Settlement Disputes: Evidence from a Legal Practice Perspective

This paper explores the agency relationship between a lawyer and a client in the context of deciding whether to settle a case. The impact of alternative fee arrangements on settlement disputes is empirically assessed in a discrete dependent variable econometric model utilizing survey data from lawyers in British Columbia. In contrast to the previous research based on traditional single-task principal-agent models, a broader multitask perspective of a lawyer's practice is explored. More frequent settlement disputes are observed where the handling of disbursements is one-sided, and among lawyers who advertise, use lump sum billing and pursue jury trials and punitive damages. Disputes are less frequent among lawyers who employ percentage contingency fees and hourly rate contracts with a bonus for successful results. Disputes are also less frequent among lawyers in larger firms. There is also evidence that legal fee regulation and ex post judicial review of legal fees in British Columbia have affected the frequency of settlement disputes.