It is entirely common to hear a personal injury lawyer tell an accident victim that “you pay nothing unless we recover money for you". But what does that mean, exactly? And what will you be paying to a personal injury lawyer if you successfully obtain a settlement or award? Thanks to recent amendments to the Solicitors Act and its regulations, the answers should be a little clearer to prospective plaintiffs.
In this blog post, I explain how contingency fees work and outline changes that the government is implementing to clarify this fee structure. I further explain what still needs to be done to ensure that accident victims and their counsel are always on the same page regarding disbursements, costs, and payout arrangements.
What Are Contingency Fees?
A contingency fee arrangement is an agreement between a lawyer and a client whereby the lawyer agrees to accept a fixed percentage of the final amount of damages recovered by a claimant, instead of charging hourly fees for their work.
The vast majority of personal injury lawyers use contingency fees as a way to help accident victims access justice without risking their financial security. Suppose accident victims were required to pay hourly rates and the expenses associated with a lawsuit upfront. In that case, many people could not afford to pursue their claims, particularly since it could be years before any money is recovered.
For lawyers to accept a case on a contingency basis, they at least need to believe that a prospective client stands a reasonable chance of recovering damages. Otherwise, the risk taken by the lawyer in financing a lawsuit would not be worthwhile. Although there is no set percentage for contingency fees, they tend to run around one-third of the total amount recovered; however, they may be higher or lower depending on the type of case and the lawsuit's expected trajectory.
What Has Changed?
After strong advocacy on the part of the Ontario Trial Lawyers Association, the government adopted a new standard form agreement.
This new form is shorter and easier to understand than the agreements some lawyers have been using. Previously, the different clauses and language in various agreements made it difficult for prospective clients to compare lawyers and determine the proposed charges. Now, these clients can make an apples-to-apples comparison. The new standard form agreement does not apply to prospective clients that are businesses of a certain size that meet specific conditions.
A second related change in the new standard form agreement is that it simplifies the calculation lawyers must use to determine fees.
Before these changes, lawyers were only permitted to collect contingency fees based on the assessed damages and not on partial indemnity or substantial indemnity costs awards. Any interest recovered and all recovered costs were to be returned to the client. Often defendants make settlement offers that include all categories under consideration (for example, damages, disbursements, HST, partial indemnity costs) without specifying the amounts of each. The plaintiff's lawyer is put in the uncomfortable position of being in a conflict of interest. They must somehow assess their fees based on unknown costs while still protecting their clients' right to recover these new costs. Ethical lawyers would have to inflate the portion of costs when breaking down payments for a client to ensure they received everything they deserved. The lawyer would likely lose fees or start charging a higher contingency fee to balance out this potential loss.
The new simplified fee calculation takes some uncertainty out of the equation for both counsel and clients.
What's Left To Do?
These new regulations, which come into effect on July 1, 2021, have fixed some nagging problems that Ontario's personal injury lawyers have highlighted for some time. However, there is still room for improvement.
The question of how to calculate a contingency fee when there is an all-inclusive offer without specified disbursements – payments made on behalf of a client to a third party – remains unclear.
Moreover, if a client decides to change lawyers during the life of a case, the existing practice among lawyers has been for the new lawyer to pay the previous lawyer's disbursements in exchange for the case files. Since the amendments to the Solicitors Act allow clients to terminate a contingency agreement at any time and permit the previous lawyer to receive disbursement upon settlement or award, there may be debate among lawyers about who should be funding initial disbursements.
The Gluckstein Commitment
Contingency fees make justice accessible for people who do not have the resources to fund an expensive lawsuit independently. These forthcoming changes to contingency agreements should simplify and clarify a topic that can be too confusing for everyone.
Nevertheless, at Gluckstein Lawyers, we will always take as much time as you need to explain our contingency fee agreement or any other aspect of your case to ensure you are comfortable and a full participant in the process.
Originally Published by Gluckstein, November 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.