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Disadvantages of a “loser pays” judicial system

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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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One response to “Disadvantages of a “loser pays” judicial system”

  1. Traverse Legal says:
    June 16, 2005 at 10:02 am

    The “loser pays” system is already in play to some extent throughout the United States. Many states have cases evaluation where one or more attorneys place a value on the case. Both sides have an opportunity to accept or reject that amount. If both parties accept, the case is settled at that amount. If either party rejects, they are potentially responsible for the other side’s legal fees from that date moving forward.
    You would think this would be a benefit to the legal system. In practice, however it is not. Insurance parties could care less about case evaluation sanctions. The average U.S. citizen who now stands to lose not only whatever injury they suffered and perhaps the loss of their job already, but then to owe an insurance company tens of thousands of dollars in case evaluation sanctions. In effect the little guy is forced to settle even at unreasonably low amounts in order to avoid losing their homes. The loser pay system merely rewards the wealthy and punishes the average US citizen.