Most of you have seen ads by law firms saying, “You don’t pay unless we win!” In law, this kind of arrangement is called a “contingency fee,” meaning the legal fees payable are contingent on the success of the case.
Traditionally, the courts have frowned upon contingency arrangements because it is thought that they encouraged frivolous litigation. Also, some in the profession believed that lawyers cannot remain objective once they have a stake in the case. Until recently, these arrangements remained illegal in Ontario.
However, a new school of thought emerged after World War II. These scholars thought contingency fee arrangements would provide access to justice for those without money. They also believed that principles of economics would help weed out frivolous claims, as lawyers would become more careful in selecting cases when they are retained on contingency fees. A few American states legalized contingency fee arrangements in the second-half of the 20th century, and the practice slowly spread throughout North America.
Although contingency fee arrangements are legal in Ontario, they are nonetheless subject to restrictions. According to the Rules of Professional Conducts for lawyers, contingency fee arrangements are not allowed in family law or criminal law cases.
Contingency fees are also expressly prohibited under certain laws. For example, they are not allowed before the Landlord and Tenant Board under the Residential Tenancies Act 2006.
Contingency fees are generally calculated as a percentage of the settlement or judgment amount. The lawyer must make sure that the percentage is fair under the circumstances. In Ontario, the amount ranges from 15% to 35% plus disbursements (out-of-pocket expenses). Some firms charge the disbursements regardless of whether the case is successful or not; others absorb the costs if the case is unsuccessful.
