English Rule and Frivolous Suits: Conditional versus Hourly Fees

Abstract

Under the conditional fee arrangement, a lawyer receives an upscale premium if a case is won. In this article, we develop an asymmetric information game of settlement and litigation in order to compare hourly and conditional fees with regard to their effects on the number of frivolous suits being filed, the settlement rate of cases, and the total costs of litigation. The main result shows that a conditional fee schedule improves the efficiency of the litigation process under the English fee-shifting rule by undermining frivolous plaintiffs' incentives to file suit and then reducing total expenditures. It hence provides an additional theoretical foundation for the recent switchover from hourly fees to conditional fees in the United Kingdom.