Contingency Fee Arrangements
In Ontario, access to justice is an important issue that is taken very seriously. In order to ensure access to justice for all, the LSO allows lawyers in this province to take on risky cases without being paid at the start. These arrangements are commonly called ‘contingency fees’, ‘no win no fees’ or ‘speculative fees’. They are one type of retainer between a lawyer and client.
It is not uncommon for a lawyer to be approached by a potential new client when the responsibility for an injury or damage is unclear. Sometimes the party that caused the damage completely denies any responsibility – or it is unclear whether a party will have the money necessary to pay for damages of the potential client. For example, if a client is off work due to an injury and does not know when they will return, it is difficult for a lawyer to assess how much money the person who caused the harm may need to pay (or if they can even afford it).
In these situations, lawyers can agree with a potential client that no money will be paid upfront, and the lawyer will work on their case until a resolution can be found or a judgement rendered. When the case is resolved, the lawyer will take a percentage of the settlement that is agreed upon. This contingency fee percentages can vary depending on how risky a case is – but as a general rule, the Law Society prohibits a lawyer from recovering more from the damages than a client receives. (O. Reg. 195/04 section 7). Therefore the highest a lawyer can charge under a contingency fee is 50% of the damages recovered.
Contingency fee arrangements have been criticized in other jurisdictions because some believe they encourage lawsuits. Others believe it is not a good thing for the lawyer to have a financial interest in how much their client receives.
Historically, contingency fees were banned in Canada, Scotland, England and Wales because of a legal concept known as “champerty and maintenance”. The courts did not want ‘strangers’ to a dispute funding the legal costs as an investment for future rewards. In the state of New South Wales, Australia contingency fees are still banned.
In October 2004, contingency fees were allowed for the first time in Canada to ensure access to justice. Especially in motor vehicle accident claims – Plaintiffs are at a significant disadvantage of resources against insurance companies who represent the persons who are at fault for the motor vehicle accident. Persons with legitimate claims were unable to fund years of litigation on complex issues with insurance companies.
In Ontario, legal aid does not provide funding for personal injury actions – and so contingency fees allow them access to justice.