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What is a Contingency Fee Agreement?

A person may retain a lawyer through several different methods, such as a flat fee for legal services, a retainer to pay for legal services on an ongoing hourly basis, or using a contingency fee arrangement. A contingency fee arrangement works such that a lawyer is paid by taking a percentage of a client’s judgment or settlement as their fee for the work they have done to achieve that judgment or settlement.

Contingency fee arrangements are not typically available for certain types of legal services such as drafting contracts or wills and defenses to lawsuits. However, contingency fee arrangements are commonly used in situations in which one person wants to sue another person(s) for personal injuries or costs arising from an accident or event that the person believes is the fault of the other person(s).

There is a very good reason for the use of a contingency fee arrangement as it ensures access to justice. The cost to hire a lawyer on an ongoing hourly basis to prosecute a claim for personal injuries may be prohibitively expensive for the majority of people, as oftentimes lawsuits can take years to resolve. Additionally, the amount of work that will be required of a lawyer to prosecute a client’s lawsuit cannot be predicted with any certainty ahead of time. A contingency fee arrangement solves these issues by allowing a person to hire a lawyer without forcing the person to pay their lawyer’s fees as they are incurred. Instead it is only after the client’s claim is resolved and the claim is successful that the lawyer is paid for their services. If the claim is unsuccessful, the lawyer is not paid for their services.

When a contingency fee arrangement is used, the client and lawyer may enter into a contingency fee agreement. Below is a discussion of some of the typical provisions that one may find included in a contingency fee agreement.

A contingency fee agreement is often structured to work such that the further into the lawsuit procedural process a claim progresses, the greater a percentage the lawyer may take as their fee. This makes sense as the lawyer will have done more work as the claim moves through the lawsuit procedural process. You can read about the steps in the litigation process for civil actions here. A contingency fee agreement is often structured such that the fee percentage increases between the different stages. It should be noted that different lawyers will choose different stages at which to change their fee percentage. Additionally you should be aware that no two claims are the same and different types of claims can result in different contingency fee percentages and different stages at which the fee increases as determined by the lawyer.

A contingency fee agreement may require the client to pay disbursements. Disbursements are costs that are paid to third parties on behalf of the client. These costs can include things like fees to file a statement of claim, postage costs, photocopying charges, costs to obtain medical records, expert costs, and costs of questioning transcripts. Once a settlement or judgment is obtained these disbursement costs are usually deducted from the settlement or judgment prior to the lawyer taking a percentage as their fee. However, a contingency fee agreement can also include a provision that requires a retainer from the client in order to pay some of these disbursement costs during the lawsuit process prior to obtaining a judgment or settlement. A retainer works in this scenario such that the client provides a certain amount of money to the lawyer to hold on to in trust for the client, then as the lawyer pays disbursements for the client, the lawyer will provide a bill to the client for these costs and deduct those disbursement costs from the amount the lawyer is holding in trust. If there is an excess amount of the retainer leftover in trust at the end of the claim, the lawyer must return this excess amount of money back to the client.

In Alberta you will have to pay GST on top of a lawyer’s fees, so this amount will be deducted from the settlement or judgment on top of the lawyer’s fees and a statement to this effect should be included in the contingency fee agreement.

A contingency fee agreement will usually include a provision that states that the lawyer cannot guarantee a settlement or judgment and that the client will remain responsible if there is a costs award made against them when they are unsuccessful in their claim.

A contingency fee agreement should also include provisions regarding termination of the agreement. The client should be able to terminate the agreement at any time for any reason, while the lawyer may only terminate the agreement in specific circumstances.

Additionally in Alberta, a client can always request that their contingency fee agreement and any bill issued by the lawyer be reviewed by a review officer. A review officer is an officer of the court that will review the entire agreement between the client and lawyer, hear from both sides, and make a determination as to the reasonableness of the agreement and/or bill. If a review officer considers the agreement or bill to not be reasonable, they have the authority to lower or prohibit the lawyer’s bill.

By Tanner J. DeVries