Business, Legal & Accounting Glossary
n. a fee to a lawyer which will be due and payable only if there is a successful conclusion of the legal work, usually winning or settling a lawsuit in favor of the client (particularly in negligence cases), or collecting funds due with or without filing a lawsuit. In many states, such agreements must be in writing and signed by attorney and client. The fee is generally a percentage of the recovery (money won), but may be partly a fee for time worked and partly a percentage. Although fees are negotiable, a standard contingent fee in accident cases is one-third of the money won, unless particular difficulties exist with the case, making the attorney believe he/she has the right to ask for more. States vary but some put a cap on the amount of fee for cases handled for minors even if the parent as guardian ad litem agrees to more. Contingent fee agreements in criminal cases which depend on the outcome are unethical.
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.
Subtly different from a Contingency fee arrangement, a contingent fee arrangement is one in which the claimant’s legal representative makes no charge in the event of an unsuccessful outcome. In the jargon of Conditional fee arrangements, the usual term is ‘conditional normal fee’.
A client is not charged attorney fees if he loses the case (however, in the United States, a client is charged for court costs and expenses). If the client recovers damages from settlement or a favourable 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 most an attorney can charge is the contracted contingency fee. 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 a normal fee (based on hourly billing plus a profit element) plus a success (or bonus) fee. The amount of 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.
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..
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.
In North America, contingent fee agreements are legal in the United States and 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.
In English law, conditional fees 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 November 2005, these regulations were revoked, and now it is much easier to enter into conditional fee agreements than was previously the case.
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.
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This glossary post was last updated: 27th April, 2020 | 1 Views.