No cure, no pay on the blockchain

In March of last year, an Amsterdam resident won back €470 in service fees from Airbnb. When you book with Airbnb, both the host and the guest are charged service fees, and the court found that this double charge was contrary to Dutch law. Advertisements to claim your service fees back through a conditional fee class action then started popping up left and right. Over 30,000 people have registered with one of the companies handling the class action. Unsurprising, as they take no risk because of the conditional fees, also referred to as contingent fees (in the United States) or ’no cure, no pay’. Essentially, it means that legal fees do not have to be paid if the case is lost. If the case is won, an agreed percentage of the proceeds goes to the firm or company that has ‘invested’ in the case.

Other parties find the idea attractive too. Avalanche has announced that it will start hosting tokens underlying precisely this form of investment. Companies would then be able to invest in tokens entitling them to part of the payout of a lawsuit. With third-party investors in this way, litigation could open up to those who do not have the means to take action on their own cases. A potential win-win.

An important side note is that conditional fees are not allowed everywhere. Some countries prohibit them for specific fields of law, such as the United States for criminal cases; some prohibit them outright, such as Russia; and others allow them across the board. In the Netherlands, ’no cure, no pay’ is not allowed for lawyers. The ban is intended to preserve objectivity in litigation, since making income too dependent on outcome would affect both the lawyer’s own stake in the case and their willingness to take on smaller, hard-to-win cases. So what happens in class actions such as the Airbnb one is that companies buy claims from those affected. The company then hires a lawyer at their normal rate. That provides more safeguards for neutrality.

There is an exception to the ban on ’no cure, no pay’: an experiment has been running since 2014 which allows lawyers to enter into such an agreement in personal injury cases. This trial period was supposed to run until 2019, but has been extended to 2024. In the United States, percentages of up to 50% are not uncommon. In the Netherlands a maximum of 25% applies, or 35% if the lawyer also finances the external costs. Hopefully this type of conditional fee will open the door for those who are not eligible for legal aid but cannot afford legal fees either.

Another variant is what Dutch practice calls ’no win, no fee’, which is allowed in the Netherlands. Under that kind of agreement, rather than working for a percentage of the proceeds, the lawyer may charge a higher hourly rate if the case is won. Such an agreement would probably be less appealing to investors.

The first case to be tokenised is Apothio v. Kern County, in which a sheriff destroyed a 500-acre crop of hemp plants without due process and despite the farmer’s licences. The offering that investors can buy into is to be called an “Initial Litigation Offering” (ILO). Using blockchain instead of ordinary payment methods may increase trust and liquidity, and provide privacy for potential investors, though the exact role blockchain will play is not yet clear.

Opinions on the idea are truly divided. Some believe the innovation will help those who cannot pay their own legal fees, and will keep frivolous cases out. Others think it will create a claim culture, jeopardise the rights of litigants and undermine the working of the courts. What the effects will actually be, and how blockchain will fit into it, only time will tell.

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In cooperation with Saar Hoek