What is a Contingency Fee?

J. Gardner Hodder and Neil Sacks

In Canada a contingency fee is an agreement whereby the client pays no fees unless and until there is recovery in the lawsuit. Such fees are usually based on a percentage - often 20% to 45% of the proceeds. Such agreements may also be dependent upon various factors including the nature and complexity of the matter, the risk involved, the cost in pursuing the matter, and the likelihood of success. In Ontario there are no caps on the maximum rates that lawyers may charge. You should check the rules in your province in this regard.

Should You Hire a Canadian Lawyer to Act on a Contingency Fee Basis?

Some matters can only be dealt with on a contingency fee basis. Particularly, wrongful dismissal claims and serious injury claims typically involve plaintiffs who are not working and have little income. Lawyers are expensive, and many people cannot afford to fund claims in the courts. Also, there is comfort in knowing that your Canadian lawyer has enough faith in your case to put his fee on the line. However, there are certain disadvantages to contingency fees. You should be careful about the terms of your contingency fee agreement. While all contingency fee agreements are subject, ultimately, to a review by the courts, the fact that you signed an agreement will be taken as evidence of your intentions about fees. What you sign in your lawyer's office makes a big difference. What should you do to keep legal fees to a minimum? Read on.

What are the Advantages and Disadvantages of Contingency Fees?

The obvious advantage is not having to pay a large monthly bill from your lawyer while your claim makes its way through the courts. Further, you have the peace of mind knowing that you will not be obligated to pay any fee whatsoever if you are not successful in your case. The key disadvantage is less obvious. In some cases, a contingency fee will in the long run cost you more than if you were paying monthly as the matter progressed. Canadian Lawyers who act on a contingency fee basis must from time to time lose cases, and so their winning cases must cover the cost of the cases they lose.

Who Pays Disbursements?

Disbursements are the out-of-pocket expenses that a Canadian lawyer will often incur in prosecuting a lawsuit on behalf of a client. For example, in personal injury claims, disbursements would likely include the costs of obtaining copies of doctors' records and hospital charts, expert witness fees, court filing fees and transcript costs. It is important to agree at the outset on whether or not the client will be ultimately responsible to reimburse the personal injury lawyer for the disbursements, in the event that these expenses are not successfully recovered from the opposing party at the conclusion of the case. The client should be aware that many contingency fee agreements provide that although there is no legal fee payable if a case is unsuccessful, the client remains responsible to reimburse the lawyer for the disbursements incurred by the Canadian lawyer.

Can I, or My Lawyer, Get Out of a Contingency Fee Agreement After it is Signed?

It is important for the agreement to contain a provision setting out when and how the client or the lawyer may terminate the contingency fee agreement and how the lawyer's fee is to be determined in the event that the agreement is terminated. This is now a requirement under Ontario law. Other requirements can be found on the Ontario Government Website. A common provision in Canada is that, if the client terminates, the fees will be based on hourly rates for all work down up to termination (but payable only upon the successful conclusion of the case) and that if the lawyer terminates without cause, the lawyer receives no fee.

What is the Best Contingency Fee Arrangement in Canada?

  • Be wary of the "straight percentage." Your claim may settle early on. This sometimes happens, even in circumstances where you and your lawyer anticipated a long, hard battle. Your lawyer will still expect his percentage. He (or she) may be thinking of those instances when his percentage fee after a long trial seemed like very poor compensation. You may resent the fact that your lawyer expects a large fee without having done much work. It is better to agree that an early settlement will command a lower percentage, which increases as the matter progresses. You should try to arrange, therefore, what some Canadian lawyers call a "graduated" fee arrangement, whereby the percentage fee increases as the matter progresses. Alternatively, a contingency fee agreement could provide for a percentage fee that decreases (or increases) depending on the level of financial recovery. In some Canadian personal injury and medical malpractice matters, contingency fee agreements are often structured in this way with a decreasing percentage rate; for example, a higher percentage on the first $500,000.00 recovered and a lower percentage on compensation recovered in excess of $500,000.00. Nonetheless, in some cases, a straight percentage may be fair and appropriate.
  • Be wary of the "assignment of costs." You should insist that whatever legal costs are awarded reduces your legal bill otherwise calculated. The percentage should apply to recovery net of any costs awards. This is a requirement under Ontario law. Other requirements can be found on the Ontario government website.
  • Ask if your lawyer has experience charging contingency fees. In other words, you need to know that your lawyer has experience waiting for his or her fees and has built up a track record of success. It is a good sign if he or she earns his living by succeeding in court. Make sure your lawyer has experience picking winning cases in Canada.
  • Ask your lawyer if he or she is paying a referral fee to anyone for having referred you. You are entitled to know everything about your economic relationship with your lawyer, and there should be no hidden costs. There should be a referral fee only if you agree to it, and you should be sure that it is the lawyer, and not you, who is paying it. You may wish to avoid retaining a Canadian lawyer who has agreed to pay someone a referral fee. In our view, it is far better that you should be referred to a Canadian lawyer purely because of that lawyer's competence rather than a willingness to "buy" your file from someone who has steered you in his or her direction.
  • Consider alternatives to contingency agreements. Depending on the nature of your case, other types of arrangements may save you a lot of money, especially if you are prepared to share in at least some risk as to the outcome. For instance a simple deferral of the lawyer's expectation for payment until the conclusion of the matter can ensure that your Kitchener lawyer gets paid on your file only for work actually done - and without creating artificial incentives. There is also a hybrid arrangement, popular in England, called a "conditional fee." This fee arrangement anticipates that your Canadian lawyer will receive a portion of his or her fee strictly conditional on success. This is really only a formalization of the rule that a lawyer's fee should bear some relation to the outcome of the matter. You may want to be wary of signing a standard form contingency agreement which does not answer your individual concerns and needs.
  • In certain practice areas, such as personal injury, there are conventional rates that most Canadian lawyers will routinely offer and there may not be much room for negotiation. For other types of cases, however, it may be worthwhile to negotiate with your lawyer. It may well be advisable to pay a separate, independent lawyer to negotiate the contingency agreement with the Canadian lawyer who is taking your case. Don't laugh. If a small up front fee saves you $100,000.00 in fees down the road, it is money well spent. It is crucial to the success of your claim that you and your lawyer function as an effective team. A contingency fee agreement creates a community of economic interest between you and your Canadian lawyer, and you should avoid all possible sources of friction in that relationship. Also, your lawyer should be willing to commit to writing anything he or she says at the time you hire him or her.

J. Gardner Hodder is a Toronto lawyer with Hodder Barristers who takes on contingency matters in wrongful dismissal and commercial matters. He is certified by the Law Society of Upper Canada as a Specialist in Civil Litigation, and he can be reached at ghodder@hodderbarristers.com.

Neil Sacks is a Toronto lawyer with Howie, Sacks & Henry LLP who takes on contingency matters in personal injury and medical malpractice matters. He can reached at nesacks@hshlawyers.com.

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