contingency fee

Definition of contingency fee

Further reading

A contingent fee (in the United States) or conditional fee (in England and Wales) is any fee for services provided where the fee is only payable if there is a favourable result. In the law is defined as "[a] fee charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court...Contingent fees are usually calculated as a percentage of the client's net recovery."[1].

In the English legal system is generally referred as No win no fee. Being this a conditional fee agreement between a law firm and a client. The usual form of this agreement is that the solicitor will take a law case on the understanding that if lost, no payment is done.

However if the case is won the lawyer will be entitled to his normal fee based on hourly billing, plus a success fee. The success fee in England must be as a percentage no greater than 100% of the normal fee, provided this contrasts with the contingency fee in the USA which gives the successful attorney a percentage of the damages awarded in favor of his client.

This makes it easier for the poor to pursue their civil rights, since otherwise, to sue someone for a tort, one would first have to be wealthy enough to pursue such litigation in the first place. However, because of the high risk, few attorneys will take cases on a contingency basis unless they feel the case has good merit.

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.[2] 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.

References

1. Black's Law Dictionary (8th ed. 2004) p. 338.
2. Herbert M. Kritzer, Risks, Reputations, and Rewards: Contingency Fee Legal Practice in the United States (Stanford: Stanford University Press, 2004), 258-259.