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Tuesday, April 15, 2008

German Bill on Contingency Fees For Attorneys-at-Law, Patent Attorneys and Tax Advisors.

my earlier posting I had pointed out that contingency fees are strictly off-limits when hiring German attorneys-at-law, patent attorneys or tax advisors under German Law. In particular U.S. colleagues sometimes have difficulties understanding that in Germany the law is so much different in this respect.

In March 2007, the

German Constitutional Court ("Bundesverfassungsgericht") had published a

decision [in German only, sorry] saying that this strict ban on contingency fees is incompatible with the German Constitution because it might, in very special cases, deter potential clients from enforcing the law. This is in particular considered relevant if a potential client has not enough money for funding an attempt to enforce the law on his or her own risk. See also a related

press statement [in German only, sorry].

Meanwhile, the German Government has launched a

Bill for the Revision of the Ban on Reaching Agreements on Contingency Fees ("Gesetz zur Neuregelung des Verbotes der Vereinbarung von Erfolgshonoraren", in German only, sorry). The first reading thereof in the lower chamber of the German Parliament ("Bundestag") will be on April 24, 2008.

The new bill will not make available contingency fees for all constellations. Technically, contingency fees will be further banned in general. Only if very particular circumstances apply, contingency fees will become available in exceptional cases (items indicated below apply for Patent Attorneys):

Reaching an agreement on a contingency fee only on a case-by-case basis;
Only if particular circumstances justify a contingency fee;
Such circumstances are especially deemed to be given when a potential client would, after skillful consideration, be deterred from enforcing the law if no contingency fee were available.

Moreover, such kind of agreements will be heavily regulated with regard to their form:

Agreement must be in writing with handwritten signature; e-mail is insufficient;
Agreement must not be part of any Power of Attorney form;
Agreement must be clearly marked as such;
Agreement must contain amount of contingency fee;
Agreement must contain specification of what fee is earned under which particular conditions;
Agreement must specify premium amount which is earned if the desired success has been materalised to its full extent;
Agreement must specify all substantial facts and legal considerations of the case on which an assessement of the chances of the case is based; and
Agreement must contain a statement warning the Client that burdens imposed under a cost shifting regime will have to be paid anyway.

It appears to be quite clear that German legislator still does not like contingency fees very much.

The upper chamber of the German Parliament ("Bundesrat", representation of the German Länder) has already supplied comments on that draft. In particular, Bundesrat wants to sharpen the language well beyond the original draft of the Government. In the original draft it is generally required that particular circumstances justify a contingency fee; in particular but not limited to cases when a potential client would, after skillful consideration, be deterred from enforcing the law if no contingency fee were available. Bundesrat wants to change the language in a way such that contingency fees are exclusively available if and only if when a potential client would, after skillful consideration, be deterred from enforcing the law if no contingency fee were available. German Government has replied to the statement of the Bundesrat by rejecting their demand to further narrow the scope of the clause allowing contingency fees. German Government intentionally wants to open the market for contingency fees a bit more than any minimalist solution required by the decision of the Constitutional Court. However, no complete liberalisation is desired.

If this enters into force, future case-law will tell how far attorneys are allowed to go.

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