What is a Contingency Fee Agreement?
A Contingency Fee Agreement (CFA) is a contract between a law firm (or lawyer) and the client in a case where legal fees are payable as a percentage of the amount recovered as damages. Under a CFA, the legal fees are payable only if the case is successful. This means that, if the case is not successful, the client does not pay any legal fees. The CFA must be in writing and signed by both the client and the lawyer.
What type of cases use a CFA?
Mostly, a Contingency Fee Agreement is used in personal injury or wrongful death matters. It is also frequently utilized in some aspects of estate litigation and family law litigation. It is up to the individual lawyer or law firm to determine in what type of cases they will offer clients a CFA.
What percentage of fees is charged under a CFA?
The percentage of legal fees charged under a Contingency Fee Agreement varies from case to case, depending on a variety of circumstances. The fees typically range from 25% to 40%. In personal injury or wrongful death cases arising from a motor vehicle accident, the maximum fees that can be charged are one third or 33 1/3%. In other personal injury or wrongful death cases, the maximum fees that can be charged are 40%. There are no maximums proscribed for other type of cases.
The percentage charged under a CFA depends on various circumstances, like the complexity of the claim and the degree of risk involved. The CFA can also provide for the percentage to increase through various stages of litigation.
For example, in a personal injury claim where the injured person was rear-ended and it is clear who is at fault, many law firms will do a CFA with a straight 25% legal fee regardless of when the case is resolved.
On the other hand, in an injury claim where the facts around who is at fault are unclear or there is a complicated pre-existing health history, the CFA may provide for a 25% fee if the case resolves before examinations for discovery, 27.5% if it resolves after discoveries but before trial, and 30% if it resolves after trial.
What taxes are payable under a CFA?
Both PST and GST (or, prior to April 1, 2013, HST) are payable on legal services, so a Contingency Fee Agreement will set out in writing that the client is responsible for the payment of taxes on the legal fees. The lawyer/law firm will collect those taxes and remit them to the government on the client’s behalf.
For example, if there is a settlement of $10,000 and the CFA provides for 25% fee, then the law firm will charge $2,500 for their legal fees and $300 for taxes (12% of $2,500). The client will retain $7,200 of the funds (provided there are no monies owed for advances, disbursements or anything else).
What other matters does a CFA cover?
A Contingency Fee Agreement will usually cover off several other matters:
- Authority of the law firm/lawyer to conduct the case
- Incurring and financing disbursements
- Cost of an appeal
The CFA will usually state that the lawyer has the discretion to take all necessary steps in advancing the client’s claim except for actually settling the claim. This means that the lawyer can conduct the case in the client’s best interests without having to obtain authorization from the client for every little step (which is often time consuming and the client doesn’t really have an opinion on procedural matters as they are outside of the client’s knowledge). However, the ultimate decision of how much to settle for remains in the client’s control.
The CFA will also contain a provision about disbursements. Disbursements are monies spent on things for the claim such as photocopying, long distance phone calls, fees for filing a lawsuit, medical records, etc. The CFA will usually state that the client agrees to reimburse the law firm for disbursements incurred. Also, there may be a provision for interest charged on disbursements, if the disbursements are funded by the law firm and not the client.
The CFA will usually also address the possibility of an appeal from a trial judgement or arbitration award. The CFA generally does not cover the cost of an appeal and, in the event an appeal occurs, further arrangements need to be made.
If you’ve been seriously injured we encourage you to get legal advice. Murphy Battista LLP offers a free initial consultation with one of our experienced personal injury lawyers, where we listen to your story and explain your rights and obligations. After your consultation you may decide you need help from a lawyer. If you are considering hiring a lawyer, there are several things you should take into consideration before signing on. And you should know that if you find your experience with the lawyer you hire is not living up to your expectations or you are concerned that they do not have the necessary expertise to handle your case, you are entitled to change lawyers at any time. Signing an CFA does not mean you must stay with that lawyer or firm.
Note: an earlier version of this article was first published in May 2013. This post was updated to include new information and examples.