemic or legal change to enhance the use of each financing option in British Columbia. It concludes with a chapter that briefly discusses five alternative ideas that could mitigate the rising cost of legal services and improve access to justice generally.

This project was made possible by funding from the Law Foundation of British Columbia.

Useful Links

• Study Paper on Financing Litigation (PDF)
• Highlights from Chapter 8—Alternative Fee Arrangements (PDF)
• List of Resources—Alternative Fee Arrangements (PDF)

Stay tuned for our post on November 29^th on the topic of crowdfunding!