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No cure, no pay on the blockchain

In March of last year, an Amsterdam resident won back €470 in service fees from AirBnB. When booking with AirBnB, both the host and the renter are charged service fees, and the judges found that this double charging broke Dutch law. Subsequently, advertisements to claim your service fees back through a conditional fee class action 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 due to the conditional fees, also referred to as contingent fees (in the US) or ‘no cure, no pay’. Essentially, this means that legal fees do not have to be paid if the case is lost. If the case is won, an agreed upon percentage of the proceeds goes to the firm/company which has ‘invested’ in the case.

There are more parties who deem this idea attractive: Avalanche has announced that it will start hosting tokens underlying precisely this form of investment. Companies would then be able to invest in tokens which would entitle them to a part of the payout of a lawsuit. By having third party investors in that manner, litigation could open up for those who do not have the means to take action on their cases themselves. A potential win-win. 

An important side note here is that conditional fees are not enforceable everywhere. Some countries prohibit them for specific fields of law, such as the USA for criminal law, some prohibit them outright, such as Russia, and others allow them for all fields of law. In the Netherlands, ‘no cure, no pay’ is not allowed for lawyers. This ban is intended to preserve objectivity in litigation, as making income too dependent on outcome would both influence the lawyer’s personal investment and their tendency to take 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 an attorney, at his or her normal rate. This way, more safeguards for neutrality are provided.  

There is an exception to the ban on ‘no cure, no pay’, as there has been an experiment running since 2014 which allows lawyers to provide such an agreement in case of personal injury lawsuits. This trial period was supposed to run until 2019, but has been extended to last until 2024. In the US, even percentages up to 50% are not uncommon. In the Netherlands, a maximum of 25% applies (35% if the attorney also financed external costs). Hopefully, this type of conditional fee will open the door for those who are not eligible for legal aid but are not able to pay for legal fees, either. 

Another interpretation of conditional fees is the ‘no win, no fee’, which is allowed in the Netherlands. In this type of agreement, rather than working for a percentage of the proceeds, the hourly rate may be increased if a lawsuit 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 area where hemp plants were planted, without due process and in spite of the farmer’s licenses. The tokens that can be purchased by investors are to be called “Initial Litigation Offering” (ILO). Using blockchain instead of regular payment methods may increase trust as well as liquidity, as well as providing privacy for the potential investors. Though the exact role the blockchain may play is not yet clear. 

Opinions on this idea are truly divided. Some believe this innovation will help those who are not able to pay for legal fees themselves and prevent frivolous cases; others think it will create a claim culture, jeopardise the rights of litigants and undermine the operation of the courts. What the effects will actually be and how blockchain will fit in to this, only time will tell. 

In cooperation with Saar Hoek

28 January 2021 - Uncategorized

About Jetse Sprey

Jetse is associated with our office as legal counsel. Jetse finds solutions instead of problems and is able to break stalemates again and again. He speaks his mind and is not guided by what he thinks his clients want to hear.

He writes sharp, readable contracts. He has extensive experience with Blockchain and is an entrepreneur in this field himself. He writes convincing procedural documents and advice. He is knowledgeable in intellectual property, privacy and corporate law.

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