Duhaime's Law Dictionary


Contingency Fee Definition:

A method of payment of legal fees represented by a percentage of an award.

A method of payment of legal fees represented by a percentage of an award.

Lawyers get paid in one of two ways: either you pay a straight hourly rate as you might pay a plumber (eg. $400 an hour) or the lawyer might gamble (i.e. contingency fee) and agree to only get paid if the claim is successful and by taking a portion (eg. one-third) of any award that comes after the filing of the claim.

For example, if you go and see a lawyer because, after a medical emergency, your health insurance company refuses to pay your medical bills in violation of their policy, the law firm might say:

"... no money down. In fact, we don't get paid a cent unless you do. And then, we take one-third off the top of any award you might get."

This allows the client to receive legal services without putting any money down and it allows the lawyer to advertise:

"We don't get paid unless you do."

Historically, contingency fee arrangements were prohibited.1

The lawyer associations in some countries still prohibit contingency fee arrangements. In those countries that allow them, they are very prevalent in personal injury cases.

In October 2007, the Law Society of British Columbia (at lawsociety.bc.ca) offered this precedent as a model contingency fee contract between a lawyer and her client (in a personal injury case):

"There are two main ways a lawyer can bill you: Option 1 - by charging an hourly fee for work done or Option 2 - by charging a percentage of the amount of money awarded in a settlement or court judgment or, alternatively, by accepting court ordered costs as the fee.

"You have asked us to charge you fees based on a percentage of the amount of money awarded to you in a settlement or court judgment, or by accepting court ordered costs as the fee, whichever is greater (Option 2).

"The disadvantage to choosing a percentage arrangement (option 2) is that you may end up paying us more in legal fees than if we were to charge you an hourly fee for work done (option 1). This could happen if we are fortunate in favourably settling your lawsuit quickly.

"There are also advantages to choosing a percentage fee. First, if we cannot settle your case or if you lose at trial, then you would only have to pay our expenses. You would not have to pay us any fees. Second, if we go to trial and win, the percentage fee may be less than an hourly fee if we have to spend a great amount of time.

"Our percentage fee will be less if your claim is settled than if it goes to trial. If it is settled, the fee will depend on the stage at which the lawsuit is settled. Our percentage fee will be:

"(1) W% (for example, 20%) of the settlement money if we settle your claim before the examination for discovery;

"(2) X% (for example, 25%) of the settlement money if we settle your claim during or after the examination for discovery and at least 90 days before trial;

"(3) Y% (for example, 30%) of the settlement money if we settle your claim less than 90 days before trial or during trial, but before the court judgment; or

"(4) Z% (for example, 33-1/3)% of the trial judgment if your claim does not settle and is decided by a trial.

"There is one case where our percentage fee will differ. You may want to go to trial even though we recommend that you settle. If the trial judgment turns out to be less than the settlement we recommend, our percentage fee will be based on the amount of the higher recommended settlement, not the trial judgment."

REFERENCES:

  • NOTE 1: Heard, Franklin Fiske, Curiosities of the Law Reporters (Boston: W.S. Bartlett, 1871), page 129: "(In Penrice v Parker, Cases Temp. Finch. 75) Lord Nottingham held it to be maintenance in a barrister to contract to be paid in the event of success."

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