Contingency fees outlawed by Supreme Court

Contingency fees for lawyers in criminal cases were prohibited for the first time in the 68 years of the country’s judicial system after the Supreme Court Thursday decided they go against principles of Korean society.

The decision was announced Friday. The decision is expected to cause a major change in the profit structure of law firms because the contingency fees, which a defendant typically pays to a lawyer for a favorable result in a case, was a major source of income.

It may also cut back on some shady practices in which former prosecutors and judges make under-the-bench deals with judges and prosecutors.

The Supreme Court said Friday that it upheld an appeals court ruling in a complicated case. A man named Heo paid a lawyer named Jo a contingency fee of 100 million won ($85,700) in advance to represent his father, who was charged with theft. The father was convicted but only got a suspended sentence. The lawyer felt he had earned the fee and Heo thought he had not and wanted it back. The first ruling went against Heo. An appeals court reversed that ruling.

“Contingency fees for criminal cases connect the results of an investigation or trial with a monetary return, possibly making people lose faith in the legal system and discouraging fairness on the part of lawyers,” the bench said. “We rule that contingency fees for criminal cases is a legal practice that goes against morality or social order.”

Courts said contingency fee contracts in criminal cases from Thursday, the day of the decision, are invalid.

Contingency fees also can lead to back room deals and other forms of corruption, the court said.

“The type and length of punishment is decided by judges and prosecutors who have considerable authority in investigations and rulings, not lawyers,” the ruling said. “To win the case, lawyers may be tempted to exert inappropriate influence on prosecutors or judges and clients may want that as well to ensure a more favorable result.”

“Clients might fall into a situation in which they promise an excessive contingency fee to deal with immediate troubles,” the bench continued.

However, the Supreme Court still allows contingency fees for civil cases, saying that does not go against the legal principles of private autonomy and liberty of contract.

The court said the decision on contingency fees is going to help eradicate shady dealings in the legal field, including law firms giving plum jobs to former judges and prosecutors.

“It is a revolutionary decision and will leave a mark on legal history,” the bench said. “It will fundamentally prevent judges or prosecutors from giving favorable results for former judges and prosecutors.”

The decision is expected to have an enormous impact on former prosecutors and judges and the law firms that heavily depend on them. They are often assigned to criminal cases because of their experience and connections with serving prosecutors and judges.

The Korean Bar Association Friday released a statement strongly protesting the Supreme Court’s decision.

“The contingency fee problem is a result of former judges and prosecutors being paid too much for their services,” read the statement. “The decision will lead to a shrinking of incomes for many other innocent lawyers, who are not well-paid.”

In a quick survey conducted by the association on its 2,920 members, 80.1 percent opposed the ruling.

“The ruling on contingency fees is like a genocide on younger lawyers or those who have their own office,” said a lawyer who runs his own office. “The Supreme Court should have held a hearing and heard what other lawyers thought about it.”

There is also criticism that the decision will not work.

“They won’t write ‘contingency fee’ in the contract but will have a verbal agreement, or they will try another way around a contingency fee, like giving stocks or shares in buildings instead of cash,” said another lawyer. “The judges of the Supreme Court hardly know reality at all.”

BY KIM BONG-MOON, IM JANG-HYUK [kim.bongmoon@joongang.co.kr]