Contingency fee legislation is another impediment to doing business in Victoria

“The Victorian Government’s legislation to allow contingency fees to be charged by lawyers in class action proceedings in Victoria, is yet another barrier to investment and jobs in Victoria. It follows the passage a few days ago of a Wage Theft Act that will expose Victorian employers to criminal penalties for certain underpayments,” Innes Willox, Chief Executive of the national employer association Ai Group, said today.

“Contingency fees are fees charged as a percentage of the amount recovered if the claim is successful. At present, lawyers can only charge a fair fee for the work they actually do. Inevitably, it will be the claimants in class actions who will be the losers when a greater share of any court award or settlement goes to the legal firms involved and a lesser share to the claimants.

“Contingency fees have been prohibited in Australia for the past 200 years, for good reason. Loosening the restrictions, in effect, puts the ‘fox in charge of the henhouse’ by allowing lawyers to be incentivised to earn the type of huge unregulated commissions currently enjoyed by litigation funders.

“The importance of the prohibition on contingency fees to the operation of the justice system in ensuring that lawyers’ interests are not conflicted was outlined by McClellan J of the NSW Supreme Court in Smits and Ors v Roach and Ors. McClellan J viewed the conflict presented by contingency fee arrangements as being particularly serious in swaying representatives from their duty to the court:

“… It is one matter for a “litigation funder” as they are known, to bargain for a percentage of the proceeds but in my opinion, it is an entirely different matter for a legal practitioner, with the obligations thereby imposed, to enter into an arrangement which contemplates significant financial benefits beyond anything contemplated as costs, if the litigation succeeds.

The recent instances of bankruptcies by barristers in this state serve as a useful reminder of one of the fundamental elements of our system of justice. The courts rely upon the integrity of those who are admitted to practice before them, not only to represent the interests of their clients but to do so in a way which does not compromise the duties owed to the court… When a legal practitioner has a significant financial interest in the outcome of the litigation, there will inevitably be a temptation for that practitioner to depart from that duty. In my opinion, it would be entirely wrong for the law to allow this to occur.”

“There are no public policy considerations which justify alterations in the law to water down legal representatives’ duties to their clients and the Court in favour of the institution of contingency fee arrangements.

“As contingency fee arrangements place the relevant legal representative in the position of having a direct financial interest in the outcome of proceedings, this potentially introduces a significant conflict in a lawyer’s duties to their client as well as to the court.

“In a media release issued on 13 March 2020, the Law Council of Australia said:

“Enabling lawyers to hold a direct financial interest in the outcome of their client’s case creates a serious risk of compromising a practitioner’s fundamental ethical obligations to the court and their clients.”

“There is a federal Parliamentary inquiry underway that is looking at the issue of contingency fees. The Victorian legislation has been rushed through prematurely which is deeply concerning,” said Mr Willox.

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