Disadvantages of a “loser pays” judicial system

I thought that the British system of requiring the losing litigant to pay the winner’s costs had the advantage of lowing overall legal costs. Everyone would eschew frivolous litigation out of justified fear of bearing the other side’s legal fees. For that reason alone, total legal fees as a percentage of turnover should be lower for UK companies than for their US counterparts.

But an article in the Economist (May 28, 2005 at pgs. 57-58) undercut my supposition, at least as to fees. First, since losing brings dire consequences, litigants spend more to avoid that fate. Second, plaintiffs’ lawyers since the late 1990s have been allowed to accept clients on a conditional (contingent) basis. If they win, they can claim a success fee from the losing side, amounting to a surcharge of up to 100% of their costs, which encourages them to rack up still higher charges. Finally, many victims of injury buy insurance that protects them against paying fees should they lose. Thus, they do not heed spiraling attorney’s fees.

Aside from the point that a loser-pays system favors deep-pocket litigants, it is a policy that has boomeranged in unexpected ways.

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