Definitions

Contingent fee

Contingent fee

A contingent fee in the United States or conditional fee in the United Kingdom is any fee for services provided where the fee is only payable if there is a favourable result. In the law, this is the "no win no fee" system.

According to a 2004 book by law professor Herbert Kritzer, contingent fees were allowed as of that year in the following countries: Australia, Brazil, Canada, the Dominican Republic, France, Greece, Ireland, Japan, New Zealand, the United Kingdom and the United States. They are also allowed in personal injury actions in Lithuania. Recently they have been allowed in Belgium as well.

Fee structure

A client is not charged attorney fees if he loses the case. If the client recovers damages from settlement or a favorable verdict, the attorney receives a fee from the recovery. The attorney's permitted fee varies depending on the country, and even local jurisdictions. In the US, for example, the fee is generally based on the contractual agreement between the attorney and the party, but is also limited by local rules for "reasonableness". See e.g., Miss. Rule of Prof'l Conduct 1.5. The fee is calculated as a share of the eventual damage judgment or settlement won by the client. The percentage allowed is subject to the ethical rules of professional conduct, and in many circumstances, statutory limitations. In the UK, on the other hand, the client is liable for normal fee (based on hourly billing plus a profit element) plus a success (or bonus) fee. The amount of the success is limited to 100 per cent of the normal fees. Most lawyers charge a success fee which is much less than this, between 25 and 50 per cent. In English law fees are subject to compliance with the statutory scheme.

Advantages

A contingency fee arrangement provides access to the courts for those who cannot afford to pay the attorneys fees and costs of civil litigation. Contingency fees also provide a powerful motivation to the attorney to work diligently on the client's case. In other types of litigation where clients pay the attorney by the hour for their time, it makes little economic difference to the attorney whether the client has a successful outcome to the litigation. Finally, because lawyers assume the financial risk of litigation, the number of speculative or unmeritorious cases may be reduced.

Disadvantages

Contingency fees do not guarantee civil justice, or even access to the courts. Lawyers sometimes "cherry-pick" only the strongest claims which are most likely to succeed. Not all cases are immediately transparent. Some require extensive investigation before the chances of success can be properly assessed. Such cases might be turned away because even the initial assessment of their strength is costly and risky.

Situation by country

Canada

Contingent fee agreements are legal in some provinces of Canada (Alberta, Ontario and Quebec among others). In other Canadian provinces, an attorney may collect a percentage of recovery in case of a victory, but must charge an hourly fee otherwise. Many countries prohibit contingent fees.

United Kingdom

In English law, conditional fees had caused much controversy in the 19th century, especially in the Swynfen will case, as they were held to offend ancient prohibitions against champerty and maintenance. However, they were introduced by the Courts and Legal Services Act 1990 (section 58) , but the relevant statutory instruments were not made until 1995. Initially, the success fee was not recoverable from the losing party, but on 1 April 2000 section 27 of the Access to Justice Act 1999 amended the Courts and Legal Services Act 1990 to allow recovery of success fees from the losing party. The regulations that accompanied this change in the law (the Conditional Fee Agreements Regulations 2000) were far from clear, and the result was that a great deal of satellite litigation took place. On 1 November2005 these regulations were revoked, and now it is much easier to enter into conditional fee agreements than was previously the case. The chances of having a case accepted on conditional fee are greatly increased if the case is investigated by a legally qualified professional.

United States

Most jurisdictions in the United States prohibit working for a contingent fee in family law or criminal cases, as made clear in Rule 1.5(d) of the Model Rules of Professional Conduct of the American Bar Association. In the United States, contingency fees are the standard in personal injury cases and are less common in other types of litigation. Fees range from 5% to 50% of the amount recovered. In general, the smaller or more speculative a case is, the larger the percentage the fee must be in order to entice a lawyer to accept the case. Conversely, a law firm may be willing to take a very large case with very high chances of success in return for a very small slice of the eventual verdict or settlement.The ABA's Model Rules provide guidelines for when a contingency arrangement is appropriate. Sometimes lawyers and clients agree to a "split-fee" arrangement, where the client pays a reduced retainer or reduced hourly rate and the lawyer receives a reduced percentage of the recovery if successful. In rare cases, the contingent fee is equal to or more than 100 per cent of the recovered damages. These rare cases, criticized by some as an inappropriate vehicle for vengeance, result from a greater desire on the part of the injured to punish the defending party than in order to personally recover damages, so that they offer a very large contingency to their attorney in order to assure the highest chances of winning. However, these arrangement are exceedingly rare, and indeed illegal in many jurisdictions. A notable exception is Nevada, in which it is common vehicle for prosecution, by casinos, of petty thefts against them. In these cases a fractional contingency fee would not represent sufficient motivation for their attorneys, with the casinos motivated more by the fear of losing these cases than in recovering the petty damages involved.

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