A contingent fee (also known as a contingency fee in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
or a conditional fee in
England and Wales
England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is En ...
) is any
fee
A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in cont ...
for services provided where the fee is payable only if there is a favourable result. Although such a fee may be used in many fields, it is particularly well associated with
legal practice
Legal practice is sometimes used to distinguish the body of judicial or administrative precedents, rules, policies, customs, and doctrines from legislative enactments such as statutes and constitutions which might be called "laws" in the strict ...
.
In the
law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...
, a contingent fee is defined as a fee charged for a lawyer's services that is payable only if a lawsuit is successful or results in a favorable settlement, usually in the form of a percentage of the amount recovered on behalf of the client. Contingent fees may make it easier for people of limited means to pursue their civil rights since otherwise, to sue someone for a
tort
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
, one must first be wealthy enough to pursue such litigation in the first place. Due to the risk of loss,
attorneys will not take cases on a contingency basis unless they believe that the case has merit, although accepting cases on a contingency is not without risk.
Contingent legal fees
Under a traditional contingency fee arrangement, 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 the fee from the recovery. The attorney's permitted fee varies depending on the country, and even local jurisdictions.
For example, in the U.S. a contingency fee is based on the contractual agreement between the attorney and the party. The fee is calculated as a share of the eventual damage
judgment
Judgement (or US spelling judgment) is also known as ''adjudication'', which means the evaluation of evidence to make a decision. Judgement is also the ability to make considered decisions. The term has at least five distinct uses. Aristotle s ...
or settlement obtained by the client. The percentage allowable as a contingency fee is subject to the ethical rules of professional conduct that require legal fees to be reasonable and, in some circumstances, by statutory limitations. In some jurisdictions, contingent fees as high as 33% to 45% of recovery may be deemed reasonable. Attorneys charging unreasonable fees may be subject to professional sanctions.
In the alternative, the contingency may come in the form of an additional charge that is added to a negotiated attorney fee in the event of success as defined by the parties in their fee contract. For example, in the UK a client may enter into a fee agreement pursuant to which the client is liable for an hourly fee, plus a contingent success fee of no more than 100% of the hourly fee. Most lawyers who utilize this type of fee agreement charge a success fee in the range of 25-50%. In
English law
English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures.
Principal elements of English law
Although the common law has, historically, b ...
, fees are subject to compliance with the statutory scheme.
Advantages and limitations
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 non meritorious cases may be reduced.
Although contingency fees may improve some litigants' ability to afford to pursue a case, they do not guarantee civil justice or equal access to civil courts. Attorneys who practice in the area of civil litigation typically will not accept a case on a contingency fee bases without clear liability and a means of collecting a judgment or settlement, such as through a defendant's insurance coverage. Some cases require extensive investigation before the chance of success may be accurately assessed, and such a case might be declined by a law firm because even the initial assessment of the strength of a case may be costly.
Legal expenses insurance
This can also be referred to as "before the event" insurance (BTE), and is insurance that the client may already hold as part of household contents or car insurance, either free or for a small fee. Some credit cards also include BTE insurance and it can also be taken out as a separate insurance policy. BTE insurance may pay for the legal costs when making a claim for compensation, whether the client wins or loses.
The solicitor will be able to identify if a client holds this type of policy and complete the necessary claim form.
A 2008 report from the Ministry of Justice found that in 2007, 48% of those who took part had BTE insurance incorporated into their car insurance, 35% had BTE Insurance as part of their home insurance policy and a further 17% had the insurance as part of their travel insurance. This insurance covers any legal expenses in addition to costs for pursuing a personal injury claim and cost for legal expenses from the other side if the client's claim is unsuccessful.
Legal aid
Legal Aid is financial assistance which is funded by the Government. It is not usually awarded in cases of personal injury unless under extreme circumstances. But through all the circumstances it is still available for Clinical Negligence cases.
Hourly fees
Even though it is possible, it is rare for individuals to fund their own personal injury claims by retaining a lawyer on an hourly basis. In some jurisdictions, if the client's claim is successful, the client will be able to recover attorney fees from the defendant. In jurisdictions that follow the
American rule for attorney fees, even successful clients must normally bear the cost of their own legal fees.
Regulation
The legality of contingent fee arrangements is often subject to restrictions, particularly in relation to contingent legal fees.
According to law professor Herbert Kritzer, as of 2004 contingent fees for legal services were allowed in the following countries:
Australia
Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
,
Brazil
Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
,
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
, the
Dominican Republic
The Dominican Republic ( ; es, República Dominicana, ) is a country located on the island of Hispaniola in the Greater Antilles archipelago of the Caribbean region. It occupies the eastern five-eighths of the island, which it shares with ...
,
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
,
Greece
Greece,, or , romanized: ', officially the Hellenic Republic, is a country in Southeast Europe. It is situated on the southern tip of the Balkans, and is located at the crossroads of Europe, Asia, and Africa. Greece shares land borders ...
,
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
,
Japan,
New Zealand
New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
, the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
and the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
. They are also allowed in personal injury actions in
Lithuania.
Australia
In Australia, conditional fee agreements are permitted under the ''Uniform Law'', applied in NSW and Victoria by local application Acts. Where a favourable outcome is reached, an additional uplift fee (success fee) of up to 25% of the costs agreed to in the costs agreement may be charged. However, contingency fees based on a percentage of a client's net recovery are banned.
Canada
Contingent fee agreements are legal in all provinces of
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
, but with some restrictions on what cases are eligible to be handled on a contingent fee basis. In some cases, an attorney may collect a percentage of recovery in case of a victory but must otherwise charge an hourly fee.
Russia
Contingent fees are not enforceable under the Russian law. They are not defined in law but the Constitutional Court ruled that fees for the services provided can not be contingent on the decisions that might be taken in the future by the government or courts, including the amount of the compensation awarded as a result of a court hearing. For that reason the European Court of Human Rights does not award legal fees incurred by applicants under a contingency-fee arrangement under the Russian law to applicants in cases against Russia.
South Africa
Contingent fees have been allowed in
South Africa
South Africa, officially the Republic of South Africa (RSA), is the Southern Africa, southernmost country in Africa. It is bounded to the south by of coastline that stretch along the Atlantic Ocean, South Atlantic and Indian Oceans; to the ...
since 1997, as discussed by K. G. Druker in "The law of contingency fees in South Africa".
Any fees higher than the normal fees of the legal practitioner concerned may not exceed such normal fees by more than 100%. However, in claims sounding in money, the total of any such success fee payable by the client to the legal practitioner may not exceed 25% of the total amount awarded or any amount obtained by the client in consequence of the proceedings concerned, which may not, for the purposes of calculating such excess, include any costs.
South Korea
Contingent fees or "success fees" () are a widespread practice in South Korea. Until 2015, they were used in both criminal and civil litigation.
In some civil cases, courts have rejected fees exceeding 10% of the award as
unjust enrichment
In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
of the attorney, requiring the attorney to refund the excess to the client.
On July 23, 2015, the
Supreme Court of Korea
The Supreme Court of Korea () is the highest ordinary court in the judicial branch of South Korea, seated in Seocho, Seoul. Established under Chapter 5 of the Constitution of South Korea, the Court has ultimate and comprehensive jurisdicti ...
ruled that contingent fee agreements for criminal representation were void as against public policy, under Article 103 of the Civil Act of South Korea. The judgment was unanimous, with four justices concurring separately. The decision provoked widespread outcry from criminal defense lawyers, particularly former judges and prosecutors who had been able to charge very high success fees due to clients' belief that their connections could help them win the case.
Spain
On November 4, 2008, the
Supreme Court of Spain annulled a prohibition originated from the General Council of Spanish Bar that forbade the use of contingency fees, known in Spain as ''cuota litis''. The rationale of the annulment was that the prohibition did not respect the principles of free competition. From that year onward, lawyers can pursue legal claims based on that type of retribution.
Turkey
Contingency fees, or more generally conditional fee agreements, are permitted under Turkish Law, but are capped at 25% of the claimed amount in the original complaint.
United Kingdom
In the
English legal system
English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures.
Principal elements of English law
Although the common law has, historically, bee ...
, a contingent fee is generally referred to as a conditional fee agreement (CFA) or, informally by the public and press, as "no win no fee". The usual form of this agreement is that the
solicitor will take a law case on the understanding that if lost, no payment is made. In the alternative, the client may enter into a fee contract with the lawyer based upon hourly billing with an additional
success fee A contingent fee (also known as a contingency fee in the United States or a conditional fee in England and Wales) is any fee for services provided where the fee is payable only if there is a favourable result. Although such a fee may be used in man ...
to be paid in the event of a successful outcome to the litigation. In England, the success fee must be a percentage, no greater than 100% of the contractual hourly fee. This contrasts with the contingency fee in the US, which gives the successful attorney a percentage of the damages recovered by the attorney's client.
In 19th century
English law
English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures.
Principal elements of English law
Although the common law has, historically, b ...
, conditional fees were controversial, especially in the
Swynfen will case
The Swynfen (or Swinfen) will case was a series of English trials over the will of Samuel Swynfen that ran from 1856 to 1864 and raised important questions of ethics in the legal profession.
The case
Samuel Swynfen of Swinfen Hall, Staffordshire d ...
, as they were held to offend ancient prohibitions against
champerty and maintenance
Champerty and maintenance are doctrines in common law jurisdictions that aim to preclude frivolous litigation:
*Maintenance is the intermeddling of a disinterested party to encourage a lawsuit. It is: "A taking in hand, a bearing up or upholdin ...
. However, conditional fees were introduced by the
Courts and Legal Services Act 1990
The Courts and Legal Services Act 1990 (c. 41) was an Act of the Parliament of the United Kingdom that reformed the legal profession and courts of England and Wales. The Act was the culmination of a series of reports and reforms that started with ...
(section 58), and were recognized by statute in 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
The Access to Justice Act 1999 is an Act of the Parliament of the United Kingdom. It replaced the legal aid system in England and Wales. It created the Legal Services Commission, replacing the Legal Aid Board, and two new schemes: Community Legal ...
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 before. The chances of having a case accepted on conditional fee are greatly increased if the case is investigated by a legally qualified professional.
On 29 March 2011, Justice Secretary
Kenneth Clarke
Kenneth Harry Clarke, Baron Clarke of Nottingham, (born 2 July 1940), often known as Ken Clarke, is a British politician who served as Home Secretary from 1992 to 1993 and Chancellor of the Exchequer from 1993 to 1997 as well as serving as de ...
announced plans to reform contingent fee arrangements, as part of reforms to the justice system prompted by a review of civil litigation costs carried out by Lord Justice Jackson. The changes were prompted by large rises in litigation costs and the proliferation of
ambulance chasing advertisements and claim farmers.
Following the introduction of contingent fees, the
National Health Service
The National Health Service (NHS) is the umbrella term for the publicly funded healthcare systems of the United Kingdom (UK). Since 1948, they have been funded out of general taxation. There are three systems which are referred to using the " ...
had to pay out hundreds of millions of pounds in compensation for malpractice claims.
Fee reforms were implemented in the
Legal Aid, Sentencing and Punishment of Offenders Act 2012
The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) is a statute of the Parliament of the United Kingdom enacted by the coalition government of 2010-2015, creating reforms to the justice system. The bill for the act was int ...
.
Under the new arrangements, claimants with contingent fee agreements still do not pay upfront fees or have to cover their lawyers' costs if the case is lost.
If they win then they pay a "success fee" that is capped at 25% of the awarded damages.
The status of contingent fees is different in
Scotland
Scotland (, ) is a Countries of the United Kingdom, country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a Anglo-Scottish border, border with England to the southeast ...
, where it is lawful to agree that the lawyer gets paid only if the case is won (the ''speculative action''). It is not lawful to fix a percentage of the client's winnings as the amount of the fee, but has been legal since 1990 for the lawyer and client to agree to an initial fee with a percentage ''increase'' in the lawyer's fee in case of success in the action.
[Law Reform ((Miscellaneous Provisions) (Scotland) Act 1990 s. 36).]
United States
Most jurisdictions in the United States prohibit working for a contingent fee in
criminal cases or certain types of
family law
Family law (also called matrimonial law or the law of domestic relations) is an area of the law that deals with family matters and domestic relations.
Overview
Subjects that commonly fall under a nation's body of family law include:
* Marriage ...
claims, as made clear in Rule 1.5(d) of the Model Rules of Professional Conduct of the
American Bar Association
The American Bar Association (ABA) is a voluntary bar association of lawyers and law students, which is not specific to any jurisdiction in the United States. Founded in 1878, the ABA's most important stated activities are the setting of aca ...
.
[American Bar Association web site]
ABA Model Rules of Professional Conduct (2004), Rule 1.5: Fees
/ref> Some jurisdictions, however do allow contingent fees in criminal cases. It depends on the attorney, the type of case and the fee agreement. In the United States, contingency fees are the standard in personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. In common law jurisdictions the term is most commonly used to refer to a type of tort lawsuit in which the person bringing the suit (t ...
cases and are less common in other types of litigation.
Most jurisdictions require contingent fees to be "reasonable," resulting in a typical contingent fee of 33-45% of any eventual recovery.
Medical malpractice
Many states impose additional restrictions on contingent attorney fees in medical malpractice cases. 16 states (California, Connecticut, Delaware, Florida, Illinois, Indiana, Maine, Massachusetts, Michigan, New Jersey, New York, Oklahoma, Tennessee, Utah, Wisconsin, and Wyoming) have regulated contingency fees for medical malpractice cases.
Some states cap fees at a flat rate; for example, 33.33% of net judgment or recovery in Tennessee and Utah.
Other states utilize a sliding scale fee structure. For example, Connecticut utilizes a sliding scale fee structure but that can be waived in complex cases with a cap of 33.33%. California permits contingency fees in the amount of 40% of the first $50,000 of recovered damages, 33.33% of the next $50,000, 25% of the next $500,000 and 15% of any recovery in excess of $500,000.
Florida establishes different fee limits depending on the stage of the case at the time damages are recovered. For example, it allows a higher limit if the case goes to trial and even more if the case is appealed.
Four of the states that limit attorney fees (Illinois, Maine, New York, and Wisconsin) explicitly allow a court to authorize a larger fee. Wyoming explicitly allows the client and attorney to contract for a larger fee.
Instead of a specific limit or a sliding scale, six states (Hawaii, Iowa, Maryland, Nebraska, New Hampshire, and Washington) require or authorize court approval of the reasonableness of attorney fees under various circumstances.[
]
See also
* Attorney's fee
Attorney's fee is a chiefly United States term for compensation for legal services performed by an Lawyer, attorney (lawyer or law firm) for a client, in or out of court. It may be an hourly, flat-rate or contingent fee. Recent studies suggest that ...
* Pay for performance
* Tort reform in the United States
Tort reform refers to changes in the civil justice system in common law countries that aim to reduce the ability of plaintiffs to bring tort litigation (particularly actions for negligence) or to reduce damages they can receive. Such changes ...
* Pricing
* Pricing strategies
References
Further reading
*
External links
CLS Direct Information Leaflet 12, Oct 2006
The Law Society - No win no fee arrangements
{{DEFAULTSORT:Contingent Fee
Legal ethics
Legal costs
Practice of law