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A contingent fee (also known as a contingency fee in the United States or a conditional fee in England and Wales) is any fee for services provided where the fee is payable only if there is a favourable result. Although such a fee may be used in many fields, it is particularly well associated with legal practice.
In the law, a contingent fee is defined as a fee charged for a lawyer's services that is payable only if a lawsuit is successful or results in a favorable settlement, usually in the form of a percentage of the amount recovered on behalf of the client.Black's Law Dictionary (8th ed. 2004) p. 338. Contingent fees may make it easier for people of limited means to pursue their civil rights since otherwise, to sue someone for a tort, one must first be wealthy enough to pursue such litigation in the first place. Due to the risk of loss, Lawyer will not take cases on a contingency basis unless they believe that the case has merit, although accepting cases on a contingency is not without risk.
For example, in the U.S. a contingency fee is based on the contractual agreement between the attorney and the party. The fee is calculated as a share of the eventual damage Legal judgment or settlement obtained by the client. The percentage allowable as a contingency fee is subject to the ethical rules of professional conduct that require legal fees to be reasonable and, in some circumstances, by statutory limitations.See e.g., Miss. Rule of Prof'l Conduct 1.5. In some jurisdictions, contingent fees as high as 33% to 50% of recovery may be deemed reasonable. Attorneys charging unreasonable fees may be subject to professional sanctions.
In the alternative, the contingency may come in the form of an additional charge that is added to a negotiated attorney fee in the event of success as defined by the parties in their fee contract. For example, in the UK a client may enter into a fee agreement pursuant to which the client is liable for an hourly fee, plus a contingent success fee of no more than 100% of the hourly fee. Most lawyers who utilize this type of fee agreement charge a success fee in the range of 25-50%. In English law, fees are subject to compliance with the statutory scheme.
Although contingency fees may improve some litigants' ability to afford to pursue a case, they do not guarantee civil justice or equal access to civil courts. Attorneys who practice in the area of civil litigation typically will not accept a case on a contingency fee bases without clear liability and a means of collecting a judgment or settlement, such as through a defendant's insurance coverage. Some cases require extensive investigation before the chance of success may be accurately assessed, and such a case might be declined by a law firm because even the initial assessment of the strength of a case may be costly.
The solicitor will be able to identify if a client holds this type of policy and complete the necessary claim form.
A 2008 report from the Ministry of Justice found that in 2007, 48% of those who took part had BTE insurance incorporated into their car insurance, 35% had BTE Insurance as part of their home insurance policy and a further 17% had the insurance as part of their travel insurance. This insurance covers any legal expenses in addition to costs for pursuing a personal injury claim and cost for legal expenses from the other side if the client's claim is unsuccessful.
According to law professor Herbert Kritzer, as of 2004 contingent fees for legal services were allowed in the following countries: Australia, Brazil, Canada, the Dominican Republic, France, Greece, Ireland, Japan, New Zealand, the United Kingdom and the United States. They are also allowed in personal injury actions in Lithuania.
Any fees higher than the normal fees of the legal practitioner concerned may not exceed such normal fees by more than 100%. However, in claims sounding in money, the total of any such success fee payable by the client to the legal practitioner may not exceed 25% of the total amount awarded or any amount obtained by the client in consequence of the proceedings concerned, which may not, for the purposes of calculating such excess, include any costs.
On July 23, 2015, the Supreme Court of Korea ruled that contingent fee agreements for criminal representation were void as against public policy, under Article 103 of the Civil Act of South Korea.Supreme Court of Korea, 2015da200111, 2015-07-23. The judgment was unanimous, with four justices concurring separately. The decision provoked widespread outcry from criminal defense lawyers, particularly former judges and prosecutors who had been able to charge very high success fees due to clients' belief that their connections could help them win the case.
In 19th century English law, conditional fees were controversial, especially in the Swynfen will case, as they were held to offend ancient prohibitions against champerty and maintenance. However, conditional fees were introduced by the Courts and Legal Services Act 1990 (section 58), and were recognized by statute in 1995.
Initially, the success fee was not recoverable from the losing party, but on 1 April 2000, section 27 of the Access to Justice Act 1999 amended the Courts and Legal Services Act 1990 to allow recovery of success fees from the losing party. The regulations that accompanied this change in the law (the Conditional Fee Agreements Regulations 2000) were far from clear, and the result was that a great deal of satellite litigation took place. On 1 November 2005, these regulations were revoked, and now it is much easier to enter into conditional fee agreements than before. The chances of having a case accepted on conditional fee are greatly increased if the case is investigated by a legally qualified professional.
On 29 March 2011, Justice Secretary Kenneth Clarke announced plans to reform contingent fee arrangements, as part of reforms to the justice system prompted by a review of civil litigation costs carried out by Lord Justice Jackson. The changes were prompted by large rises in litigation costs and the proliferation of ambulance chasing advertisements and claim farmers. Following the introduction of contingent fees, the National Health Service had to pay out hundreds of millions of pounds in compensation for malpractice claims.
Fee reforms were implemented in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Under the new arrangements, claimants with contingent fee agreements still do not pay upfront fees or have to cover their lawyers' costs if the case is lost. If they win then they pay a "success fee" that is capped at 25% of the awarded damages.
The status of contingent fees is different in Scotland, where it is lawful to agree that the lawyer gets paid only if the case is won (the speculative action). It is not lawful to fix a percentage of the client's winnings as the amount of the fee, but has been legal since 1990 for the lawyer and client to agree to an initial fee with a percentage increase in the lawyer's fee in case of success in the action.Law Reform ((Miscellaneous Provisions) (Scotland) Act 1990 s. 36).
Most jurisdictions require contingent fees to be "reasonable", resulting in a typical contingent fee of 33-45% of any eventual recovery.
Some states cap fees at a flat rate; for example, 33.33% of net judgment or recovery in Tennessee and Utah.
Other states utilize a sliding scale fee structure. For example, Connecticut utilizes a sliding scale fee structure but that can be waived in complex cases with a cap of 33.33%. California permits contingency fees in the amount of 40% of the first $50,000 of recovered damages, 33.33% of the next $50,000, 25% of the next $500,000 and 15% of any recovery in excess of $500,000.
Florida establishes different fee limits depending on the stage of the case at the time damages are recovered. For example, it allows a higher limit if the case goes to trial and even more if the case is appealed.
Four of the states that limit attorney fees (Illinois, Maine, New York, and Wisconsin) explicitly allow a court to authorize a larger fee. Wyoming explicitly allows the client and attorney to contract for a larger fee.
Instead of a specific limit or a sliding scale, six states (Hawaii, Iowa, Maryland, Nebraska, New Hampshire, and Washington) require or authorize court approval of the reasonableness of attorney fees under various circumstances.
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